The DAC Interview – Close to the rocks

Legal Business (LB): You have both been in charge for nearly four years. What are some of the highlights?

David Pollitt (DP), managing partner, DAC Beachcroft: One of the first things we decided was to streamline our governance, which Virginia led on. We wanted to become more corporate, leaner and more efficient in decision-making. But we also wanted to be clear about our purpose, our vision, our principles and our business strategy. It took us some time, probably 12 months.

LB: To implement or to think about what that meant?

DP: Both. It manifested itself in a new partnership agreement. That was the bedrock on which we hoped we could build the success of the firm. Clear governance, the board that Virginia chairs, the executive I chair, the interrelationship between them, the rights of the members, all of those things. All of that was modernised.

LB: Why did this have to happen?

Virginia Clegg (VC), senior partner, DAC Beachcroft: There was a lack of clarity around governance. Our partnership deed was old. No longer fit for purpose. That was a big job because ultimately our members needed to vote on it and David led on the strategic review, which was to focus on the things we already had a reputation for and enhance those. We had not been very clear about the values of the firm and needed to look at those. We spoke to over 1,200 of our colleagues. I suspect it was closer to two years. I believe our colleagues are clear now about what we’re trying to do and how we’re going to do it.

DP: They’ve certainly backed us to make the changes. If we go back four years, we had lost our way. Everything that anyone wrote about us was about our indebtedness. It was just not something Virginia and I wanted to be remembered for.

LB: I was going to use the word drifted.

DP: Drifted close to the rocks, probably. At its peak, or trough, we had about £40m of debt. We’re getting very close to having zero. We knew we could achieve it because we’ve always had fantastic clients and fantastic people. We were doing something right, but our under-performance was also down to us.

‘They’ve backed us to make the changes. If we go back four years, we had lost our way. It was not something Virginia and I wanted to be remembered for.’
David Pollitt

LB: So was there a frustration within the partnership?

DP: Yes, but also support to change.

LB: Did you have unanimous support?

VC: There were reservations around it and those members who we couldn’t help get over them couldn’t vote for it.

LB: What was the threshold? 75%?

DP: Yeah, we smashed that.

VC: Well over 90%.

DP: With hindsight it was never in doubt.

VC: Yes, but you wonder. By then they could see we had started to harness the business, the numbers were, thankfully, going in the right direction and the review of the strategy has enabled us to think about the things we don’t want to do.

DP: We’d got bloated. I remember someone making a request to spend, and when there was pushback, it was, ‘Well, we’re a £200m business.’ I remember thinking, ‘Well yeah, we are’, but that’s quite symptomatic. We have put a hell of a lot more control around things, being very clear about what our expectations are from individual business units that are run autonomously, until such time that they’re not delivering. It’s been cathartic, the collective acceptance that we needed to be more disciplined. Focusing on our chosen sectors: real estate, insurance and health. We wanted to grow our corporate commercial practice and needed to increase our international footprint. Go back five years, we had a number of areas of sector focus because we didn’t want to leave anyone out. We’d rather do it the other way: these are our core competencies, that’s where we’re going to compete. Our profitability over the last three years has risen greater than any other firm in the top 50, in the UK, as at April 2018. It wasn’t about getting bigger – we wanted to sort out what we had.

LB: Have you had to part ways with many people?

DP: When we started there were 107 members, today there are 91. We did a bit of pruning.

VC: There should be no nasty surprises for people, but the bar has undoubtedly gone up. It needed to. By in large, people have risen to that challenge. We have a strong story to tell and not every law firm has that, it just…

LB: … needed a kick up the rear?

VC: We’ll call it oomph.

‘We drifted close to the rocks. At its peak, we had £40m of debt. We’re getting very close to having zero.’
David Pollitt

DP: When we’re recruiting, people are keen to understand the financial stability of the business they’re joining. In days gone by you wouldn’t have even thought of that. Secondly, people are interested in the culture. That is relatively new. We’re having fun there because we’ve always had a culture that’s been very open and very supportive, but we now recognise that’s a real plus for us. It’s a selling point to our clients as well. If you’ve got it, exploit it. If you haven’t, forget it.

