Out of the shadows

Michael Greville is the leader of Watson, Farley & Williams, an under-the-radar UK mid-market firm that has been going through an identity crisis. The last few years have seen merger talks aplenty – both transatlantic and domestic – but organic growth is now firmly on the agenda

Some law firms have the ability to hog the media spotlight with a mere stub of a press release – think PR-savvy brands like DLA Piper and Eversheds. Other City stalwarts pride themselves on following a deliberately low-profile path, to the extent that by looking at its website you would never know that Slaughter and May even has a PR function.

Then, of course, there is a third type: the firm that never seems to capture the media’s imagination, despite consistently performing well. It is into this latter bracket that Watson, Farley & Williams firmly slots.

Despite leaping ten places in the LB100 in 2009 through a recession-busting 23% rise in revenues to £72.5m, and recording a robust 34% profit margin beaten by only six firms in the top 50, the shipping finance specialist is known for little more than its string of failed merger talks. Even its strong counter-cyclical performance last year was overshadowed by the eye-watering turnover growth recorded by Kennedys (31%), Bird & Bird (30%) and its shipping rival Holman Fenwick Willan (27%).

As the firm that is ranked at number 40 in the UK by gross fees, Watson Farley outstrips more high-profile firms such as Charles Russell, Kennedys, LG and Travers Smith in terms of scale, but it chooses to keep its head down.

‘Most of these merger discussions are ancient history really. It’s quite unfair to classify us as some kind of serial merger failure.’

If Watson Farley lives in the shadows, managing partner Michael Greville is practically invisible. As the only partner in the firm without a fee-earning role, Greville has had a strong personal grip on firm management for the past eight years. He has presided over office closures, defections and a seeming inability to secure a merger deal, most recently with Chadbourne & Parke. However, he has also been instrumental in overcoming the stigma attached to these events, and in keeping up a momentum that has seen the firm achieve an average growth rate of 10% since 2005.

With new plans to champion organic growth in London after a chequered international expansion, and with a management overhaul in the offing, it’s high time Greville stepped into the spotlight.

Uncharted territory

It’s late March and Watson Farley has a hat-trick of London partner hires to announce. Greville is understandably keen to talk about them. Over the next two months the firm will welcome into the fold Mark Evans, the current European counsel at Constellation Energy Group; Emanuela Lecchi, who is head of competition at Charles Russell; and Robert Platt, litigation partner at Curtis Davis Garrard. This is in addition to corporate finance partner Mark Wandless, who joined from Holman Fenwick in February, and two other potential senior hires yet to be approved. It’s no surprise that the firm’s headquarters is top of Greville’s agenda – investing in London is key to keeping his partnership happy. That was a lesson he learnt the hard way.

The background to Greville’s ascension to managing partner in 2002 was a tale of over-ambition. Formed in 1982 by a breakaway group of shipping and aviation finance partners from Norton Rose (Martin Watson, Alastair Farley and Geoffrey Williams), Watson Farley was one of the most dynamic firms in the London market in the Eighties. By the time Greville joined the litigation department in 1984, the firm had already opened an office in Greek shipping hub Piraeus, with an ambitious international outlook that reflected its transport focus. It became the first foreign firm to open in Norway following an Oslo launch in 1986, and Greville’s first taste of management came after nine years when he was sent to launch the firm’s Moscow arm in 1993.

However, the firm’s ambitions ran aground early when several of its biggest names began to feel that international expansion and practice diversification were the wrong way forward.

Greville was recalled to London in 1996 as senior partners Simon Curtis and Mark Davis decided to branch off and create their own commercial niche firm, Curtis Davis Garrard. Their walkout left only two partners in the litigation group.

‘I thought that Watson Farley had lost its focus,’ Curtis says. ‘It was a very successful shipping and ship finance practice, but it had chosen to branch out of the areas that we were interested in – I think the specialist areas were becoming blunted.’

By the time Greville replaced outgoing managing partner David Warder in 2002, only 20 years after the firm’s establishment, Watson Farley had realised its network was already unwieldy and patchy. Its landmark Oslo office closed in 1998 after 12 years, Copenhagen closed in 2000 after only six years in operation and Moscow was axed in 2002 after nine years.

