Mark Dembovsky joined Howard Kennedy as chief executive in January 2011, charged with turning around the fortunes of a West End firm widely considered to be on shaky ground. A year on, LB assesses his progress.
Sitting in on one of the newly established management meetings in Howard Kennedy’s West End offices, it is initially hard to work out exactly who is in charge. Head of corporate Michael Harris, property finance chief Jason Lewis, and dispute resolution head Craig Emden all chip in to answer questions about the firm and its new strategy, while one member of the group sits watching quietly. Suddenly one of the partners falters, unsure of how to answer a question about what the firm’s new ‘Aiming for Excellence’ scheme entails, and the quiet man springs into action.
Speaking at an incredible speed, he proceeds to answer the question fully. This is Mark Dembovsky, non-lawyer chief executive at Howard Kennedy and a man with a plan. He has now been at the firm for a year with a mandate to revolutionise the place. Frequent partner meetings, financial transparency and a re-brand are just a few of his objectives.
‘I don’t believe in meetings for the sake of meetings but I believe in them as a tool for communication.’ – Mark Dembovsky
Dembovsky feels that communication is key to the future success of the firm. ‘I don’t believe in meetings for the sake of meetings but I believe in them as a tool for communication,’ he says. The firm held its first ever AGM last month and every single staff member was invited. This is all extremely positive, if not well overdue. The problem remains that while there have definitely been some positive developments, few feel that there have been as many changes as they had expected. One current partner notes: ‘The only major changes have been for salaried partners as they are finally getting access to information about the firm, particularly financial. A few things changed at the beginning but it has stagnated a little bit. It needs to keep up the pace.’
It is a fragile process though. The old-fashioned culture of the firm means that any new developments must be handled with care. Harris explains: ‘We don’t want to throw the baby out with the bath water. We have some fantastic entrepreneurs and we don’t want to pull the rug out from what they are doing. We have some really good rainmakers.’
Revamping Howard Kennedy is a tough task indeed, but the question remains is it all too little too late?
What a difference a decade makes
Some may argue that Dembovsky is flogging a dead horse. In our 2001 West End feature (‘Down and out in W1’, LB117, page 28) Howard Kennedy was one of three firms considered as ‘favourites for independent survival’. Today Howard Kennedy sits at 82 in the LB100 table, lower than it did in 2001 when it first appeared at 74. The firm has been a West End stalwart for over 60 years, and has long been regarded as a traditional and secretive firm. Led for 19 years by former senior partner Trevor Newey, a man described by one former partner as ‘formidable’, the firm had become capable but underwhelming.
Throughout the recession in the early nineties, Newey’s strong grip on the firm worked. Howard Kennedy was considered very solid and relevant competition in the West End, particularly in the property sector. It was from this position of strength that the firm made the out of character decisions to do five mergers over a 17-year period, beginning with the 1991 tie-up with A L Philips & Co and ending with the DMA Legal merger in 2008. Each addition led to an initial revenue boost but subsequently threatened the culture of the firm as the new members failed to gel with the old guard. ‘We have had a bit of a reputation for being a silo firm in more recent years but historically it wasn’t the case,’ says Harris. ‘It may have come about as we got bigger. Part of the strategy in the mid-nineties was based on ‘bolt-ons’ and highly incentivised deals. There have been rumours in the past that Howard Kennedy is nothing more than a franchise.’
Since its arrival in the LB100 the firm has had a turbulent time and over the last ten years it has struggled to be consistent. In 2001 it was riding high having had an impressive year. It secured a joint venture with private family and charitable trust accountancy firm Levy Gee, adding critical mass to its business. The firm had 43 partners, 20 of whom were equity (the largest number that the firm has had since joining the LB100). Compared to rivals Finers Stephens Innocent and Fladgate Fielder (now Fladgate), Howard Kennedy was larger in every way, with its £19m turnover dwarfing Finers Stephens Innocent’s £14m revenue and 40 partners, and Fladgate Fielder’s £17.8m turnover and 33 partners.
Despite an unexpected revenue dip in 2002 to £17.2m and the loss of two equity partners (Andrew Greenfield and Michael Dobrin), 2004 saw fee income shoot upwards to £22m mainly thanks to a merger with property firm Amhurst Brown Colombotti the year before. Howard Kennedy’s fortunes kept improving from that point as turnover saw another leap in 2006 to £34m on the back of the property boom. In 2008 the firm ambitiously merged with two firms in as many months, after securing deals with personal injury specialists Douglas-Mann & Company and commercial law firm DMA Legal. Revenue peaked at £42.4m and the firm had 77 partners.
