Renaissance man

From challenged leader to merger architect and LB Management Partner of the Year – it’s been quite a turnaround for Lovells’ David Harris

When David Harris collected his Management Partner of the Year award from Legal Business at Grosvenor House in mid-February, it wasn’t just the David Bowie soundtrack that brought a smile to his face. Though Bowie is a hero of this polo-playing guitarist, that smile was prompted by the day job, and the apparent vindication of his ambitious plan to transform Lovells from a mid-tier everyfirm into a global player.

The merger hasn’t happened yet – it goes live on 1 May – so of course it is far too early to know whether Harris can deliver on such a dream. But his remarkable turnaround over the past 12 months is what justifies his victory over the likes of Mike Francies from Weil, Gotshal & Manges, Herbert Smith’s David Gold and Berwin Leighton Paisner’s Neville Eisenberg. For it was just over a year ago that Harris was facing the prospect of losing his job, with a very real challenge for the top slot emerging in the shape of continental European managing partner Harald Seisler.

Seisler took Harris to a contested election, campaigning on the back of dissatisfaction among the German ranks over London’s failure to keep pace in terms of profitability up to 2007. During the election, Harris was already in the throes of merger talks with his chosen partner, Washington DC’s 1,000-lawyer Hogan & Hartson. As details of a proposed US tie-up filtered down to the partnership, against a backdrop of some scepticism – even Harris admits he was firmly against such a deal when he came to power – he not only won the poll, he went on to win overwhelming support for the deal.

The gong is one in the eye for his critics, and a fitting reward for what has been a truly outstanding year. Having battled through the internal morale issues that plagued his early days in charge, Harris has emerged reinvigorated. Since taking the lead in 2004, he has increased profits per partner by 47% – against 7% at Herbert Smith and 19% for Ashurst over the same period (see box, opposite). Now he just has to keep up the momentum.

Going stateside

Talks with Hogan were already at an advanced stage when Harris faced the unwelcome distraction of the leadership challenge. Having chaired the firm’s working party on the US between 2003 and 2005, he was closer than many to Lovells’ American ambitions when he was elected managing partner in 2004. At that point, he actively opposed partners who felt the firm should pursue a US merger.

‘I was firmly against it,’ he says. ‘It seemed to me that the firm was at its weakest point in many ways – that’s not when you seek a merger unless you have no choice. We needed to deal with our own problems and build a stronger firm before we could look at it more seriously.’

The firm had already developed its own US presence, opening offices in New York and then Chicago. However, with less than 20 partners between them, the firm never really made an impact in the North American market, while international clients were increasingly finding the litigation, restructuring and insurance-focused offering too limited in scope.

‘It was becoming clear that clients in Europe and Asia were approaching us for a wider range of services than we could provide in the US,’ Harris says. ‘You have to find an answer to that, otherwise over time you’re simply likely to lose them to firms that can offer that broader capability.’

In mid-2007, Harris started looking for ways that the firm could strengthen its US footprint. While previous management teams had spent little time meeting the heads of other firms, Harris used his regular trips across the Atlantic to develop contacts. He initially sought to bolt-on practices through the acquisition of teams, but struggled to find suitable candidates. As time went on, Harris became increasingly convinced that a full merger was the answer.

Although he admits to conducting a ‘desktop analysis’ of the New York firms, Lovells never made even a tentative approach in Manhattan. Not only was Harris realistic about the ‘mismatch in profitability’ posing what would almost certainly be an insurmountable hurdle, it was decided that the hard-nosed, bottom-line culture among the Wall Street elite would render such a tie-up unpalatable.

Harris drew up a set of criteria, stating that any suitable candidate must have a broad practice, strong capabilities on both the East and West Coast, and a national presence. It was also crucial, Harris felt, that any partner had an international client base in order to maximise the potential for cross-selling between the firms. But most important of all was that it shared the same cultural DNA.

However, while Harris has undoubtedly been the driving force behind the merger from conception to reality, it was actually global dispute resolution head Patrick Sherrington who made the crucial first introduction to Hogan in July 2008. Sherrington had previously sat alongside Hogan chair Warren Gorrell as Lovells’ representative to the Pacific Rim Advisory Council alliance network.

