Nice problems to have – Where now for Stephenson Harwood as veteran chief hands over?

With longstanding chief executive Sharon White bowing out, Stephenson Harwood can look back on a strong ten years. Thomas Alan assesses its record and prospects

‘My understanding is the Stephenson Harwood of 2002 needed a new strategy because it was doing very badly,’ reflects corporate head Andrew Edge, looking back on the City thoroughbred’s much-publicised problems. ‘It was losing people and the finances were extremely precarious.’

That is no understatement. During its glory days, the firm would have been seen as within shouting distance of the City elite. But by the early 2000s Stephenson Harwood had already suffered years of drift and indifferent financial performance. Its response only aggravated the situation as it in 2002 embarked on a troubled merger with shipping specialist Sinclair Roche & Temperley, a tie-up that led to a swathe of partner departures. Such was the instability, some wondered if the firm would remain a going concern.

Fortunately, this was a time of relative calm in the wider legal market, and the firm was to go through a period of far greater discipline and rigour under chief executive Sunil Gadhia, the veteran litigator who left for Cleary Gottlieb Steen & Hamilton after completing his run as leader.

And though the 628-lawyer City firm had been effectively steadied and reshaped before former head of corporate Sharon White’s appointment to chief executive in 2009, by consensus she built upon Gadhia’s revival. Come October, White passes the baton to intellectual property (IP) partner Eifion Morris, who joined the firm 12 years ago from Clifford Chance.

‘It’s important to be clear on what you are doing. It’s also about being clear what you are not doing.’
Sharon White, Stephenson Harwood

Morris takes over an institution much changed from Stephenson Harwood circa 2009. Over the last decade, revenues have grown 150% and the partnership doubled to 171. The firm’s 2018/19 financial results showed profit per equity partner (PEP) growth following two years of decline and a 12% increase in turnover to £213m – a 76% hike over five years. For comparison, Simmons & Simmons grew revenue by 39% over the same period and such results are certainly well above the average for top-25 UK firms.

PEP now sits at £727,000 for the firm’s 92 equity partners. Earnings range from £403,000 to £1.208m, though only one partner sits at the top of the equity. By White’s own admission, the firm is not aggressively focused on profits by the standards of its peers. Despite the growth, the understated White says that one of her main achievements is that expansion has been managed without the ethos of the firm much changing beyond being ‘more confident than we were’.

Part of that growth is attributed to sustained expansion of the firm’s corporate practice. The practice has increased its headcount by more than a third over the last five years, while revenue has more than doubled in the period to now exceed £55m.

Stephenson Harwood has performed robustly in its traditionally strong marine and international practice even in a market in which some peers, most notably Ince & Co, have faltered. Twelve new partners have been added to the practice over five years, including five laterals, while revenues increased 70% over the period. Commercial litigation has also seen material expansion, increasing income 61% over the same five-year period – disputes is still the firm’s largest practice generating around £85m.

White’s run has also seen nascent practice areas become established. In 2012 the firm hired only its second IP partner in Alexandra Pygall, with the firm now counting four in London and seven globally. The firm has also built an 11-partner private client bench over ten years, spread across Hong Kong and London, with partner Kevin Lee one of the more recent arrivals in the Hong Kong office in 2018. Tony Woodcock, meanwhile, has also overseen significant growth in regulatory litigation at the firm.

The expansion of these areas is indicative of a wider growth which belies Stephenson Harwood’s reputation for conservatism. The firm has recruited 44 partners laterally since 2014 alone. Across the corporate department, two thirds of the current partners were externally recruited.

And while the industry track record of partner hires is mixed, Stephenson Harwood has an enviable batting average in senior recruitment – certainly few leave. The hire of a King & Wood Mallesons private equity team in 2017 spearheaded by Jonathan Pittal is one such testament. Pittal brought over trophy client Bowmark Capital, who in January the firm advised on a £600m fundraising. The recruitment of Edge from Ashurst in 2014 was another productive hire for a firm historically more driven by disputes than transactional work.

‘We have a US approach. Rather than be everything to everyone everywhere, we think about our product areas and that’s where we invest.’
Jonathan Pittal, Stephenson Harwood

White comments on its approach to recruitment: ‘We take a lot of care. By the time they join we know what the targets in the first six to 12 months are.’

‘What’s the strategy?’

Despite Stephenson Harwood’s record in sustaining expansion, there is less agreement to the extent to which the firm troubles itself with strategy at all. ‘They’re happy where they are, but that’s an interesting approach,’ says a partner at a peer firm. ‘Either you build a strategy around a particular sector or practice, or go global. With them you have to ask what the strategy is.’

One former partner echoes the point: ‘I never had the faintest idea of what the strategy was. I don’t think there really was one. They’ve been a successful firm, but a lot of the partners are elderly and approaching retirement age, so there will be a lot of changes there.’

White concedes that the firm under her watch took a light touch on planning, keeping governance lean and avoiding drawn-out strategic discussion. Pittal sums up the ethos: ‘We’re a UK-headquartered mid-market firm with some international presence. In some respects we have a US approach. Rather than be everything to everyone everywhere, we think about our product areas and particular expertise, and that’s where we invest.’

