On the bus – Inside the Norton Rose Fulbright masterplan

NRF chief executive Peter Martyr defied expectations to reinvent Norton Rose as a progressive global player over more than a decade. Three years on from its ambitious US tie-up, where is the firm going next?

‘You will have to talk to Peter, we are not authorised to speak,’ says one Norton Rose Fulbright (NRF) partner. It’s a familiar refrain in a firm that – despite its reputation as a friendly place to work – defers to central management. A lot.

When Peter Martyr was elected as the firm’s head in 2002, he took on a City banking and insurance shop being pushed from law’s top division to the second tier. Over the next decade, Martyr wrestled and reformed an international network bleeding money to reposition Norton Rose from also-ran into a firm ready to break convention. In 2010, its Swiss verein merger with Australia’s Deacons was to prove both highly successful and hugely influential in the legal industry.

It was the start of a dash that took the firm through two substantive mergers in Canada, a well-timed tie-up with South African leader Deneys Reitz and culminated in the 2013 tie-up with top 100 US firm Fulbright & Jaworski. The emerging NRF had defied expectations to become one of the very few City players to secure a high-impact US union, creating a 1,156-partner giant with nearly 3,500 lawyers.

But since the Fulbright combination, growth has been more subdued. Inevitably, NRF has been drawn into the challenge of integrating not only its multiple partnerships but managing the cultural distance between the firm’s US and UK businesses. While Martyr has never been one to obsess over conventional benchmarks of success, and the legacy Norton Rose business has done well in recent years at retaining partners, profitability remains relatively low for a global law firm.

The firm has built an extensive governance structure that has considerable power to manage its network. For years, Martyr’s grip on the firm has been unchallenged, but it is less clear now how he is applying his instincts for fresh thinking to the professional services giant he leads. For a law firm leader who has long relished the challenges and changes wrought on the legal profession, a neutral observer would have expected NRF to be a more prominent innovator in an industry primed for dramatic change.

‘I don’t think you vote against anything here. If you do someone will come and track you down and tell you off – voting is a formality.’
A Norton Rose Fulbright partner

Now in his fifth term at the helm, Martyr pledges that the firm will soon make its agenda clearer as NRF embarks on a 2020 strategy that is short on the client platitudes and apple pie that typically make up such an agenda to instead focus on the nitty gritty of infrastructure, client services and the working practices of a legal business.

It is potentially far-reaching stuff, though not the kind of material that makes it easy to rally the troops. ‘For the last year we have been busy preparing the business and structuring it for the future,’ Martyr tells Legal Business. ‘We have been getting ready for what we think is coming. There is still a job to be done.’

The global game

For a firm that spent the best part of the 2000s hindered by sluggish growth, legacy Norton Rose’s expansion has been transformational. Having nudged up revenue from £200m to £233m between 2002 and 2007, the firm has since soared onto the international stage as a top-15 practice in terms of turnover.

‘We had to be global,’ says Martyr. ‘The ten or 20-year view shows we could only get there through merging. We now play the global game.’

One of his first actions as chief executive of Norton Rose was to implement a system of ‘headlights’, initially focusing on five industry sectors: financial institutions; infrastructure, mining and commodities; technology and innovation; energy; and transport, with life sciences and pharmaceuticals added as a sixth in 2011.

Many other firms had paid lip-service to industry focus, but Norton Rose was one of the first major law firms to make it a reality.

The then unusual move south of the river to its eye-catching offices at 3 More London Riverside in 2007 was also significant, replacing the tired multiple sites the firm had regrouped in the wake of the damage suffered in the 1993 Bishopsgate bombing and giving the firm a new confidence.

‘I respect Martyr. He has been visionary.’

 

 

Such confidence was in evidence again during the post-banking crisis turmoil of 2009. With heavy job cuts sweeping the legal industry, Martyr showed leadership to launch a flexible working initiative as an alternative to reducing headcount.

As the Norton Rose Group, the firm branched out to take on Australian practice Deacons and became the first international firm to tie up with a South African practice, combining with Deneys Reitz in 2011. It made a first foray into North America by merging with Canadian practice Ogilvy Renault in 2011. The expansion was later cemented by combining with Calgary’s Macleod Dixon in 2012, giving the firm 700 lawyers in Canada.

It is now three years since Norton Rose combined with Texan-bred firm Fulbright & Jaworski. The combined practice under the verein structure has a current turnover of $1.732bn, down around 3% in dollar terms from the year before. Like-for-like, taking currency fluctuations into account, the firm says it grew by around 5% last year. (In underlying terms, Martyr puts growth in the preceding two years post Fulbright as 1% and 4%.) The current income remains down on the $1.9bn combined revenues of the two at the time of the combination, though currency fluctuations have impacted on the dollarised figure.