Fierce competition

And then along came Seisler. Sources close to Seisler – who has since retired from the firm and was unavailable for interview – indicate that he had become increasingly disappointed with the disparity in profitability between the London and German offices between 2004 and 2007. The German practice had consistently outperformed the UK business (although it was helped by a faltering sterling/euro exchange rate), the bottom-line performance of which was being hampered by the London corporate team’s inability to capitalise on the superheated transactional market conditions at the time.

Seisler started canvassing partners in early 2008 to gauge his level of support for a challenge. Satisfied that he could mount a serious bid to dethrone Harris, he finally called him to inform him of his intentions to stand. (Though it came as no surprise – Harris had already become aware of Seisler’s plans through the Lovells grapevine, he says.)

‘I had no problem being in a contested election – I’d already been through one,’ Harris says, referring to his run against commercial head Andrew Skipper and competition chief John Pheasant to replace Lesley MacDonagh at the helm four years previously. ‘What I did have a problem with was his platform, which I thought was very divisive.’

‘There will be a relatively small number of firms operating globally going forward. We want to be part of that global elite.’

The contest was announced internally just before the firm’s Asia partner conference in Macau in September 2008. The annual event took on an entirely new complexion, becoming an unlikely launch pad for the Harris campaign. Seisler agreed not to attend in order to avoid any awkwardness, instead opting for a specially arranged solo tour of the offices a few weeks later.

By now, details of the Hogan merger were filtering down to the wider partnership. All were understandably keen to know more. However, with Harris anxious to keep his cards close to his chest for fear of an external leak during what was a delicate period of negotiation, the subject, according to one China-based conference attendee, became ‘an elephant in the room’. The difficult situation led to some partners feeling that Harris was needlessly withholding information from them, although the fact that the story did not break in the press for another year goes some way towards vindicating his decision.

Harris was careful not to pin his colours too firmly to the US plans, but it inevitably became a key policy point of the elections. The joke among partners at the time was that if you voted for Harris you were voting for a US merger, and if you voted for Seisler you were voting for the sack.

After a closed ballot at the firm’s partnership conference in Vienna on 15 November, Harris was re-elected for a second five-year term – a one-year extension to the usual four in an attempt to ensure continuity through the merger integration process. His margin of victory remains a closely guarded secret – even Harris claims that he doesn’t know the result. While one senior partner suggests that the delay between the voting and the announcement of the result means that it must have been close, most believe Harris ran out a comfortable winner. Of the 17 Lovells partners interviewed for this feature, only one admitted to voting for Seisler.

Although the firm’s partnership deeds do not prevent management figures from standing for a third term, Harris says that he has no intention of extending his stay beyond 2014.

Hard sell

Duly endorsed by the partnership, Harris was able to turn his attention to pushing through what he hoped would become a momentous deal. Having by now discussed the proposal at length, Hogan appeared to tick all the boxes. The project of selling the deal to both partnerships began.

Although this was a gradual process, with Harris regularly reinforcing his message at formal firm events throughout the year, the major turning point came with Lovells’ annual conference in Lisbon last November. Harris gave what witnesses describe as an ‘impassioned’ speech, outlining the benefits of the Hogan move. The performance is variously described as ‘spectacular’ and ‘wholly compelling’ by others who were there.

Everyone knew that such buy-in would be crucial, and as things progressed, practice heads from each firm racked up the airmiles through a series of transatlantic meet-and-greets. ‘I went across [to Washington DC] to meet my opposite number, not exactly knowing what to expect,’ one says. ‘I came back thinking: “Yeah, I can work with that guy.” There are differences – it’s a US firm, after all – but the two cultures really are remarkably similar.’

Most of the meetings between practice stream leaders were similarly successful, although there remain cracks in the façade. One practice head told LB that he was left unimpressed by his opposite number: ‘Their practice isn’t as strong as they say it is,’ he says. ‘Their client list is impressive, but things aren’t so good when you actually drill down into it. We contacted one of their so-called major clients who told us that they hardly really use them.’