LB: What’s the sell on the culture?

DP: We don’t sell it consciously, they come in and see us: we’re very happy to show potential recruits the inside of the organisation. I find it astonishing when I hear other law firms wanting help in terms of how to encourage collaboration, cross-selling. It just happens, it’s such an obvious thing to do.

VC: I do think the way we went about discovering our values, cultural principles, vision and purpose was interesting. I remember speaking to someone from the Big Four and they said: ‘Who advised you on all this?’ I was maybe naïve, but we just did it ourselves.
LB: People see through that, internally.

DP: Yeah, if it doesn’t chime then you’re destroying value rather than creating it.

VC: We need people to lead this and if it’s just come from someone else, ‘These are now your values’: marvellous, they mean nothing to me.

LB: How do you make sure everyone understands what the values are?

VC: That’s a huge task. We’ve just done the rebrand. We have awards for people, we run those three times a year – David and I judge them – and we celebrate it like mad. People can see the behaviours that we want to see and that we recognise them. We enshrined within the members’ agreement the behaviours we expect. Grounds for expulsion at its most basic level are failing to live the values of our firm.

DP: When we first came up with this idea we wondered if it was a bit cheesy, but we couldn’t have been more wrong.

LB: How has the lateral hiring track been over the last couple of years? Is that starting to ramp up now?

DP: Yes, certainly in the number of enquiries we receive. Also in the quality of the candidates. We’ve taken, over the last couple of years, a team from Clyde & Co, Liam O’Connell, who was the head of insurance at Norton Rose Fulbright, is joining us and three years ago…

LB: … that wouldn’t have happened?

VC: No way.

DP: Chris Wall joined us as head of banking from Kirkland & Ellis: DAC who? Sally Morris-Smith – real estate lawyer, great pedigree, most recently working for Shepherd and Wedderburn. I hope there’ll be some more.

LB: Is that a focus?

DP: We won’t go crazy. There are things that we want to do investment-wise: we opened in Paris recently, we’re about to open in Belfast. There’s got to be a good reason, it’s not just about more of the same.

VC: We have opportunities to make jumps, we don’t want to just do tiny steps. That’s why some of the lateral hires are teams. We tend to see where we’re taking bigger groups David and I will be right at the forefront because they’re big investments. [The new London office] is a big investment and everyone is finally together under one roof.

LB: How many people?

VC: Over 400 people. We’ve room for more.

‘I find it astonishing when I hear other law firms wanting help in terms of how to encourage collaboration. It just happens.’
David Pollitt

LB: What was the thinking behind the London office?

VC: We had five London offices in 2011. We have moved all our lawyers to work on an agile platform, we don’t have any offices or set desks. We started a project like that in 2012 when we moved the Leeds office.

LB: Is there appetite for more international expansion?

DP: Our strategy internationally is two-fold. Firstly, to grow our existing international offices. The second is new locations, some of our competitors have gone for it and are opening up here, there and everywhere. If you do that you tend to compromise on the quality. Latin America is obvious: we’re in insurance, most of our international offices, although not exclusively, are born out of a desire to serve the insurance clients, although we’re trying to tag other bits on. We’ve got associations in two countries where our clients would like us to do something: Peru and Argentina. We don’t have the ambition to merge globally and have the whole thing covered. We get a lot from our international alliance, Legalign.

LB: How is the alliance working? That’s two years old now.

DP: Well. There are plenty of examples where we’ve managed to get ourselves onto panels or insurance programmes and having that coverage has been integral. There is a lot of referral work, which is also important. We’ve got an increasing flow of secondments between offices, which has been a nice by-product.

LB: Does it need to evolve from here, though?

DP: Yes, a good example is China. We know it’s important but we don’t quite know how to tackle it. We’re going about that through the vehicle of Legalign.