Profitability has also failed to fire. Global 100 data shows a profit margin of around 32% for 2015/16 with profit per equity partner (PEP) of $600,000, while the latest accounts for NRF’s core UK and European LLP shows profits inched up 2% to £112m for the year to April 2015. ‘Realistically where we are at is pretty good,’ says Martyr, ‘notwithstanding the funny moves in currency.’

Global head of financial institutions James Bateson, who leads the largest of the firm’s headlight sectors with 1,100 lawyers, contends that NRF has come a long way since the Fulbright deal. ‘It has been transformative. You have challenges integrating any business, but the cultural empathy has meant we approach negotiations aiming to make one plus one equal three.’

A coup

Fulbright had a rich history in the American South. Founded in Houston in 1919, it had grown to nearly 1,000 lawyers at its pre-merger peak.

At the turn of the 21st century, Fulbright was viewed as one of Houston’s ‘Big Three’, alongside Baker Botts and Vinson & Elkins (V&E). The long-run boom in commodity prices after the banking crisis and the dramatic emergence of shale gas in the US had fired the local market and attracted substantial investment from out-of-state law firms.

The boom years benefited legacy Fulbright. Between 2006 and 2008 turnover increased from $599m to $695m. The profit margin was 44% in 2008, while PEP reached a high in 2010 of $877,650, still relatively low for a top 100 US law firm.

The firm was known as a litigation specialist with sector strengths in energy, life sciences and pharmaceuticals, and major clients including ExxonMobil and Shell Oil. Energy arbitration was arguably the firm’s strongest practice, while it had a far lower profile for transactional work.

But despite its history, Fulbright was struggling when Norton Rose came calling. Between its peak year in 2008 and merger year of 2013, the firm lost more than 200 lawyers, falling from around 1,000 to 790. Partner numbers fell from over 350 to 314 over the same period. Turnover had also dropped 16% from a 2008 peak of $695m to $585m in its final year as an independent firm.

When negotiations began in 2012 partners in both the London and Texas markets could see the firms as being potential suitors. A US firm that could propel Norton Rose into the top ten globally, it met a long-stated goal for the firm’s leadership.

Ever the pragmatist, Martyr knew his best chance for a dial-moving US union would be to find a good business going through, at the least, short-term challenges. Says one partner at a rival Texan firm: ‘It felt like a bit of a coup, a smart move for the pair. But with the benefit of experience you can see it has created no more of a powerful competitor than it was before.’

Following the merger there was some fallout. Fulbright saw a series of exits across its offices. In Los Angeles, the firm’s head of West Coast health law Mark Kadzielski left with four other lawyers for Pepper Hamilton in July 2013, while two partners also jumped to Winston & Strawn.

Norton Rose’s disputes team saw several notable exits around the same period. Charles Evans left for Milbank, Tweed, Hadley & McCloy while Steve Abraham went to Baker & McKenzie, both in early 2013. High-profile Norton Rose litigator Dorian Drew and insurance specialist Ashley Prebble left later in the year for Clifford Chance.

The most significant integration challenge came in Dubai, where Fulbright and Norton Rose both had offices. In July 2013, a 14-lawyer team with eight partners departed for Baker Botts, led by the Fulbright office’s founding partner, John Lonsberg. The Middle East had been problematic for Norton Rose as well with some local partners arguing the practice was not getting the attention it needed.

‘The two were kept separate out there,’ says one former partner. ‘They were never integrated and a whole team left for Baker Botts. I haven’t really seen them on transactions since. It was a farcical merger.’

If such issues are inevitable in a large union, there was one embarrassing moment post-merger in a 2014 trade mark case between the John Wayne Estate, represented by NRF’s Canadian arm, and Duke University, represented by NRF’s US arm, which led to a claim of conflict of interest. The defence motion from the Fulbright side even stated: ‘Despite the plaintiff’s bald assertions to the contrary, Fulbright & Jaworski LLP did not merge with Norton Rose Fulbright Canada or any other firm when it became part of the verein.’ NRF was left weakly asserting that it was not a merged entity, leaving it unclear exactly what it was.

Nevertheless, over the past three years there has been a major focus on integrating the different businesses. Legacy Fulbright partners comment the merger has opened up work across Europe for traditional clients, such as big pharma firms. ‘It’s been terrific for us,’ says Houston partner-in-charge Carter Crow. ‘We have very deep ties and relationships in Texas, but the merger put us in a position to help clients in new and different ways that we couldn’t do before.’

Legacy Fulbright partner and London-based global investigations head Chris Warren-Smith adds: ‘We’ve had US colleagues working with the team around the world, and Peter has led those initiatives. I remember a consultant telling me at the time of the combination: “25% of the work is done now. The rest comes later.” So we have done a lot of work and partners on both sides have led the development.’