Partners in Asia have also questioned what benefits they will see from Hogan’s small presence in Greater China and Japan, aside, perhaps, from those selling outbound work that will be serviced in other parts of the world, and some small boosts to IP, litigation and US securities. Support staff and associates in London harbour reservations too, particularly with regard to salaries.

But in December 2009, partners on both sides voted the deal through, and Harris got his long-awaited go-ahead. Although the vote was again taken in an independently verified closed ballot, the motion received the required approval of at least 66% of the Hogan partnership and 75% of Lovells’ to be successful. Senior partner John Young, who also takes a great deal of credit for selling the concept to the partnership, says: ‘In terms of driving the deal forward and selling it to the firm, this merger will go down as David’s greatest achievement.’

Part of the elite

There is still an enormous challenge ahead. The task of creating a firm that will sit comfortably in the world’s top ten – its combined turnover exceeding £1bn – is not one to be sniffed at.

‘The market is developing in such a way that suggests there will be a relatively small number of firms operating globally going forward,’ Harris says. ‘We want to be part of that global elite, to act for major international corporates and banks across the world. That is very much the ambition, and we believe that our strength and platform gives us the opportunity to do so.’

However, both sides are realistic enough to recognise that the merger is not a cure-all solution. Harris has stated that his goal for the combined firm is to ultimately establish it as a member of the global elite, and on that front there is still much work to do.

Looking at our own eligibility criteria for entry to the Legal Business Global Elite, Hogan Lovells falls at the first hurdle: it is not a leading force in corporate or finance on either side of the Atlantic. New York is also a glaring hole in an otherwise comprehensive footprint that will need to be addressed if the firm hopes to challenge for mandates on the juiciest international transactions.

For Lovells, its London corporate practice has long been a work in progress. As one partner says: ‘I’ve been through three major mergers at this firm, all of which were apparently going to be used as a platform to grow corporate. That hasn’t happened – why should this be any different?’

Harris does at least appreciate the problems, having moved quickly to address some glaring issues across the firm when he first took the helm. Although initially dismissed by some as the ‘safe choice’ in the original leadership election, it quickly became clear he had no intention of maintaining the status quo. He immediately launched a ‘warts-and-all’ review of the practice, the brutally frank assessment of which surprised many and left Harris facing accusations of being overly negative.

‘David had a very strong awareness of the market position of the firm,’ one current board member says. ‘Large tracts of the partnership still believed that we were just behind the Magic Circle, but David felt that we shouldn’t deceive ourselves – that gap, not only in terms of headcount and revenue, but also the quality of work we could attract, was already large and was getting bigger. It was quite shocking for some partners, but for the management team it was refreshing.’

Balancing act

When he took over, Harris set about tackling the three main issues that he felt were holding back the firm: outdated client relationship management, uncompetitive profitability and the lack of a clear, long-term strategy.

‘The market was changing, but we weren’t,’ he says. ‘The financial performance was obviously the immediate concern, but we also critically needed to address our client focus and clarify the strategic direction of the firm. There was a lack of defined vision as to what we were trying to be. We needed to get our act together.’

At his first partnership conference in November 2005, Harris outlined a series of changes to the firm’s CRM systems. He conducted the first survey of major clients, and brought in Serena Simmons from Clifford Chance as a new global business development head.

‘A lot of the partners, myself included, were quite cynical about the whole thing – we just thought it would be more ineffectual committees and meetings,’ one partner admits. ‘We hadn’t realised that, when it came to CRM, we were in the dark ages. We were three or four years behind the competition. You can’t really argue with the results – the turnover from our major clients went up considerably.’

Harris then sought to tackle Lovells’ historic bête noire: what to do with under-performing partners.

‘It was partly a degree of catch-up,’ Harris agrees. ‘We had not addressed some of these issues in previous years and had no structured process to review partner performance. We looked at the results for practices and offices, but didn’t do it in a terribly analytical way. When I first came into the role, I was handed a folder about a foot thick that was full of individual performance stats. I wasn’t going to learn anything reading that – we needed a new model.’

