In just under two years Simon Davies has restructured Linklaters’ partnership, cut lawyers and offices and ridden the financial crisis. Time for a new strategy
Simon Davies sees his job in simple terms. ‘The most important task is developing the strategy and then implementing it,’ says Linklaters’ managing partner. Since April of this year he’s been putting a new strategy in place. The vision set out by his predecessor Tony Angel – to be the leading global law firm – hasn’t changed. It’s the means of getting there that the new plan is concerned with.
The two-year strategy places particular emphasis on client relationships and the firm’s people. Just as Davies sees his role, it’s hardly rocket science. But since he officially took over from Angel in January 2008 aged just 40 Davies and his management team have been forced to make a series of tough strategic calls.
He’s cut offices in Central and Eastern Europe (CEE), moved the partnership closer to an all-equity structure and steered the firm through the global downturn. Costs have been cut, but not as radically as at Freshfields Bruckhaus Deringer which has opened up clear blue water in the profitability stakes. Each Freshfields partner now generates almost £80,000 more profit than the average fee-earner at its arch-rival.
Davies insists that the new plan is about more than simple financial performance but he also knows that the battle to achieve Angel’s vision is very closely fought. ‘I don’t think anyone’s got it right yet,’ he concedes. Changing that is a complex task.
Relationship management
In early 2010 Davies started to pull together partners into small discussion groups to help form Linklaters’ new strategy. More than 40 groups, with eight partners in each, assessed the vision and strategy of the firm to produce a new plan.
In April he unveiled the new strategy to the global partnership via a global webcast (the volcanic eruption in Iceland dashed the firm’s plans for a global partnership conference in Barcelona). In the post-Lehman world Linklaters is all about relationships – relationships with clients, with colleagues and the wider community. ‘It means that we want to have the most enduring relationships of any law firm in the world and that cuts across the three different groups,’ Davies enthuses.
The new strategy is designed to focus the firm on 12 priorities. So on the firm’s to-do list is broadening client relationships, increasing the impact of the 20 sector groups and giving people greater entrepreneurial freedom. The plan talks about becoming the pre-eminent firm globally but specifically mentions strengthening the firm’s practices around the BRIC economies. The US practice will continue to be a significant focus for investment and Linklaters’ fee-earners worldwide will be encouraged to focus on giving the firm a distinctive market reputation. ‘One of the things we’ve been trying to do over the last few years is instead of having hundreds of initiatives, to just have 12 and make significant progress on them,’ Davies explains.
Every quarter, each office, practice group and region can see just how well they are doing against Linklaters’ three priorities. ‘We spent a long time thinking about how to measure success inside the firm,’ Davies reveals. ‘Yes we’ve got the industry statistics like revenue per lawyer and profit per partner which we look at but if you just look at that you’re going to miss the bigger picture.’
Eyeing the bigger picture means tracking the firm’s progress against ten measures of success. The traditional measures of revenue per fee-earner and profit per partner are included but they’ve been joined by a range of other factors. Among them are the percentage of revenues that come from the firm’s priority client base and how much is derived from its growth clients. Client feedback is gauged and the firm’s market position assessed from a range of league table positions, directory rankings and analysis of private mandates.
For CSR the firm logs the percentage of people in each office who are engaged in voluntary work. Then, the level of inclusivity and staff engagement is analysed and feedback on the firm’s training gathered. In May this year the firm carried out its first ‘global engagement survey’ to monitor staff reaction to training, the firm’s diversity and engagement among the workforce.
So far, so all very Linklaters. Davies’ predecessor, Tony Angel, brought a level of statistical analysis and rigour to improving profitability that at the time was truly revolutionary for a law firm. He shifted the focus of the business to the most profitable work, for the largest global clients. Partners were measured on the basis of gross margin per partner standard hour – effectively a measure of how much profit their team’s fee-earners were generating. In May 2003 Angel told LB that the firm had: ‘the most sophisticated way of measuring profit of any professional services firm in the world. Partners can see where they fail. They can see how to, say, leverage up’.
Angel’s engineering put Linklaters in the perfect position for the pre-Lehman boom. Davies is preparing the firm for a more complex, multi-polar world – ‘it’s why we’ve now got a G20,’ he says of the changed geo-political climate. However, he distances himself from any notion that he’s placing the firm’s lawyers in a tighter, statistical grip. ‘I think sometimes within the large law firms there is a perception that the managing partner is just focused on financial performance,’ he says. ‘These measures are not intended to burden people with more measurement; they are intended to get people to accept that success is not just about financial success, there are many other areas we need to focus on.’