But some partners are critical of what they see as a lack of transparency with their US counterparts. One NRF partner says: ‘We have no idea how or what our colleagues in the US get paid. It is a totally different system.’

NRF operates a highly-modified lockstep, with the top-of-the-ladder earnings of around three-and-a-half times entry earnings. In the US and Canada, the system is more individualistic with higher packages for star performers and high billers.

Another indication of the slow process of integration can be seen in the ‘opt out’ granted to London-based Fulbright partners. Warren-Smith and Melanie Ryan both only moved off the US LLP at the start of this year. Global regulations and investigations co-head Lista Cannon remains on the Fulbright & Jaworski LLP three years on, despite being based in London.

Recently, the firm has continued to focus on expanding its footprint. This year it launched a new office in San Francisco with a six-partner team from Sidley Austin, completed a tie-up with Vancouver financial services outfit Bull, Housser & Tupper and confirmed an alliance with Kenyan practice Walker Kontos.

In the US, the firm has tried to rapidly expand its transactional capacity in New York, a huge challenge for any out-of-town adviser. It has added 16 lateral hires to the office, and in August this year moved partners to new premises in Manhattan. ‘That is a huge investment,’ says Martyr. ‘Credit to them. They have done it in a fantastic way.’

Partners say they are noting the benefits of the firm’s scale. Says EMEA corporate head Raj Karia: ‘Sophisticated clients want a one-stop shop and we don’t just rely on saying we can do M&A out of London or New York. We can do deals now involving every jurisdiction.’

What of the clients? The firm has formed relationships with JPMorgan, PwC, HSBC, Royal Bank of Canada, SNC-Lavalin, ExxonMobil, McLaren Group, AIG and BP. One long-term client comments on the boost in the relationship since the global growth: ‘The fact they have that reach now makes a difference for us, we can take advice across our jurisdictions. It’s a big tick in the box.’

‘If you don’t buy a ticket’

Having risen through the firm’s shipping department to make chief executive, Martyr has earned huge internal credibility for transforming a firm facing systemic issues. Certainly, no one could question the dryly humorous Martyr’s ambition or knack for original thinking.

But some former and some current partners claim that an authoritarian leadership regime feeds a lack of transparency and discussion. There is little doubt it is a highly managed firm. ‘You don’t rock the boat as a rank-and-file partner,’ says one leaver.

Another former partner tells of the sudden rush of votes during the firm’s global expansion. As people arrived at a partnership conference, the agenda sheet was completely different from their briefing. Partners were told to ‘get into your groups and discuss’ on the papers for the Canadian merger, voting the next day. ‘It was a two-day conference and the agenda was literally thrown out of the window. We met the Canadians the following day and that was it.’

Martyr makes no apologies for a robust leadership style. ‘If anything I wish we could have done this faster – we had to tread very carefully at the time and it made progress difficult. It required an awful lot of consultation and in retrospect I could have done it sooner.’

This approach, according to several accounts, saw other leadership figures fall by the wayside. Former global head of dispute resolution Antony Dutton, who passed away in 2014, was one opponent of the leadership. He quit the firm in 2012 for Dechert, having – some claim – been marginalised. Former Middle East senior partner Campbell Steedman was another figure seen to have challenged the Norton Rose orthodoxy. Steedman stood against Stephen Parish for the global chair role in 2009, leaving for White & Case two years later.

Standing up to management is a quick route to finding yourself left out in the cold, say several current and former partners. Asked about voting thresholds, one NRF partner tells Legal Business: ‘I don’t think you vote against anything here. If you do someone will come and track you down and tell you off – voting is a formality.’

A familiar gripe is high pay on offer for partners in management with little or no fee-earning. One partner – who notes a supportive working environment and sees the firm as a strong platform for his practice – notes, however, its ‘immensely bureaucratic’ and ‘rigidly managed’ style.

Martyr says the remuneration models within the group have become more aligned, while partners are rewarded for merit-based drivers as well as earnings. He would not be drawn on the specifics of US pay beyond noting that the US and Canadian partnership offers some relatively high rewards for top-performers, but concludes: ‘The system has a single set of truths.’

Partners also point to a substantial governance structure that runs the firm. The firm’s global executive committee has 20 main members with six others in attendance. It also has a global supervisory board, which includes 20 members.

Beneath this, the verein members have individual domestic boards and partnership committees.

‘There are a lot of people running around doing strategy,’ says one former partner. ‘You wonder whether people at that level are engaging with clients very much. Are you generating opportunities for others or are you just a very expensive manager?’

Another partner claims the firm needs more focus on boosting profitability: ‘I felt the partnership culture was being diluted. It hasn’t seen the upturn in profitability it needs.’