However, the changing economic climate and the firm’s heavy dependence on the property market meant that turnover fell by roughly £8m the following year and the firm’s growth pattern has been in reverse ever since. Its profit margin peaked at 28% in 2007 when profit per equity partner (PEP) was £665,000 and is now struggling at 14%.
‘Howard Kennedy is full service but it is known as a real estate firm. It doesn some great real estate work and has good clients.’ – Scott Gibson, Edwards Gibson
Management should have focused on costs during the boom years and worked to bring them down by managing out underperforming partners and dealing with expensive overheads. But it didn’t.
Dembovsky is attempting to tackle the firm’s profitability issue by introducing more financial rigour, most notably through a ‘financial hygiene’ scheme. This includes chasing up old debts and a more active cash collection system.
‘We are very much on track this year, in terms of strategy and profit, with where we want to be,’ he says. ‘There is a lot of current active business. I am very positive.’
Howard Kennedy showed some improved financial performance during the 2010/11 financial year. Revenue stood at £29.5m, a 7% increase on the previous year, while PEP was looking better at £250,000, up 15% from the 2009/10 financial year.
While headcount (13 equity partners and 53 non-equity partners) and turnover are now back to 2005 figures, the firm is making significantly less profit. In our LB100 five-year tracker (see LB217, page 64) Howard Kennedy came in with the worst performance in terms of turnover and profit during the 2010/11 financial year.
Similarly, the firm’s cost per lawyer is also staggeringly high at £190,000, given that revenue per lawyer is only £220,000. It means that profit per lawyer is only £30,000.
Positive as Dembovsky may be, and even though the firm is on course to hit its target at the end of the 2011/12 year, there has already been a snag. March 2011 saw the departure of the DMA Legal team, which included Deborah Mills, David Hill and Andrew Pike. The trio left to launch boutique law firm Burlingtons alongside Newey. Dembovsky predicts that the loss is likely to bring revenue for the year down to roughly £28m.
‘This year revenue will be less as we lost a team so I am focusing on the profitability of the firm and hoping to drive that up,’ he says. There is certainly plenty of work to do.
Blurred vision
Tackling poor financial performance is more difficult when partners are kept in the dark. Until Dembovsky’s arrival, Howard Kennedy not only withheld financials from the press and those outside the firm but also from those working there. For the most part, it was customary for partners (particularly salaried ones) not to know the firm’s revenue and profits, let alone details about how much everyone was billing. However, this was starting to change before Dembovsky’s arrival as discussions to convert the firm to a limited liability partnership had actually been taking place since late 2010.
‘We live in an age where you can get information about everything everywhere. When you are not getting information about your own workplace then there is something very wrong. We just wanted to move into the 21st century,’ says Lewis.
The idea of transparency at Howard Kennedy seems to divide those still there and those who have moved on. A former partner says that the opacity was part of what made the firm appealing. ‘It was part of the charm of Howard Kennedy in a way,’ says the ex-partner. ‘It wasn’t all about competing with others and seeing how much someone was or wasn’t billing like most big firms. It also made people think more about themselves and what they were doing.’
Conversely, a source at the firm points out exactly why all the secrecy was actually a huge problem: ‘The lack of transparency did absolutely make everybody at the firm think about themselves and not about Howard Kennedy as a whole.’
‘When you are not getting information about your own workplace then there is something very wrong.’ – Jason Lewis, Howard Kennedy
Even Howard Kennedy’s current office arrangement makes co-operation and communication harder than it should be. Although it occupies a grand building on Cavendish Square, inside the reality is quite different. The reception area was, until very recently, tired and dated, bearing a closer resemblance to a home than the office of a top-100 law firm. So much so that many of the firm’s lawyers told Dembovsky that they were too embarrassed to invite their clients in for meetings. It wasn’t hard to see why.
Dembovsky acknowledged the complaints about the state of the firm’s premises and a refurbishment of the client reception areas took place in December. This is tied into a re-branding of the firm planned for the first half of 2012 in a bid to inject some life back into it.
Since there are only four years left on the current lease, no major plans have been made to refurbish the rest of the office, leading to speculation that it will be looking to move out in 2015.
The main issue, however, is the workspace for the lawyers upstairs. Each practice lives in a separate, contained ‘flat’ (equipped with its own toilet and bath tub) within the building. While staff get to know the people in their flat very well, they rarely meet their neighbours unless they bump into them in the hall.
‘Everyone is really friendly at the firm but you don’t really socialise outside your flat,’ says one lawyer. ‘It has taken me several years to get to know almost everybody and I recognise the majority now if I’m walking down the street near work. But you only generally find out about new people joining the firm if someone happens to tell you at the pub.’
Another lawyer also despairs at the lack of cohesion: ‘I would like to see a bit more bonding between the different departments.’ There is a strong sense that many of the firm’s lawyers keep a tight grip on their own clients. ‘Everyone keeps to themselves within their team. I brought clients with me when I joined and took them with me when I left,’ says a former partner.