Working alongside the firm’s finance team, Harris developed a ‘traffic light’ system that enables the firm to more accurately measure and track individual performance. An amber light warns that a problem is starting to emerge. A red light highlights a more persistent, deep-rooted issue. The system worked well in principle, but when it came to implementing these very necessary changes, Harris found himself in an extremely difficult, almost no-win situation.

‘I had no problem being in a contested election. What I did have a problem with was Seisler’s platform, which I thought was very divisive.’

Having already been dented by plummeting profits, morale among the partnership was left in tatters following a painful redundancy process in December 2004. Referred to by one partner as ‘the night of the long knives’, 25 partners were culled in one fell swoop. Although Harris did not formally start in his new role until January, as incoming managing partner he was heavily involved in orchestrating what he calls a ‘necessary reshaping’. The bloodletting was the first such action in Lovells’ 100-year history, and left Harris delicately treading a tightrope between making the required changes to ensure the firm’s position didn’t worsen, and not doing so in such a radical manner that it would cause lasting damage.

‘Without wanting to be over-dramatic, the first 18 months of my leadership were about trying to get the show back on the road,’ Harris explains. ‘Morale had taken quite a hit, and there was great concern over whether another axe was about to fall. The problems we faced needed to be dealt with urgently, but I was concerned that suddenly adopting a brutal approach would have been counterproductive at a time of considerable sensitivity.’

The more ambitious among the partnership, who had long called for Lovells to pursue a more transactional-oriented path, lost patience. The firm was hit by a raft of big-name departures, including private equity stars Marco Compagnoni and Oliver Felsenstein to Weil, Gotshal & Manges and Clifford Chance respectively, environment and health and safety expert Louise Moore to Herbert Smith, tax guru Daniel Friel to Latham & Watkins, and M&A partner Julie Bradshaw to Skadden, Arps, Slate, Meagher and Flom. With equity capital markets specialist John Davidson also quitting for an in-house role at SABMiller, there was a real fear that the rot had set in.

‘I would have stayed if I truly believed that the firm was going to change, but I just couldn’t see any evidence of that,’ one says.

Several partners felt that – in his first term, at least – Harris tried to stick too doggedly to the firm’s consensual culture at a time when more decisive leadership was called for. He accepts the criticism that he was not always assertive enough, but dismisses such claims as overly simplistic.

‘I was very aware that while our culture was an asset, it mustn’t be allowed to become a millstone around the firm’s neck in terms of further development,’ he argues. ‘I was trying to move towards a more performance-based culture, but without creating a sharp-elbowed environment. I didn’t want to just go around chopping off heads – any idiot can do that. In this role you need to be pushing and leading from the front, but you can’t get too far ahead of the general sentiment.’

More carrots

The issue was most starkly highlighted through the firm’s continued failure to successfully amend its partner remuneration system. The seemingly never-ending review process had become a source of amusement in the market.

‘Operating a relatively narrow single lockstep in so many jurisdictions worldwide is quite a constraint,’ Harris says. ‘I felt the system we had was too much stick – we needed some carrot. We didn’t have the flexibility to reward people for exceptional performance.’

Key to this, Harris felt, was the ability to go beyond the lockstep, either through a bonus pool or the allocation of additional points. It was top of the agenda at the partnership conferences in both 2006 and 2007, but while small changes were implemented each time, this core part of Harris’ attempted reforms was voted down. He finally managed to receive the required support for a change that would allow management to freeze and even reduce partners’ equity points at the second time of asking, but only on the proviso that it was done with the individual’s consent.

Harris rejects any suggestions that such a system is indicative of the issues inherent with Lovells’ overly consensual culture, saying that no partner has ever refused such a request. It’s true that most partners would not need to be reminded of the possible consequences of not complying – particularly in the current market, where ‘managed exits’ are rife – but senior partners speak of instances where such discussions have dragged on for 18 months. Hardly ideal for a system intended to provide greater flexibility.

Still, although not perfect, the new system is certainly a vast improvement. Harris personally looks at partner performance every quarter, and meets with practice stream leaders and regional managing partners to undertake structured reviews every six months.