However, get the new strategy right and the results will show in the firm’s profits per equity partner. ‘The bottom line is important but to reach your bottom-line conclusion is a very complex process and you need to keep an eye on all aspects in order to drive profitability,’ Davies comments. ‘It’s easy to get a bottom-line performance but you may do it for just a year or two. By broadly focusing on clients and people, and drivers in relation to them, you can achieve a sustainable, strong bottom-line performance.’
Top UK Global Elite firms’ financials
As Davies admits there are many contenders for the mantle of leading global law firm. The LB global elite features 17 of the leading US and UK practices that increasingly dominate the top-end of the legal market.
Of the UK firms the competition boils down to a quartet and in most Linklaters’ partners eyes it really comes down to a two-horse race between the Silk Street practice and Freshfields Bruckhaus Deringer.
However, since Simon Davies was confirmed as managing partner in early 2007 Linklaters’ financial performance has been eclipsed by its arch rival. The gap in profitability is particularly concerning for Davies. On average each of Linklaters’ 2,562 fee-earners generates £198,000 compared with £275,000 at Freshfields. On each key metric except turnover, Freshfields holds the upper hand.
Given that projecting a distinctive market reputation is a priority in Linklaters’ new strategy, how does Davies think the two firms differ? ‘I think one of the points of differentiation is our strength in corporate and finance,’ Davies comments before pointing out that Linklaters’ two engine rooms each contribute around 40% of the firm’s revenues. ‘There’s no other firm in the market that generates an equal amount from those two practice areas and that means we can support clients in a way that I do not believe our competitors can,’ he insists.
But of all the firm’s competitors do they still look most closely at Freshfields? ‘One always needs to be conscious of what one’s competitors are doing and how they’re performing,’ Davies comments. ‘The risk you run is that you’re constantly looking in the rear mirror as opposed to focusing on what the clients need and the road ahead.’
The new, new world
Since he took over as managing partner Davies has taken a series of strategic decisions that will shape the future of the firm. He has moved the firm closer to an all equity partnership, pulled out of CEE and sharpened the firm’s focus on its priority clients. Some of the decisions were a continuation of Tony Angel’s vision, some were his own and some, like the cuts the firm made to its lawyers and support staff during the crisis, were forced upon him.
Rumours about the restructuring spread in the market well before the full details became public in early 2009. In total, the firm announced that 120 UK-based lawyers (over 17% of non-partners at the time) and 150 business support staff were to be cut.
Few would argue that, given the economic conditions, Linklaters was left with much choice but to make the cuts. However, the manner in which they were handled was open to criticism. After weeks of denials to the legal press the firm finally went public with the cuts but not before many lawyers learnt of the proposals through various news outlets. Junior lawyers were eventually sent the same statement that members of the press were provided with, which confirmed the cuts but gave little detail of their scale.
Some partners also felt left in the dark. During one partners’ lunch in London towards the end of 2008, Davies was asked directly by one partner if cuts to the partnership were being considered. Davies is understood to have flatly denied these claims. Eight weeks later project New World was launched. ‘The biggest complaint is that no one felt as though they had been consulted,’ says one former partner.
‘A managing partner must understand the business and have a very clear vision of the strategy. Simon has these characteristics.’
David Cheyne, Linklaters
Although the firm has never officially confirmed how many partners it cut, this year’s LB100 shows that Linklaters’ partnership shrunk by 27 year-on-year, down from 513 to 486. The total number of lawyers has fallen from 2,873 to 2,562 while non-lawyer staff dropped from 2,492 in 2009 to 2,163 in 2010.
Davies describes the period as the most difficult time he has spent at the firm. ‘It was not something we wanted to do but we believed that it was the right thing to do for the firm, for everyone in it,’ he insists. ‘Our objective was, if you are going to do this, you do it once rather than coming back to it.’
The only cohort of the firm that has not been reduced is the equity partnership. Prior to the collapse of Lehman, Davies began a process to move the firm much closer to an all-equity model. Since a remuneration review concluded in the early part of 2009, total non-equity partners have been reduced to 44 from a high of 88 in 2008. The number of equity partners hit 442 in 2010, an increase of 14 from the year before. In conjunction with this move the capping agreement in Germany is to be removed. The agreement, which had been in place since 2001’s merger with Oppenhoff & Rädler, prevented German partners from reaching the same top of equity as the rest of the parternship.