Dembovsky says he is well aware of this problem and is very keen for this to change. ‘I knew when I asked how many people were at the firm and people struggled to answer me that there had been a serious lack of communication,’ he says.
New focus, new life
With 35% of the firm’s revenue coming from its property practice, Howard Kennedy has a solid reputation in the real estate sector. ‘I know it is full service but it is known as a real estate firm,’ says Scott Gibson, joint founder of recruitment agency Edwards Gibson. ‘It does some great real estate work and has some really good clients.’ The firm also has notable employment, family and media departments but they are small. Dembovsky claims to have devised a new strategy with the view to focusing the practice.
‘What actually binds us is our client base,’ he says. ‘Our client base is highly entrepreneurial, they are high-net-worth individuals or owner-managed businesses who do their own financing. And we are providing not only business services but also personal services to these clients, helping with their divorces, wills or luxury asset finance. So if you can bind the firm around that strategy then you know what aspects you should be doing and what you should not be doing.’
This new strategy is built around the dual concept of Howard Kennedy Business and Howard Kennedy Personal. The firm plans to focus on developing the services that it already provides to its impressive client list, which includes Frogmore Real Estate Partners, engineering company Manroy, BMG Rights Management and Banco Santander, to name a few. It also wants to attract new clients. ‘We want to promote ourselves in the private wealth area,’ says Harris. ‘The West End is a very good place to be to do that.’
But this plan is both obvious and well-used. The fear is that Howard Kennedy cottoned on to the idea too late, with the fight to become an all-round adviser to the privately wealthy becoming as hard fought as places on bank panels. Firms such as Withers, Macfarlanes and Baker & McKenzie have a strong hold on the private client market. Mishcon de Reya, once considered one of Howard Kennedy’s serious competitors, launched Mishcon Private in 2009 (see ‘Gold standard’, page 22), the same year that Dembovsky project managed the firm’s office opening in New York as a part of consultancy Montana Associates, a vehicle through which Dembovsky previously did private consultancy work. Introduced to the firm by a former colleague at Reed Smith, Dembovsky’s previous experience of doing mergers and opening offices in foreign countries meant that he was involved with a number of regulatory, HR and premise issues in the later stages of the New York negotiations.
‘I knew when I asked how many people were at the firm and people struggled to answer that there had been a serious lack of communication.’ – Mark Dembovsky
Now Dembovsky has more routine issues on his hands. ‘There is a need for more support staff at the firm,’ says one partner. ‘So much so that partners are far too busy doing their own administrative work to go out and sell the firm to new clients.’
However, Dembovsky disagrees with this, saying: ‘I’ve worked in a number of significant law firms and the partners here do no more admin than elsewhere! My objective however is, as far as possible, to remove the admin burden from lawyers where it makes sense to do so – but there are certain things that only the lawyers can do and they have to have an involvement.’
As a whole Dembovsky feels that he and his visions have been welcomed at the firm: ‘I would have said that partners have bought into the overall vision of where we want to get to so I haven’t come across any opposition to the big picture.’
He continues: ‘Where there will be resistance (and this is fairly normal) is in how you get there, and that’s where you come across people who have some very different ideas.’
Considering the cliquey nature of the firm, there is no doubt that he is going to come up against some protest. One insider suggests that not all partners are so enamoured: ‘Many are saying that Mark has been here for a year and there are no huge changes.’
Dembovsky, however, is keen to point out that change takes time: ‘The management of change is a long process and impacts people at different stages along the way. It would be great if one could wave a magic wand and bring people to the Promised Land in one step. However life isn’t quite that simple and initiatives need to be prioritised.’ He adds: ‘My objective has to be to keep the firm’s needs at the forefront of my priorities, rather than those of individual people, however valid those people’s expectations might be.’
Solid background
If a turnaround is to be achieved then Dembovsky’s credentials are excellent. A South African, he qualified as an accountant with Deloitte and worked in its New York office for two years. A chance meeting in 1986 with David Barnard, the head of Linklaters’ first New York office in the mid-eighties, led to a job offer. ‘He called me and offered me a job. I refused initially, saying I would never work with lawyers!’ Dembovsky recalls. After a change of heart, he started working for the firm later that year and oversaw Linklaters’ move from a cramped office to a far bigger and more luxurious premises. The move helped Linklaters to expand and what he describes as ‘professionalise’ the business. Six months into that project the then senior partner of the firm, Ferrier Charlton, while in New York, offered Dembovsky the opportunity to use his skills to do the same for the firm world-wide. A two-year project turned into six years, during which time Linklaters established a major global footprint.
