Clyde & Co has been on a terrific run of growth in the last five years. With a new senior partner installed and his predecessor in the US, will the firm be able to maintain momentum?
When Legal Business sat down with Clyde & Co’s new senior partner Simon Konsta in November, the firm’s notoriously hands-on chief executive Peter Hasson was on holiday in Miami. While discussing Hasson’s intense focus on the day job, Konsta is asked if Hasson will be able to resist checking in. Minutes into the interview, Konsta’s phone starts ringing. It’s Hasson.
‘Nothing happens without Peter’s involvement,’ a former partner tells Legal Business. ‘In a way, the senior partner is much more of a figurehead. Simon is very good as an ambassadorial figure, extremely good as a rallier and client developer.’
In September James Burns, who since becoming senior partner in 2013 had overseen impressive year-on-year financial performance and noteworthy geographic expansion, made the decision to stand down to become the firm’s new head of the Americas. Weeks later global insurance head Konsta, labelled the ‘obvious choice’ by partners within the firm, was named Burns’ replacement following an uncontested election.
Amid the change remains the constant. After joining in 1997 from accountant RSM, non-lawyer Hasson was the details man alongside longstanding former senior partner Michael Payton in Clydes’ high-stakes 2011 tie-up with Barlow Lyde & Gilbert (BLG). The pair championed Burns as Payton’s successor and Hasson will now work together with Konsta, BLG’s senior partner at the time of the merger.
Following the leadership reshuffle, the new roles appear clear. But as Burns sets his sights on the US following recent expansion into Miami, and with the US market expected to be Clydes’ key medium-term strategic bet, what does this mean for the firm’s direction in the next five years?
Sea change
‘We are still the firm that did the largest UK merger,’ Hasson points out, and this will remain the case until CMS Cameron McKenna, Nabarro and Olswang eventually form one UK LLP next year. However, former and current Clydes partners are quick to point out the success of the 2011 merger between two insurance rivals that created a business with a turnover of around £300m.
‘It’s very well run. It has the feel of a Magic Circle environment internally,’ says one former partner. ‘It knows exactly which areas it wants to be in and it pursues them very well.’ Some suggest the success of the merger is shown by the small number of departures following the end of the three-year lock in. Of the 57 BLG partners that joined Clydes, 47 remain with the firm.
The BLG tie-up was, for Clydes, the standout deal in the home market of a rapidly expanding firm, with a strong presence internationally. In 2011, 19% of total revenues came from offices in the Middle East and North Africa, 12% came out of the US and 5% were generated in Asia.
Clydes also merged with 15-partner Canadian practice Nicholl Paskell-Mede in 2011 and later combined with 45-partner Scottish firm Simpson & Marwick in 2015. In 2016 it acquired five-partner Sydney firm Lee & Lyons in February and in May it marked ten years in the US by opening its Miami office through the acquisition of five-partner litigation outfit Thornton Davis Fein.
‘The US is the biggest legal market in the world. There is a huge opportunity for us to push on to become a top 100 US law firm. That was a challenge I wanted.’
James Burns, Clyde & Co
Since 2011 revenue has climbed by 111% from £211.8m to £447.1m, and Clydes has more than doubled its number of offices from 20 to 46. The UK business’ contribution to global revenue has fallen by 2% from 59% in the space of five years, which sees it making up around £254.8m. Asia has increased its share by 6% to 11%, placing revenues for the region at around £49.2m following the opening of its four Australian offices, two of which – Sydney and Perth – opened in 2012. Over the course of the last financial year, Asia revenue grew by 14%. The US continues to bring in 12%, around £53.7m, of the firm’s turnover, while the Middle East has slipped to 13%, making up around £58.1m.
Konsta concedes: ‘It’s certainly not all been perfect. Managing and integrating law firms is still a personality business. But it has gone well. The mergers have been complicated and they have been vindicated.’
‘High-class operator’
Burns’ resignation at the end of his first three-year term was a surprise to many in the market, although he himself said it was ‘not a decision I have taken lightly’. Both Hasson and Payton admit Burns had been a long-term prospect for the senior partner role with Payton noting the partnership had ‘welcomed a steer’ from management prior to its senior partner election in 2012 in favour of ‘no hassle, no surprises, no politics, no difficulties’.
A former partner says: ‘That’s why it was so surprising that James stood down. It was like the election of a Pope – James had been ordained by Michael. I don’t think anybody foresaw they would need another senior partner.’
Just three weeks later, Konsta was named the firm’s new senior partner with effect on 1 November – exactly five years to the day the Clydes/BLG tie-up went live. During an uncontested election, partners that Legal Business spoke with suggested it would have taken a brave partner to stand against him as Konsta had always been a senior figure and head of the firm’s largest business group.
Konsta becomes senior partner for the second time after a three-year stint at BLG, where he led the firm to the 2011 merger.