Commenting on the growth of the firm’s equity, Davies says, ‘The reason it was the right thing to do is that we believe it would create a stronger team within the firm, it would create greater cohesion between the partners and a greater sense of a collective effort. Ultimately if you want to drive the best team working, there has to be a common interest.’
And common interest focused around fewer priority clients. The firm has consciously gone through a client prioritisation process over the last five years, led by global head of client services Richard Godden (who is soon to step down although a successor has yet to be appointed). Its active client base is now estimated to stand between 3,000 and 4,000. The firm takes a five-year view on its relationships and regularly moves clients in and out of its priority list.
‘We have consciously reduced the size of our client base to ensure that we deliver the very best service to our priority clients – that places a natural restraint on numbers,’ Davies says. ‘Now with the emerging markets you’ve just got a whole cadre of new target clients that we would love to have as our clients for the future. It’s about us targeting and prioritising the winners in the new world.’
Pre-Lehman and a matter of months into Davies’ tenure as managing partner, the contentious decision was made to pull out of CEE, closing four offices and leaving the legacy practice to spin off as independent practice Kinstellar.
| Biography | |
|---|---|
| 1990–92 | Trainee, Linklaters |
| 1992–95 | Associate, Linklaters, London |
| 1995–99 | Associate, Linklaters, Hong Kong |
| 1999–2003 | Partner, Linklaters, Hong Kong and Tokyo |
| 2003-07 | Head of Asia |
| 2008-present | Firmwide managing partner |
Asia and emerging markets
To the outside world closing the CEE offices was Davies’ first strategic play. According to two partners in the firm, pulling the plug on the offices was something that previous management had ducked. Under Davies the firm moved relatively quickly, announcing in May 2008 that it was pulling out of Prague, Budapest, Bucharest and Bratislava. ‘The driver for the 2008 review was the need to create a more co-ordinated and flexible structure to enable us to focus on the faster growing markets in which our key clients are most interested,’ Davies says now. Despite pulling out, he regularly talks about emerging markets and becomes most animated when conversation turns to Asia.
It was as head of Linklaters’ Asian business that Davies showed the mettle that would help him become managing partner. Although he was due to return to London from Tokyo Davies was chosen in 2003 to succeed Andrew Roberts as Asia managing partner. Just four years after he made partner he took control of a region suffering from a slump induced by the SARS epidemic. Crucially he told clients that in order for firms like Linklaters to remain committed to Asia they had to be able to make a profit.
‘His appointment as Asia managing partner was very contentious at the time but we were actively trying to break with the traditional hierarchy of promotion,’ recalls former Linklaters managing partner Tony Angel. ‘He made a tremendous success in Asia. Andrew Roberts was the first Asia head and he had the task of integrating and making it all work together. Simon came in at a difficult time for the Asian economy and he was prepared to take responsibility for some very difficult decisions.’
Davies tracks his interest in Asia to a trip that he made shortly before he went to university in 1984. Offered the chance by his parents to go anywhere in the world he chose a trip to Hong Kong, China, Macau and Thailand. ‘I was bitten,’ he says. ‘It was in the days in China when people were literally in blue suits but I just felt this raw power that existed from inside the people and the economy.’ He returned to the continent as a trainee with a stint in the firm’s Hong Kong office in the early 1990s before going back to work as an associate in Hong Kong in 1995, then making partner in the corporate practice in 1999.
‘By broadly focusing on clients and people, and all the things you have to do in relation to them, you can drive a sustainable, strong bottom-line performance.’
His experience of the region continues to have a marked impact on his thinking. ‘When you look at the way that Asian business moves through a crisis it’s far more resilient,’ Davies comments. ‘It’s far more familiar with crisis, it’s far more familiar with volatility – the need to be flexible, to deal with problems dynamically which is absolutely what Asian businesses do.’
‘Asia’s got this elasticity – it’s an elasticity because of the nature of their businesses but more than that it’s because of the psyche of the people, they are just extremely robust.’
‘You go to some parts of Europe and you still sense significant fragility but in Asia they’re thinking and acting to get out of any downturn as quickly as possible. That’s why I think it’s such an inspiring continent.’