Greville admits that the firm’s rapid international growth probably had more negative effects than positive. ‘What Watson Farley did so well in the Eighties was build a market position,’ he says. ‘It all went a bit to pot in the Nineties because it had expanded everywhere without any great cohesion to it.’ That lack of cohesion came to the fore very quickly after Greville’s appointment.

Troubled waters

The first full financial year that Greville presided over coincided with the firm’s Paris arm defecting to US firm Orrick, Herrington & Sutcliffe in October 2002. ‘We had quite a big Paris office and that business ended up not being very compatible with the rest of the firm,’ Greville says. ‘The guy leading that office, David Syed, pulled us into merger discussions [with US firm Hunton & Williams] because his biggest client, Vivendi, was at that time turning itself into a media conglomerate and David wanted a strong New York presence.’

The 42-lawyer team, led by finance partner Syed, now Orrick’s senior partner for Europe, was a sizeable part of Watson Farley’s business, representing trophy clients such as Vivendi Universal, Renault, France Télécom and BNP Paribas.

‘We set up Paris in 1989, and became one of the main players pushing into US markets at that time,’ Syed says. ‘Watson Farley grew really fast, but then there came a realisation that the firm’s platform was not broad enough to service the client base.’

The firm fielded a strong finance practice, with asset finance a particular strength in line with the shipping practice, but corporate just didn’t have the firepower, Syed says. ‘So I convinced the partnership that we should merge. I said, “Look, let’s partner with a US name and create a transatlantic firm.” And we got a long way down the line with Hunton & Williams – it came right up to the eve of a merger – but then the London partnership said it didn’t want to go ahead because it was afraid of losing its independence.’

Hunton was at the time an 800-lawyer firm, originating out of Richmond, Virginia. The merger would have created an international law firm with revenues exceeding $485m in 2002/03, but instead the talks were the first of a series of unsuccessful merger discussions that ultimately came to dog Watson Farley.

Following the loss of its Paris arm, the firm’s revenues dipped considerably, and in 2003 Watson Farley recorded an 8% fall in turnover, from £52m to £48m, and found itself embroiled in a two-year employment claim for unused holiday pay brought by the 42-strong Syed team.

Merging on the ridiculous

The Hunton discussions bit the dust in 2001, before Greville took over, but they were quickly followed by talks with another US firm, Squire, Sanders & Dempsey, and then with larger City law firm Simmons & Simmons in 2002. Greville declines to comment about the discussions with Hunton and Squire Sanders. However, reflecting on the Simmons talks he says: ‘I think the discussions were partly a reaction to the Paris office breaking away and a feeling of a slight lack of confidence in the business of the future.’ The eventual collapse of the deal was attributed to an objection from some Simmons corporate partners.

The firm’s talks with New York-headquartered Chadbourne & Parke were perhaps the most public of all and, according to Greville, markedly different from the firm’s previous merger attempts. The discussions, which became public in June 2007, would have created a combined firm with over 600 lawyers and revenues of more than $350m. Chadbourne had posted good results in 2005/06, with an 11% jump in revenues to $254m, while the same financial year saw Greville preside over a small 1% increase in revenues to £54m. It wasn’t a merger of equals, and when the deal broke down five months later, it seemed that Watson Farley’s partnership had got spooked again.

‘We finished the Simmons talks in 2002 and then we deliberately said, “OK, we’ve had enough of this”, until we got into talks with Chadbourne,’ Greville says. ‘Chadbourne was a very specific strategic discussion to create a firm that would have been unique in the marketplace and would have advanced us down a strategic path. The business case was strong, but it didn’t happen for cultural reasons – we just couldn’t do a deal in the end.’

The US merger may not have been as transformational in the style of DLA Piper’s three-way tie-up, but it would certainly have given the firm a considerable lift in the energy sector as well as greater geographical coverage across the US and eastern Europe. Today, Greville says that the firm still needs to strengthen its corporate mass, and the only way to attract those names is to bolt on much-needed international credibility.

It is a view shared by former partner Syed, who has helped to build up Orrick’s European operations to such an extent that the firm’s headcount on this side of the Atlantic is now greater than that of the whole of Watson Farley. ‘It’s not too late for them,’ Syed says. ‘But they have to negotiate a transatlantic merger.’

Greville says that a merger is off the table for now, and adds: ‘Most of these merger discussions are ancient history really. It’s quite unfair to classify us as some kind of serial merger failure.’