While there are no current plans to integrate the partnerships financially – says Martyr: ‘It’s not high up the agenda – it simply does not make enough sense’ – some complain of the realities of operating different profit centres, particularly with the more individualistic culture in the US.

‘Vereins don’t really work to be honest,’ argues one NRF partner. ‘It’s not helpful when you contact an American and you need a little piece of advice and they don’t really care about your relationship, they just want to maximise their profit and charge you £10,000 for an email. There is a sense that they are not fighting for their own profits as it is not in one pot.’

Such claims are more prevalent with the US partnership, while by consensus strong chemistry between the European, Australian and South African businesses has gone a long way.

While NRF has avoided the starkly differing cultural divide seen in some transatlantic unions, notable differences do remain between the two. NRF management does on occasion privately concede that bridging the transatlantic divide can be challenging. Ultimately, however, Martyr’s assertion that the cultural mix is as close as you would realistically get, would be accepted by many. ‘One of the reasons for going with [Fulbright] is we felt we were as close as we were likely to find. I remember many, many years ago when I was a baby on management, it was all about the business fit but the two sides bristled with each other. You have to be able to establish that you can sit across the table from each other and get on.’

In terms of governance, the firm operates what Martyr terms a ‘halfway house’ between making decisions locally and on a firm-wide basis, adding: ‘We agree what we are trying to do. The executive know what they are trying to do. They can’t rush off to do something on their own but they wouldn’t anyway.’

The firm’s office politics at the top have been well documented, as has an uncompromising leadership style at the top rung. Martyr is understood to have told the firm’s first joint California conference in 2014: ‘If you don’t buy a ticket, get off the bus.’

Martyr rejects the notion people cannot offer differing views and ideas about how the firm is run. ‘I communicate with people. I don’t live in an ivory tower. Here, people are free to speak their mind.’

Asked if he brooks dissent he responds: ‘If necessary, yes. Do we want a sixth form common room where everyone does nothing? No. You need leadership. You will always have people outside the circle who think they are left outside, but you can’t manage just by enlarged committee.’

Martyr can also be prickly and thin-skinned, for all the attempts to present himself detached and above-the-fray. Nevertheless, even his critics who find the robust style grating, generally acknowledge Martyr’s track record and strategic nous. Says one former partner who has clashed with Martyr: ‘When I was there I respected him as CEO and, indeed, I still respect him. He has been visionary in many ways.’

Fit for the future?

Moving on from the global advances, Martyr notes the firm has had to consolidate its gains, something he has pinned on four themes in the firm’s 2020 strategy (see box).

The first phase is a highly ambitious IT roll-out that will begin by September next year, during Martyr’s 15th year of leadership. On succession planning, Martyr is cagey: ‘We have plenty in the tank, who do you expect? All the managing partners have great leadership skills.’

‘I communicate with people. I don’t live in an ivory tower. Here, people are free to speak their mind.’
Peter Martyr, Norton Rose Fulbright

 

 

Partners speak of Martin Scott, the current EMEA managing partner and former corporate head as a potential candidate. Others cite Rob Otty, a member of the South African firm who was appointed managing partner of business integration in July this year, and Martin McCann, another recent board appointee as global head of business. The firm recently saw a leadership shakeup of the Fulbright partnership, with Daryl Lansdale set to succeed Linda Addison as US managing partner in January 2017.

While Martyr refuses to comment on whether he will stand again when his three-year term ends in 2018, it seems unlikely that the 62-year old will seek another term (although some partners believe he may still consider another run).

His 2020 Strategy is novel, it focuses on flexible working and Martyr is genuinely interested in bringing about a new law firm model, admiring the approach of start-ups and the solution-driven ethos of accountancy firms. He has also committed the firm to diversity with a 30% female partner target for 2020.

As part of the 2020 strategy, NRF is working on a back office launch, moving around 170 jobs to a service centre in Manila in September, and the implementation of its SAP practice management system – a major investment for the firm that it hopes will position it for the future.

Such projects do not promise the kind of flashy moves that make headlines in the press but do hold the potential to provide clients with a slicker integrated service than managed by any rivals.

Alongside the challenges of rolling out probably the most ambitious practice management system ever attempted by a law firm, Martyr says he wants the firm to build on its Asia practice, an area where he concedes the business could have gone better. ‘We have a good business but we have an opportunity to be really top class there. That’s a place we need to invest.’

The 2020 strategy looks set to be either a crowning glory for Martyr in a remarkable leadership career that has seen him refashion the firm… or illustrate the limitations of the global empire he has built. The roll-out begins in 2017.

Martyr is convinced of the path: ‘It is now time for the business to change how it delivers the product… We have to change how we do business.’ LB

matthew.field@legalease.co.uk