Dembovsky also worked closely with Tony Angel, who would become the firmwide managing partner in 1998. After that came three years, from 1993 to 1996, at real estate investment company, Sydney & London Properties, before returning to the legal market in 1996 to become chief executive of Warner Cranston, the small property boutique that merged into Reed Smith in 2001. Dembovsky served eight years as the chief strategic officer at Reed Smith then started up Montana Associates in 2009. An ill-advised move to Dawsons as chief executive in 2010 was quickly followed by the leap to Howard Kennedy before Dawsons collapsed in 2011.
Michael Pollack, global head of strategy at Reed Smith, worked closely with Dembovsky in his time at Reed Smith and has every faith in his ability: ‘Mark and I worked on the integration of Reed Smith and Warner Cranston together. There was nobody who knew the firm like he did.’ Once the integration was complete they worked on developing a strategy for the firm. ‘Mark has three qualities that make him a great strategist; firstly he is a very, very clear thinker – he always sees things clearly and consistently. Secondly he is not constrained by what is going on around him. He is an out-of-the-box thinker. And thirdly he is very good at executing the ideas that he has.’
‘Businesses in transformation excite me,’ says Dembovsky. ‘You can see that in my career history, and I have seen a great opportunity for change at Howard Kennedy. It has a fantastic client base, fantastic lawyers and fantastic practices but it is in need of developing those into something more 21st century.’
He also feels that the firm has suffered from general misconceptions. ‘I don’t think the world really knows about the real Howard Kennedy. The bottom line is that I don’t think our profile is correctly placed in the market.’
You could be forgiven for assuming that having worked at a senior level at global giants like Linklaters and Reed Smith, ironing out the kinks in a 115-lawyer, UK-only firm would be a doddle. But overhauling this West End firm with its archaic systems and fractured teams could be his biggest challenge yet. Dembovsky will have to be prepared to take a hard-nosed approach to those who refuse to toe the line and with only 13 equity partners now left at the firm he is going to have to make a serious effort to prepare for the next generation.
Younger members of the firm feel discouraged by the seemingly impossible track to the equity partnership but many have emphasised the need for ‘fresh blood’. In a bid to answer this, the firm has published a comprehensive document on its intranet system detailing how the move to partner is made, outlining a series of criteria associates and young partners must meet in order to move up. The website also describes various elements linked to making partner such as the voting process and Dembovsky is keen to get this process moving.
‘Historically, if you wanted equity partnership in short order it probably wouldn’t have been top of your list of firms to approach,’ says Gibson.
There are benefits to having a tight equity, however. The main plus side being that a merger could be more straightforward. There are many who feel Howard Kennedy is a prime candidate for consolidation, although it’s not immediately clear which firm would want the task of taking on this quirky firm. The most likely candidate would be a non-City practice looking to extend its reach in London. But in September 2011, Dembovsky told LB: ‘I do not see Howard Kennedy as a firm that needs to merge.’ While it is not a part of the plan, this tight equity could be one of the most appealing things to a larger firm.
‘It would make quite a good merger candidate,’ says Gibson. ‘And with such a tight equity it would be quite easy.’ A partner at the firm agrees with this: ‘The lease of the office is up in a few years and big things always tend to happen around then in law firms. I suspect we will probably merge.’
Break from the old routine
Because of his heart-on-sleeve approach to management, Dembovsky makes for a very strange but necessary juxtaposition with Howard Kennedy, a firm that has for so long avoided conversations of any kind. In a bid to get to know the business inside out, he insisted on meeting every member of the firm when he arrived, from equity partners to the staff in the photocopying room. His weekly blog, which takes his colleagues through his week, demonstrates his open character and desire not to rule the firm from an ivory tower. ‘I don’t want to be that person who leads from somewhere distant. I want to be as much a part of the firm as possible,’ he says.
It is fair to say that Dembovsky is providing the firm with a great opportunity to change and he is extremely passionate about it. ‘I came in here with no pre-conceived ideas but with a sense that this was a firm that hasn’t really invested in itself and in understanding the future,’ he says, adding, ‘it has been fantastic and fascinating. We have a lot to do internally to get everybody onto the same page, so that they know our strategy and understand what we are all about.’
His vision is admirable and the increased transparency, regular meetings and more focused strategy are all going to be hugely beneficial to the firm. However it is a very big job and there is no way that the firm’s fortunes are going to be reversed as quickly as many would like. At the very least, if fully supported, Dembovsky is capable of turning Howard Kennedy into a very serious merger candidate.
Partners at Howard Kennedy would be foolish not to take advantage of Dembovsky’s energy, experience and desire to give the firm a makeover. It is simply a case of whether they will realise this before it is too late, or whether it’s a matter of closing the barn door after the horse has bolted.