An added bonus

Today, Harris finds himself once again tackling partner remuneration, but now in the context of an even more complex environment. Although it’s fair to say that the constituent mix of the Hogan Lovells remuneration system will be more Hogan than Lovells, the UK firm will not simply adopt the Hogan scheme. When Harris sits in his neat, uncluttered eighth-floor office overlooking the City, it is an entirely new system that cherry picks the best aspects from each firm’s current model that is currently occupying his mind.

In some respects, the latest task is not too great – the two systems are already relatively similar. Lovells has a managed, and yet still comparatively traditional, ten-year lockstep running from 30 to 60 points. While Hogan’s system offers much more flexibility at the top and bottom (its range is greater than 15:1, compared to just 2:1 at Lovells), the majority of Hogan’s partners fall within an equivalent bracket to those at Lovells.

‘Clients were approaching us for a wider range of services than we could provide in the US. You have to find an answer to that, otherwise you’re likely to lose them.’

Rather than Lovells’ equity ‘points’ or Hogan’s ‘shares’, partners of the combined firm will be rewarded with ‘units’ – a deliberately neutral term. Individual positions will be reassessed every two years.

The one element that Harris is believed to have insisted on keeping is his firm’s consideration of team billings, in addition to which partners will be measured against a range of non-financial elements such as cross-selling clients, developing relationships and building teams.

The most significant change for Lovells partners will be the introduction of a 15% bonus pool, which will be phased in through two transitional periods. For the first two years, roughly half of this will be allocated to all partners on a lockstep basis, the other half on merit. The next two years will see a ‘soft progression’ towards the Hogan system, whereby two-thirds of the bonus will be determined on merit, and one-third according to the lockstep. Full integration will only occur after four years.

Mr Nice Guy

And so David Harris begins the final phase of his Lovells career. He has seen the firm undergo enormous change since his early days as an associate in 1982 at what was then Lovell White Durrant. Although Harris was never a huge biller, and was seen as an able, rather than spectacular practitioner, his contemporaries say his knack for management shone through early. He was put in charge of running capital markets and corporate finance in 1989, three years after joining the partnership, and he proved his mettle as relationship partner for Barclays, one of the firm’s largest clients.

Harris joined the firm’s partnership board in 1995, was London managing partner for corporate and finance from 1999, and joined the 11-partner elected executive committee the same year. In 2002, he assumed the role of global finance head. Everyone describes him as a nice guy, and it’s true – he’s warm, engaging and refreshingly honest. But suggestions that he’s shied away from making tough decisions are wide of the mark. When Harris arrived in the top job, the firm was at rock bottom. Even his critics concede that he has demonstrated considerable discretion and gritty persistence to make the best of a formidably tricky hand. His clarity of vision was evident right from the start. ‘The tendency had been to focus very much on developing corporate and finance, and rather hide the rest of it under the carpet,’ he explains. ‘I thought we needed to be more confident and play to our own strengths, rather than just trying to emulate the Magic Circle. We needed to recognise that having a broader practice is not a weakness.’

‘Without wanting to be over-dramatic, the first 18 months of my leadership were about trying to get the show back on the road.’

The rest, as they say, is history, or maybe history in the making. There is more to this father-of-four than just Lovells, but few know the firm better. Even in brief conversation, it’s readily apparent that Harris is fiercely passionate about the business. His supporters describe him as a selfless leader who truly has his firm’s best interests at heart. Indeed, when asked what he would like to leave as his legacy, it’s obvious from his surprised reaction that he honestly hasn’t even considered it.

In truth, it’s not a hard question to answer. In years to come, this merger will be the action for which he is remembered. But while it’s undoubtedly true that Harris has already worked wonders in seeing the deal to completion, it’s the next stage that will determine its lasting success. His final four years at the helm will be the ones to watch.

Whether Hogan Lovells will revolutionise the legal profession is a moot point – what’s indisputable is that Harris has navigated his notoriously conservative and risk-averse firm through a necessary and fundamental reshaping, and lined it up to achieve great things. He will never be accused of a lack of ambition: now he just has to deliver phase two. LB

Lovells’ PEP, 2000-09

Lovells’ profit margin, 2000-09

Lovells’ profit per lawyer, 2000-09