The firm’s last full strategic review was five years ago and runs to 2021. Relatively few matters go to a vote – even the appointment of the chief executive was handled by its small supervisory partnership council, comprising its senior partner and four elected partners. Marine and international trade head Mike Phillips says: ‘The management structure is flat. I’m the head of a group and I go straight to the CEO – that’s it.’

Partners are also given considerable discretion on pricing and how to build their practices. White notes that partners are ‘individualistic’ and ‘entrepreneurial’. The firm remains clearly a partnership in culture, with a style that has so far survived a decade of expansion unscathed. Partners often dispense with formality; meeting on the hottest day of the year, the casually-dressed Edge bought an ice cream for Legal Business and a boy on work experience in place of the normal teas and coffees.

Lean leadership can on occasion tip into under-fed. White says that the firm was until recently under-invested in tech and infrastructure. The appointment of Paul Orchard from Freshfields Bruckhaus Deringer in 2018 as innovation head reflected a desire to keep up to date with a changing industry. The firm also in 2018 recruited Jenni Tellyn as its first head of knowledge management from White & Case.

Stephenson Harwood’s stock has risen hugely since its 2000s low point, but its profile has never come close to regaining the stature it once held.

Not that Morris will inherit a firm set to become a pacesetter in innovation or client-facing New Law launches. Like other quality City mid-tiers Travers Smith and Macfarlanes, the desire to remain a classic partnership puts a limit on its appetite for disruption.

Internationally, one of the firm’s more recent moves was an office opening in Myanmar in 2017, but expansion is targeted and steady. Currently around a third of the firm’s revenue comes from outside the UK. Recent years have seen further office launches in Seoul (2014), Beijing (2013) and Dubai (2012), with associated branches in Guangzhou (2016) and Jakarta (2011). Expectations are that the foreign network will not expand hugely.

If claims that Stephenson Harwood takes a minimalist approach to management are shrugged off almost as a badge of honour, the response is more mixed on whether it constitutes a ‘lifestyle firm’. Edge insists Stephenson Harwood is not for the faint-hearted, citing 11pm finishes for some associates as not uncommon.

However, the firm is also tuned into the fact that for many in the associate talent pool, a more flexible approach is attractive. ‘If we had someone who did an all-nighter last week, we’ll do our best to make sure they’re not on a deal where they’re doing it again next week,’ continues Edge.

Looking back, White comments on where success has come for the firm: ‘It’s important to be clear on what it is you are doing. Consistency is also important. You see some firms that don’t have that. It’s also about being clear what you are not doing.’

While the firm has expanded strongly over the last decade, there are questions for the new chief executive to wrestle with on the longevity of this approach. Stephenson Harwood is approaching the limit in terms of size and geographic spread where it would need to consider substantial increases in governance and infrastructure should it continue to expand at a comparable rate. Such a move would test the partnership bonds that have been built as a London-centric hub with a moderate growth of Asian branches.

Alternatively, the firm can become more selective in business lines and pare back its investments. Such an approach looks likely, given that there is little talk of Morris pushing for a sharp change in direction.

One issue cited by some insiders is what to do about the firm’s brand. Stephenson Harwood’s stock has risen hugely since its 2000s low point, but its profile has never come close to regaining the stature it once held. Neither does its name stick as clearly in the mind as some more recent mid-market success stories – a reflection of its disparate practices areas that constitutes almost a collection of niches.

The transactional team in particular believes it has missed out on significant mandates to higher-profile peers, while it is also easy to make the case that a disputes-centric institution has the scope to become a truly top-tier player in general litigation and arbitration if it set its mind to it.

Still, all of these come under the heading of good problems to have and their existence is a measure of how far the firm has travelled. With latitude to enhance the firm’s brand and position in a few key markets, Morris could inherit the perfect amount of wrong to put right.

thomas.alan@legalease.co.uk

London rankings – tiers 1-3

 

Corporate and commercial:

M&A: lower mid-market deals, £50m-£250m 1

Financial services: contentious 2

Private equity: transactions – mid-market deals 2

Flotations: small and mid-cap 2

VAT and indirect tax 3

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Crime, fraud and licensing:

Fraud: civil 1

Fraud: white-collar crime 2

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Dispute resolution:

Banking litigation: investment and retail 3

International arbitration 3

Commercial litigation 3

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Finance:

Commodities: physicals 1

Asset finance and leasing 2

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Human resources:

Pensions: dispute resolution 1

Pensions (non-contentious) 3

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Insurance:

Professional negligence 3

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Investment fund formation and management:

Listed funds 1

Hedge funds 3

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Private client:

Art and cultural property 1

Contentious trusts and probate 2

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Projects, energy and natural resources:

Infrastructure (including PFI and PPP) 3

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Real estate:

Commercial property: hotels and leisure 2

Property finance 3

Property litigation 3

Commercial property: investment 3

Planning 3

Construction: contentious 3

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Risk advisory:

Regulatory investigations and corporate crime 2

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Technology, media and telecoms:

IT and telecoms 3

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Transport:

Rail 1

Aviation 2

Shipping 2

Source: The Legal 500