Five years on from its controversial Australian combination – and after a punishing 2015/16 – the storied City firm is still far from finding the form it needs in a competitive global market
‘We had known that the firm had been struggling for a while but we didn’t know, and certainly weren’t expecting, a 20% decrease to our [profit per equity partner] PEP,’ a recent Ashurst leaver tells Legal Business.
On paper Ashurst is worth considerably less than the sum of its parts. After financially merging with Australian firm Blake Dawson in 2013, the firm posted revenues of £586m for 2013/14. Since then, the top and bottom lines have fallen two years’ running, with revenue down 10% to £505m in the last financial year. The firm is 14% smaller than its first post-merger year and the most recent drop is deeper than the fall in revenue Ashurst suffered during the financial crisis, when gross fees fell 7% in 2008/09, and sets the firm apart given the revenue growth posted by 20 other firms in the top 25 of the LB100 this year.
PEP, meanwhile, tumbled 19% from £747,000 to £603,000. This means that Ashurst, some years ago on the periphery of Magic Circle profitability, has been left trailing and even surpassed by less-storied London rivals. Ashurst’s PEP was nearly double that of Berwin Leighton Paisner (BLP) in 2007/08 – £1.04m compared to £620,000 – yet PEP at Ashurst is now some £84,000 behind that of its City rival.
Ashurst’s management, however, rejects callbacks to former glories.
‘Are we sitting here and beating ourselves up? No,’ says chair Ben Tidswell. ‘There are many things we need to move on from, do better and realise the value of.’
While tumbling revenue is down to a combination of factors such as the global slowdown in the commodities market as well as in Asia generally and a noticeable currency effect from billing in a weakened euro, sterling and Australian dollar, Tidswell and recently installed managing partner Paul Jenkins put the firm’s drop in profitability down to extensive investment in technology, premises and laterals. Jenkins says this recruitment drive ‘all comes out of the partners’ pockets as we’re quite lean in terms of our borrowings’. Nonetheless, he admits he was ‘disappointed’ with the results.
‘Anybody who’s got a business they can take is trying to leave or has left. The strong people will leave and weak people will stay.’
Former Ashurst partner
Investment in laterals is clear to see with 29 partners at Ashurst since May of last year, including Herbert Smith Freehills TMT duo Nick Elverston and Amanda Hale, King & Wood Mallesons finance partner Robert Andrews and real estate pair Darren Rogers and Patrick Williams; and DLA Piper’s international arbitration head Matthew Saunders.
However, as 29 partners arrive, around 34 have voted with their feet and the exits keep coming. These include productive partners heading to leading US firms, such as restructuring partner Simon Baskerville to Latham & Watkins; and equity capital markets partner Jonathan Parry and London disputes head Mark Clarke to White & Case.
Management figures have also left – with the firm’s chief financial officer (CFO) Brian Dunlop departing in July to take a career break – immediately after the release of those disastrous financial results.
One former partner says: ‘They’ve lost an awful lot of really generative people. Basically anybody who’s got a business they can take is trying to leave or has left. The strong people will leave and weak people will stay.’
Tidswell responds: ‘Think of this as a shaping exercise. We’re trying to get the business in the right shape in the areas in which we want to grow.
‘You can lose some quite valuable partners as you change direction, but you’ve got to be prepared to do that. And some partners will be very influenced by firms with large cheque books more than by platform or culture.’
‘Valuable insight’
The post-merger redirection of Ashurst, where it lost ground in its core corporate and finance practices and pursued energy and infrastructure work just as commodities prices tanked, has unsurprisingly been questioned by some. Underpinning that strategic shift was a costly £4m piece of consultancy advice from Bain & Company brought in under Tidswell’s watch. He says Bain was responsible for data analysis and coming up with myriad different strategies and practice mixes, with the firm deciding to refocus on infrastructure, oil and gas and Asia. Bain also recommended growing in the TMT, defence and retail sectors in Europe. However, partners – past and present – say the core messages from Bain were exactly what management wanted to hear.