‘In business you either grow or you die. Anybody who doesn’t borrow money from a bank in these circumstances is either not backing their business or is daft.’
Ben Knowles, Clyde & Co
‘It was Simon’s idea to approach us,’ Payton says. ‘His vision was exactly right; it did work. There was this huge common glue of a mutual client base. There was also an agreement on the partners that wouldn’t come across and that was achieved without any difficulty either.’
‘He had the guts to recognise that BLG didn’t have all of the things that were required in order to get there,’ says Hasson. ‘It must have been a hellishly difficult position for him to approach Clyde & Co. He had more trouble with his partners during the merger but he was vindicated.’
The majority of partners Legal Business spoke to describe Konsta in the same way: a charming, charismatic and talented lawyer. But alongside his reputation as a ‘high-class operator’, there is a temperamental side as well. Even Hasson concedes the point, describing Konsta as a ‘different personality’ to Burns and ‘potentially more volatile’.
One former partner who worked with Konsta says: ‘His strengths are his presentational ability, his polish. He is very good at client engagement, he throws himself into that stuff body and soul. He’s such a big personality. It will be interesting though because he does rub people up the wrong way, there’s no question about that.’
But the new partnership with Hasson may allow Konsta to play to his strengths. Says another former partner: ‘He’s not a natural with detail management but the way that Clydes is structured, Peter Hasson does all of that. Simon will be the man of the partnership. I think it will be quite a nice partnership.’
Describing his own relationship with Hasson, Konsta says: ‘We work very well together. I’ve sat next door to Peter for four years and we’ve worked together on a number of major initiatives during that time. We don’t always see eye to eye because that would be improbable in any organisation but we normally have a very clear shared view.’
‘I smile a lot but I am underneath it a restless person. If I wasn’t growth-orientated I wouldn’t be senior partner.’
SIMON KONSTA – CAREER
1993 Joins Barlow Lyde & Gilbert
2008-11 Senior partner, Barlow Lyde & Gilbert
2011 After approaching Clyde & Co’s management, the two firms agree to merge on 1 November, creating a firm with 270 partners and more than 1,250 lawyers
2013 Becomes Clyde & Co global insurance head
1 November 2016 Elected Clyde & Co senior partner
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Konsta sees his own role as occupying ‘the business and client interface: to learn, analyse and plough all that information back into the firm. That’s a completely different skillset from the one a CEO would bring. Does that mean I’m going to come back with bigger ideas about where we need to go and put our investment? Yes. Am I going to be descending into the minutiae of our accounting policies and the nuts and bolts of a team acquisition? Absolutely not’.
And he is itching to take up the reins. ‘I smile a lot but I am underneath it quite a restless person and I like to challenge ideas internally.’ He says he will be ‘assertive where I need to be assertive’ and will be focused on revenue and headcount growth, adding: ‘If I wasn’t growth-oriented then I probably wouldn’t be senior partner.’
Detailing plans for his tenure (Konsta has been elected for five years as opposed to Burns’ three, a decision taken by the partnership to ensure continuity), Konsta emphasises further expansion in Clydes’ core sector groups – insurance, infrastructure, energy, transport, and trade and commodities. This means more office openings, team hires, more laterals and, most pressingly, further US expansion.
American pie
‘For one major insurance client, whose annual spend on external legal fees is $2.5bn, 80% of that is in the USA. If you are a global insurance firm then that’s where your emphasis has to be,’ says Payton.
After spending weeks travelling between his home in the US and Clydes’ London headquarters, Burns decided it was time to be close to his family and is now based permanently in San Francisco. As Hasson put it: ‘He has a young family and it’s natural to feel that you can’t spend your whole life on a plane.’
Ironically, since starting the head of the Americas role on 1 November, Burns says he’s spent as much time travelling within the US as he did in his previous job.
Burns told Legal Business his new post was ‘the best job in the firm’. He added: ‘The US is the biggest legal market in the world, it has the highest legal spend in the world and a number of our biggest clients are headquartered here. There is a huge opportunity for us to push on to become a top 100 US law firm. That was a challenge I wanted.’
The firm has six US offices, driven by the firm’s primary insurance focus, as well as two in Canada alongside its branches in Venezuela and Brazil. At the end of this financial year Burns expects Clydes will be close to being a $100m business in the US. He says he would ‘like to at least match the 20% growth we achieved in the US last year’.
Over the next five years, Burns wants to see US revenue exceed $200m, with Canada close to $50m and an increased footprint of offices in Latin America – Mexico and Colombia are the next targets. Burns also expects the firm’s new Miami office to grow in a bid to strengthen its Latin American capability.
Asked if a US merger is on the cards, Burns replies ‘we never say never to a merger’, adding: ‘That’s the type of firm we are, we like to look at opportunities as and when they arrive. But we’re not talking to anyone in the US at the moment.’ Team and lateral hires in contrast are always on the Clydes agenda, however. ‘It’s something that we’re working on vigorously now.’