LB: So that would be bringing on a Chinese firm as a partner?

DP: Correct. It’s probably a lot more compelling a proposition for that firm when they’ve got four firms rather than just one.

LB: Is that alliance exclusively about insurance?

DP: A couple of the firms, the German firm [BLD] and Wotton + Kearney in Australia are exclusively insurance, but Wilson Elser [in the US] isn’t. We’ve done some IP work, some corporate, some health work: they act for some of the big US health providers who are privately owned. Although we didn’t expect that it’s been an added benefit. The principal flow has been around insurance because they’re about 80% insurance and we’re about 60%.

LB: Is the other 40% of the firm not saying: ‘Hey, where’s our thing like this?’

DP: It works because the US is important for all our sectors and aligning ourselves with an insurance firm means people are able to preserve their relationships with other firms who are not competitors.

VC: It’s not an exclusive relationship. It has enabled our business to further develop its international focus.

LB: What’s next?

DP: We’ve got further investments to make; we’re moving office in Dublin.

VC: A big IT project, moving our practice management system.

DP: That will be a mid-2021 delivery. Things like that aren’t headline-grabbing but important and require substantial investment, which means we’ve got to continue to grow the business and profits to fund those investments ourselves.

VC: We’ve also done some work on retaining profits.

‘The bar has undoubtedly gone up. It needed to. People have risen to that challenge. We have a strong story to tell.’
Virginia Clegg

LB: What’s the background to that?

VC: There’s a host of good reasons for doing it and an important one is most businesses don’t distribute 100% of profits every year. We went about that with real care and the powers were enshrined within our governance for the board to make that decision. Whenever I press send on one of those you think, ‘Oh, here we go’, and the number of emails that came back just saying, ‘This is a sensible idea, thank you’, there were so many of them.

LB: When did you press send?

VC: We’ve just come through the first 12 months. The board will now review against David’s recommendations as to what we should do for the next 12.

LB: It’s a flexible amount each year?

VC: Yes.

LB: And you just got rid of a whole lot of bank debt.

DP: Yeah, it’s contributed to that. Although, we got rid of £40m and we haven’t retained £40m.

LB: Why do you to want to retain earnings?

DP: We’re all at a challenging point. I go to events and managing partner dinners, and they’re all bemoaning that there’s private equity and disruptors coming in. But I don’t see many firms doing what we have done. We will incur debt next year. I’m not saying anyone who’s got debt is bad, but it’s about enabling you to be in control of your business. We’ve seen a few IPOs recently. I sense the appetite for PE in certain types of law firms is going to increase. Paying out all of your profits every year is just nuts.

LB: It was a board decision? The partners didn’t vote on it?

DP: No, it’s a good example of the governance structure. Before that we’d probably have required a special resolution of 75%.

VC: And months of distraction we didn’t really need.

DP: The important point is that most big decisions, most are retained to the board, as opposed to the membership at large. That just makes it easier to do business.

LB: What do you make of legal IPOs?

DP: It’s a very expensive way of raising cash. You give away a lot of value. The reasons why DWF has done its IPO are well-written now. Its strategy is fundamentally different to ours. I can’t foresee us needing external equity. One of the beauties of a law firm is we can decide what we’re going to do and don’t have to worry about anyone else.

VC: You think coming to the board is bad. Imagine having to report to shareholders!

DP: There are some that I think have IPOed for good strategic purposes, Rosenblatt with the litigation fund, for example. The most recent one seems to be about refinancing the business more than anything else and that’s an expensive way of doing it because all your partners are taking a big haircut in return for the prospect of something in the future. I’m pretty sceptical about it.

LB: How do you think the DAC brand is perceived?

VC: We’ve spent all that time improving it and it’s now starting to pay off. The market is not straightforward, there’s a lot about economic uncertainty out there. We’ve empowered our partners and colleagues, they have more confidence. You build loyalty a person at a time – you can’t do it en masse.

hamish.mcnicol@legalease.co.uk