Tidswell recognises it does sound expensive, but adds: ‘Bain did a huge amount of work. The insight they gave was very valuable. Do I regret doing it? No. Do I think we’ve maximised the benefit of doing it since then? No. There are obviously areas where we could have improved when I look back. If we had done some of those things a lot better, it would have made a difference.’
With income falling since the merger, the firm’s outgoings have also come under scrutiny. A fit out of the firm’s new Sydney office cost the firm around A$40m in 2013 and integration efforts, including in new IT systems and travel costs that have inevitably taken partners away from fee-earning, have been costly. In a plan dubbed ‘project prism’, legacy Ashurst and legacy Blake Dawson have been replacing accounting and client management systems to give the firm similar tools across London, Australia and the rest of its international offices. Due to be completed in the first quarter of 2017, management was unwilling to divulge how much has been spent so far.
‘We’re not suggesting that we think we did everything as well as we could have done last year. Some of this is hard,’ Tidswell comments.
The firm is now undergoing another reboot, after Sydney-based Jenkins replaced James Collis in June. While there are concerns about the threat to the firm’s London culture with management shifting to Asia, with so much invested in Asia-Pacific the move could pay off. Jenkins has been touted as the man to get the firm’s performance back on track, and the process has already begun, with leadership pulling the plug on unproductive offices in Stockholm and Rome, while remuneration was shaken up in an attempt to keep star partners.
Tidswell says: ‘We’re in a close partnership, we all work together and people don’t like the idea of having big egos, it’s not that sort of firm. But at the same time we’ve got to be realistic that the spread in your equity has got to be reasonably competitive for the market.’
A lot to prove
On day one of his leadership, Jenkins announced a shakeup of those appointed to lead the firm’s three core global divisions – corporate, finance and disputes. He also created three new roles, with corporate partner Simon Beddow named head of the London office, Glasgow managing partner Mike Polson and Sydney-based banking partner Jamie Ng appointed co-heads of innovation, while infrastructure partner Logan Mair became head of clients.
Polson says the new managing partner has been ‘hugely engaged at the client level despite his management responsibilities’. He adds: ‘He’s leading from the front in the sense of saying: “This is what I’ve done, and this is what we need you all to do.” He’s trying not to make it any more complicated than that.’
‘You can lose some valuable partners as you change direction, but you’ve got to be prepared to do that.’
Ben Tidswell, Ashurst
Jenkins admits Ashurst has been consumed by an inward-looking culture and wants to get partners working more entrepreneurially. He says: ‘My focus is now ensuring that client teams are working well and partners are focused on clients. It’s about streamlining, having a smaller executive team and having as few partners with that internal focus as possible.’
The question is whether this is too little too late. Although Ashurst’s current leaders want to ignore the past – and given Ashurst’s last five years who can blame them? – historically the firm’s greatest strength was its cohesive culture, though this sometimes came at the expense of organisation. It was always going to find the process of being a more globalised firm difficult, but the journey so far has left the firm in far worse shape than even the most sceptical of partners were expecting.
Jenkins says: ‘There are some aspects that haven’t gone well across the past year. You can look at our profitability and see we’ve made some significant investments and as a result our profits are not where I want them to be as the new managing partner. But it’s very much incremental. We’re making sure our partners are fully engaged, that they’re driven towards our client objectives and that we have a high-performance culture and our remuneration system is aligned to that culture.’
The sentiments are uncontroversial but surely downplay the challenge facing the firm. Ashurst has had probably the worst post-Lehman run of the City’s top dozen players and it is still not apparent that it is back on track. It’s going to have to start delivering a lot more in the near future if it is not to face a painful relegation in the legal market’s hierarchy; senior management has a lot still to prove to a restless partnership. And not much time to do it.
madeleine.farman@legalease.co.uk
tom.moore@legalease.co.uk