Spending such a long time in Asia, he says, allowed him to hone his business development skills. ‘I do think emerging markets teach you business development in a way that is more difficult to learn in more mature markets where you may have fewer opportunities early in your career to have contact with clients,’ he comments.
In part because of his time in Asia he has little sympathy for those who protest today that opportunities for growth are limited. ‘I think it’s all too easy for people to say we’re in a no-growth environment here,’ he counters. ‘No we’re not, there are plenty of growth opportunities but we have to be out there spotting them and seizing them.’
Top UK Global elite Partner numbers
Acting on it
Despite being a budding actor in his youth – he was a member of the National Youth Theatre and the European Theatre Group at Cambridge University – timing is not something that Davies appears to have perfected in his career.
He took over in Asia as the SARS epidemic had hit the local markets hard. His appointment as firmwide managing partner – he officially took over in January 2008, although his appointment was confirmed in early 2007 – coincided with the first signs of a downturn in the global economy. In Tony Angel he was also taking over from one of the most respected managers in the market.
Davies’ potential though, had long been marked out. Identified early on as a future partner, much of his development went unnoticed by the wider Linklaters’ populous because of the 12 years he spent in Asia from 1995.
Davies modestly puts his fast track into management partly down to the fact that partners in smaller offices necessarily have more responsibility and have to have a greater understanding of the business. Others put it differently. ‘The thing that struck me was that he had a very acute business mind as well as being an excellent lawyer,’ Angel comments. ‘He was always good at taking feedback and actioning it, plus he was self aware and willing to learn.’
When Angel announced he was stepping down in late 2006 the race to succeed him quickly narrowed to Davies and capital markets chief Nick Eastwell. It turned into a run off which one former partner describes as ‘the most contested election I had ever seen’.
Speaking to those who know him in and out
‘The thing that struck me was that Davies had a very acute business mind as well as being an excellent lawyer.’
Tony Angel, former Linklaters MP
of the partnership a picture forms of a man who is respected as a decision maker but who certainly doesn’t see the job as a popularity contest. ‘You wouldn’t describe him as being a warm and cuddly individual,’ quips one former partner. The firm’s own chief financial officer Peter Hickman, when asked by Davies what he thought of his management style initially responded, ‘demanding’.
All the current and former Linklaters partners spoken to for this piece admit that Davies has done a good job. Critics, though, claim he lacks the sort of consensus-building skills that a managing partner needs. ‘He has taken the authority and used it in such a way that makes the firm feel like a FTSE 100 company now. He is purely focused on the people around him,’ says one former partner. ‘Tony would listen to you whether or not he agreed with you,’ muses another. ‘If partners feel disenfranchised by the decision-making process then it is much harder to take them with you and it is a risk to the ethos of the firm.’ Davies himself admits he’s had to change his style. ‘I am more democratic and consultative these days than at the outset. I realise increasingly that this is key,’ he says.
However, every criticism that is made of him is counterbalanced with the fact that he has made the right decisions at the right times. One Linklaters partner says: ‘The challenges that he faced [when he became managing partner] were that people didn’t know him that well and his youth; he has dealt with those challenges very strongly because he has made the big judgement calls well.’
According to senior partner David Cheyne, Davies has the key attributes that a managing partner needs: ‘A managing partner must understand the business and have a very clear vision of the strategy while bringing the partnership with him. Simon has all these characteristics.’
Cheyne’s term comes to an end in 2011 and although he has yet to publicly confirm his intentions the focus now is on who will succeed him. Many of the changes during the Davies regime clearly reflect Cheyne’s views on a more focused Linklaters. Internally debate around his successor has centred on the competing merits of global head of banking Robert Elliott and former corporate head David Barnes.
Commenting on the attributes needed to make Linklaters senior partner Davies says: ‘[To be a good senior partner] you need to have authority and you need to have a strong client persona.’
His own term finishes in 2012 and although he says simply that it’s up to the partners to decide who becomes managing partner, it would be a surprise if he were not to do another term. ‘Will he serve a second term? Of course he will, there is no one else who can do it,’ insists one senior Linklaters partner. ‘The first thing you should do as managing partner is get your decisions right, I don’t care if you’re not charismatic just get it right.’
Davies doesn’t do buzzwords, catchphrases or flip characterisations. He eschews stereotypes of people that quickly become what he terms ‘bumper stickers’. Almost two years into his term, ‘world’s number 1’ is still to be emblazoned on the Linklaters juggernaut. LB