Steadying the ship

Despite the persistent merger talks giving rise to an external perception of muddled strategy, the consensus from Greville’s peers is that he did a good job steering the firm through its nadir. ‘David Warder stepped down and Michael stepped into the breach,’ Syed says. ‘He did a good job of refocusing the firm, and that is what has kept it going.’

Certainly, Greville has been quick to pare down the firm’s main sectors and go back to basics. ‘Our strategy goes back to 2002. It’s about positioning ourselves in the market and recognising that we’ve got a strong ship finance practice, but that market is tiny and we’ve got almost as much of it as we can get. We need to build up complementary areas,’ he says.

Similar to most mid-tier firms, Watson Farley has been trying to beef up its corporate practice, most recently hiring partner Felicity Jones from Manches. Energy and project finance work is another growing specialism that ties neatly to the firm’s asset finance strength. The hire of Lecchi and Evans will help to augment the firm’s energy expertise, and in May 2008 it hired project finance associate Mehrab Nazir from CMS Cameron McKenna as a partner.

‘Decisions tend to be run out of the centre. It’s a style that we’re starting to question because this is a bigger business now.’

More significantly, the firm has continued to expand internationally, opening four offices in two years, in Athens, Milan, Munich and, most audaciously of all, Madrid. Watson Farley had never had a Spanish platform until it launched in November 2009 with the hire of a five-lawyer team from Lovells (now Hogan Lovells) that included project finance partner Joaquín Sales.

Greville says the firm’s recent office launches are much more strategically focused than in previous years. ‘These were small and very specific office openings and were about the development of country strategies – we already had offices in Piraeus, Rome and Hamburg,’ he says. ‘The really big step was to open in Madrid, and that was about driving the European renewables practice and being able to say that we’ve got a pan-European renewables practice.’ The firm’s decision to move into Hamburg in 2005 was targeted at ship finance in Germany, while Athens was also about widening the firm’s renewables net. ‘It’s not an opportunistic international strategy,’ he adds.

Recent uncertainty surrounding tariffs and bank lending has hit the renewables market heavily, but EU energy targets dictate that it will eventually get back on stream, making the office launches solid long-term bets.

All of the strategic decisions, good and bad, can be traced back to Greville as a result of the firm’s extremely light-touch management structure. Tackling that is the next item on Greville’s to-do list.

New voyages

While Watson Farley has voting systems in place for matters such as lateral hire partners, whether fixed-share or equity, and even for office lease extensions, it hasn’t reformed its management since 2002. ‘There’s a group of 16 partners that gets together once a quarter for a day-long meeting, but other than that meetings tend to be somewhat ad hoc,’ Greville says. There are also no systems in place to limit managing partner terms, and no elections are planned.

In the past eight years the firm has opened six new international offices and London has gone from being 70% of the business to less than half, but management remains conspicuously London-centric. ‘We don’t have a partnership board or anything like that to take decisions – decisions tend to be run out of the centre,’ Greville says. ‘It’s a style that works for us, but it’s one that we are starting to question because this is a bigger and more diverse business now. It does help you to make decisions quicker – but it also imposes quite a lot of responsibility on the decisionmaker.’

Luckily, the firm’s practice spread of shipping, energy and insurance is quite narrow, lessening the potential for political infighting between practices. ‘We don’t have a lot of strategic conflicts,’ he says. ‘We don’t have issues where I’ve got one group of partners that want to go rushing off in a certain direction and others disagreeing, because we’ve built it up from a fairly narrow base. That makes it an easier beast to manage.’

Nevertheless, the firm’s recent financial success is very much Greville’s success. If the firm’s second wave of rapid international expansion encourages another onset of its late Nineties confusion, it could all yet be lost. Greville had a baptism of fire with the Orrick walkout, and has been keen to ensure that it won’t happen again.

To encourage a stronger sense of firmwide homogeneity, Greville signed all partners up to one partnership document before the firm converted to a limited liability partnership in 2005, so that the partnership terms don’t vary by jurisdiction. The latest decision to return the focus to beefing up the London presence through a series of high-profile hires is a sign that Greville will not let a refreshed international strategy erode the firm’s message in its domestic market.

Curtis says of his former colleague: ‘Managing partners don’t last as long as Michael has unless they’re good.’

Perhaps that’s too simplistic, but on Watson Farley’s recent performance, Greville deserves a little more of the limelight, and he’s planning to get it. LB