Clydes has made 69 lateral hires since January 2015, including 22 as a result of its 2015 acquisition of Scottish outfit Simpson & Marwick. The ability to attract laterals is helped by profitability levels that, for a firm dependent on insurance clients, punches above its weight. Profit per equity partner was £649,000 in 2015/16 – ahead of Ashurst, Norton Rose Fulbright and Simmons & Simmons – and up from £605,000 in 2010/11, proving that significant expansion hasn’t come at a cost to the bottom line. Top of equity is currently £1.17m, with 40 of the 181 equity partners at the top of the ladder. Profit per lawyer at Clydes is £78,000, broadly the same as in 2010/11 (£82,000), despite having double the number of lawyers it had pre-merger.
‘Nothing happens without Peter’s involvement.’
The firm is not ruling out a shift away from its UK powerbase either. Hasson says: ‘There is no single insurance-based firm in the US that is servicing that market in the comprehensive way we service the market in the UK. If we get the same sort of dominant position in the US as we have in the UK in the insurance market, we’ll be a hell of a lot bigger in the US than in the UK.’
It’s a bold statement but his reading of the lack of comprehensive insurance law firm coverage in the US may be disputed by one or two of Clydes’ Global 100 competitors, including Simpson Thacher & Bartlett, Sidley Austin, Debevoise & Plimpton and Dentons.
With the US such a critical market, many within the partnership are thankful to have Burns there on the ground. As Hasson comments: ‘It certainly helps having someone of James’ management experience there. He’s got a track record of growing businesses – having someone like that in the US who will devote his time to growing that business is going to accelerate that growth.’
But with Burns having stepped away, where does the new senior partner sit in the hierarchy? Konsta says: ‘It’s a huge job and it’s a much more efficient way of doing things from a management perspective. We’re lucky to have James there, who I trust implicitly and who absolutely knows what’s best for the firm. It means that I shouldn’t have to be as involved in the US, we have the rest of the world to deal with.’
Grow or die
A pronounced focus on the US does raise questions over the firm’s drive to grow the rest of the business. As one City partner at a peer firm comments: ‘Partners are worried about the extent to which America gets whatever it wants.’
Konsta counters that Clydes will be in growth mode on a global level. ‘I wouldn’t want to mislead anyone into thinking there is a presumption of growth in the US to the detriment of other areas because that simply is not the case. We’re equally looking at those opportunities elsewhere in the Americas, we’re looking at them in Mainland China, in Europe, in the Middle East.’
Speaking with regional managing partners across Clydes, each has its own growth targets. Asia managing director Ik Wei Chong hopes to increase revenues by another 20-30% in the next five years. Chong is also eyeing a merger or joint venture in China to cover the eastern seaboard, while locations like Bangkok and Malaysia are realistic options for office openings. Meanwhile, Middle East and North Africa head Jonathan Silver hopes to add to the region’s 40-strong partner headcount by 10-20 partners across the next five years with ambitions to open another three or four offices.
Diverse crowd: the international spread of Clyde & Co’s global management board
Simon Konsta Senior partner and chair of global management board, London
John Morris Global head of infrastructure/projects and construction, London
James Burns Head of Americas, San Francisco
Ben Knowles Global co-head of international arbitration, London
Carolena Gordon Insurance, Montréal
Andrew Nicholas Marine, Guildford
Ik Wei Chong Managing director Asia, Singapore
Peter Hasson Chief executive, London
William Isaac Chief strategy officer, New York
David Willcox Aviation, London
Daren McNally Insurance, New Jersey
Duncan Crowdy Chief financial officer, London
Michael Parker Insurance, Singapore
Jonathan Silver Middle East and North Africa chair, Dubai
Dean Carrigan Insurance, Sydney
Andrew Preston Marine, London
With growth comes debt, and group borrowings were £53.5m for the 2014/15 financial year. One former partner notes: ‘The firm is structured on the basis it has to keep building and growing because it is quite debt-based. If somebody said Clydes is going through a period of consolidation, I’d think: “Who’s paying the interest on the loans then?”‘
Board member and co-chair of the global arbitration practice, Ben Knowles, responds: ‘In business you either grow or you die. To grow, you need money. So we borrow money. Anybody who doesn’t borrow money from a bank in these circumstances is either not backing their business or is daft, frankly.’
With an accountancy background, Hasson says the loans are used for working capital and to fund expansion, ‘all of which, if you look at our track record, have been turned into profitable business activity’. During the firm’s peak borrowing time in January, Hasson says 50% of the firm’s needs would be paid out from partners’ capital and 50% would be matched by borrowing.
‘I look at this from the point of view of a business. Forget whether it’s a law firm or not. I know law firms have a contest on how low they can get their debt. From my perspective as a business person that is just mad. Lawyers’ jobs are to identify risks and debt is a risk. But accountants and bankers manage those risks for a living,’ Hasson says.
‘If you look at the total interest bill of Clyde & Co, it’s less than 1% of our revenues. If that’s the case, what’s the point of trying to manage to a debt level when you have a business with opportunities out there?’
Sharp elbows
For all the chummy rhetoric, Clydes remains a driving culture with management expecting performance and entrepreneurialism from its partners. There is little room for sentimentality. If the performance of an individual or team is seen as a threat to profitability, it has not historically shied away from restructuring. Four corporate partners resigned from the London office in late 2015 after what was described as a ‘shoulder tapping exercise’ took place as the practice came under management scrutiny for under-performance. The review came after the firm lost a series of substantial mandates to rivals after the insurance market saw a surge in M&A deals over the previous 12 months. However, the influential Payton, who was widely regarded as setting the cultural tone of Clydes during his years as senior partner, says much of the firm’s reputation today is a legacy of the rough ride the firm experienced in the 1990s. He adds, somewhat tongue-in-cheek: ‘There was this idea that I was seen as some type of grizzly bear chewing up and spitting out partners.’
But the pragmatism endures. As Konsta says of his management duties: ‘It’s less about the merger activity and more about the constant effort to maintain competitiveness. You keep moving things forward and have the ability to say: “There’s an obsolescence in this area, we have to wean ourselves off it or let these people go because it’s probably good for them.” We are a strong, profitable, hardworking and high-performing firm, and over a 30-year career some people drift in and drift out of being able to compete at that level.’
This edge is acutely recognised by competitors. One former partner comments: ‘It’s quite a sharp-elbowed environment; there’s a lot of competition. But some clients may think the firm has the type of individual they want on their side because they’re going to be effective, assertive and aggressive. There is a place for the firm in the marketplace. If it didn’t exist you’d probably have to invent it because you need to have different personalities for clients to choose from.’
If it is that Clydes edge that drives the firm towards making it big in the US, the roots of the firm remain in EC3. In his first interview since taking over, Konsta is clear on what his responsibilities are. ‘There is a hell of a legacy and a distinctive quality around Clyde & Co. Plainly, it’s my obligation to continue that.’ LB
Rise of the machines: insurance players enjoy strong post-Lehman years
Insurance-driven law firms are competing hard in a fast-consolidating market. A historically unglamorous and increasingly commoditised practice area, the growth of specialist firms has been a notable trend post the global financial crisis, not least because of the notoriously value-conscious approach of clients in the sector. Four of the best-regarded UK insurance law firms – Clyde & Co, DAC Beachcroft, RPC and Kennedys – have averaged around 40% revenue growth over the last five years (adding together the 2011 revenues of legacy firms in the Clydes/Barlow Lyde & Gilbert and Beachcroft/DAC mergers as a base).
Clydes’ client list is dominated by major insurers and reinsurers, including AIG, Allianz, Aviva, AXA, NFU Mutual, Swiss Re, QBE, XL Catlin and Zurich. Says Clydes chief executive Peter Hasson: ‘Post financial crisis, the insurers have certainly sought to try and take costs out of their businesses. They’ve identified legal costs as one of those areas and they have attacked that. They’ve used a number of techniques to try and be able to do so – none of them are unique to the insurance industry, but panels, competitive tenders, all those sorts of things are being used.’
AIG general counsel Chris Newby says the market continues to globalise, leaving increasingly international businesses like Clydes well hedged. ‘As technology continues to advance, there’s more and more cross-border activity. You need multi-jurisdictional advice on how to do deal with global implications.’
Clydes has pushed on IT investment, spending somewhere between 5% and 7% of its revenues on IT and Hasson notes that it has been doing so over the last ten years. He says the firm tries to keep spending at that level but a 2% upswing can occur when it has high levels of projects on.
Recent changes in the market include the Insurance Act 2015, which came into effect in August 2016, aiming to rebalance the position between buyers of insurance and insurers by reforming legislation that had been in place since 1906. It notably introduces a new duty on insureds, the ‘duty of fair presentation’, which means full disclosure to the insurer of every material circumstance that an insured party knows or ought to know.
However, private practice lawyers within the market have not expected a huge shake-up to the way they practise. Kennedys senior partner Nick Thomas comments: ‘The obvious change is the fact that non-disclosure is no longer such a Draconian issue but only for insurance policies written post 1 August. There aren’t many of those that have actually given rise to any disputes yet.’
Thomas points to related adjustments to the Enterprise Act 2016 as providing more interesting changes for the industry. ‘Insurance companies can in future be sued for damages if they have wrongly declined to pay promptly. That is a big deal.’
madeleine.farman@legalease.co.uk