With a takeover of Dundas & Wilson under its belt and a barrage of post-Lehman re-engineering in place, CMS Cameron McKenna hopes it can secure its breakthrough globally and at home. LB investigates a complex beast that some of its own partners don’t understand.
On 10 December the London partners of Dundas & Wilson were called home. Given the dramatic nose-dive that had afflicted Scotland’s proudest legal institution in the previous five years, expectations were that this would herald drastic action to revive its fortunes.
But while the emergence of a rescue deal with a larger partner was easy to foresee, the identity of that white knight, CMS Cameron McKenna, was anything but obvious.
Communication teams on both sides remained silent initially but two days later a press release confirmed the union would go ahead. The Scots practice would effectively be brought under the CMS name following a transition period, after more than six months of talks.
The end of 2013 proved a notable period for the enigma that is CMS Cameron McKenna, a firm and international legal brand that has struggled to establish a clearly defined place in the mind of general counsel, peers, and even some of its own partners.
If Tyler was generally viewed as a safe pair of hands in tough times, Warne is hailed as the expansionist, setting out a vision of how CMS can shine on the global stage amid a reviving European economy.
In this regard Warne already has a natural counterpart in Camerons’ managing partner, Duncan Weston, a relentless optimist who has been a major force in pushing through a dramatic reshaping of Camerons’ partnership and business over the last five years.
The hope is that Camerons – or rather CMS, the large grouping of international law firms founded 15 years ago – can in its leaner and marginally meaner form achieve a breakthrough, cementing itself as an international brand and a credible broad-service global player for bluechip clients (Legal Business is shortening the firm’s name to Camerons for this article to avoid confusion with CMS).
That ambitious goal is one that would be blithely dismissed by many peers, though on closer examination Camerons – and CMS – appears to be a more interesting and potentially potent beast than is often assumed (the firm’s particularly strong addiction to marketing speak being one reason for its hazy image).
Dundas may be not be a core part of its plan – and it wasn’t – but it will be an interesting addition to a firm that has great hopes of going somewhere serious.
Warne comments: ‘We have exciting momentum, obviously now with the Dundas combination we feel we are growing and people are feeling buoyant. My election as senior partner is [also] very telling because I grew my practice from nothing on day one 21 years ago. The firm has voted for growth.’
Soft culture, hard times
The name changed, but the image didn’t much over the years. Formed in its current incarnation by the marriage of McKenna & Co and Cameron Markby Hewitt in 1997, Camerons has long pushed to break into the law firm premier league. Joining forces enabled two mid-tier players to gain mass and combine McKenna’s corporate and energy practice with Cameron Markby’s respectable banking, litigation and venture capital offering.
Given the rapid changes in the 1990s City legal market, the deal made obvious sense even though there was a considerable cultural gap between the two firms. McKenna was far more entrepreneurial, having maintained a super-plateau for its hard-driving stars and gone through a partnership cull during the early 1990s recession; Cameron Markby was the more sedate partner, boasting a polished business and reputation. Even with Denton Hall dropping out of a three-way tie-up in 1997, the deal made sense if Camerons was to have a hope of keeping pace with larger rivals, and forge a £100m practice.
Once established as a more credible City player, the combined firm’s next milestone was the launch of the CMS group in July 1999. The original group – comprising Camerons, Hasche Sigle in Germany, Derks Star Busmann in the Netherlands, DeBacker in Belgium, Rui Pena & Arnaut in Portugal and Reich-Rohrwig Hainz in Austria – quickly expanded to include Swiss practice Von Erlach Klainguti Stettler Wille in 2000; French tax specialist Bureau Francis Lefebvre (BFL) in 2001; Italy’s Adonnino Ascoli & Cavasola Scamoni in 2002; and Albiñana & Suárez de Lezo in Spain in 2005.
But despite forging a larger practice at home and a sprawling European network – Camerons faced its challenges. It had never managed to shed a reputation for being collegiate to the point of laidback, while a range of strong practitioners and niches did not, many felt, provide the coherence, potency or mass in core areas like corporate finance or commercial disputes to challenge bigger firms (see ‘Pockets of brilliance’).
Still, the firm managed more than respectable growth through the 2000s, hitting revenues during 2007/08 of £235m under the steady leadership of Tyler. During that year revenues had surged 21%, while profits per equity partner (PEP) increased by a similar amount to hit £622,000, an important achievement for a firm with a reputation for not turning a quality client base into bottom-line performance.
This narrative of steady but unspectacular progress received a modest jolt when the firm in 2007 voted in Central and Eastern European (CEE) head Duncan Weston as its new managing partner in a five-way contest. The corporate lawyer had made his reputation on the back of impressive growth in Camerons’ muscular CEE practice and was viewed as a natural leader to set out an ambitious agenda for the firm, a pitch that included international expansion, closer ties within the CMS alliance and a greatly improved showing in the City.
Events were to swiftly interfere with that expansionist vision, with Camerons’ revenues being hit along with many rivals in the wake of the 2008 banking crisis. Weston also faced the challenge of lacking the kind of broader mandate he would have had in a vote between just two or three candidates. The firm’s revenues edged up 2% in 2009 but fell 11% in 2010 to £214.4m, while PEP was down sharply to £444,000.
Such performance illustrated an awkward reality. While Camerons had re-introduced a band of non-equity partners in London in 2007 as a means of improving profitability (see ‘Searching for the formula’, opposite), during the boom the firm’s ranks had become very top-heavy. In 2009 management responded with an unusual deal to de-equitise a band of partners via a public offer to buy them out on generous terms as a means of thinning its senior ranks. The approach – dubbed ‘Dignity and Dosh’ – took some aback but appeared effective, seeing 16 partners from the firm stand down during the 2009/10 year. The deal saw partners offered the equivalent of 12 months’ pay to give up their equity based on the three previous years’ average earnings – which, given the dramatic plunge in the economy, was a generous deal.
Under Weston’s first term, which saw him work alongside senior partner Richard Price, the firm also engaged in an ambitious outsourcing deal with Integreon and ushered in a single, beefed up board. The firm also began to push the CMS brand far more aggressively, with Camerons, BFL and Hasche Sigle merging their operations in Moscow in 2009 to create CMS Russia, followed by the launch of the Turkey office in 2013. The firm doubled down on its sector approach to re-enforce its strong position in energy and respectable coverage in life sciences and financial services.
During this period Camerons continued to flirt with options for dramatic growth, with one idea being kicked around for the firm to lead a series of UK and global mergers. The plan – referred to as ‘Magnificent Seven’ – saw the firm, according to some claims, make or entertain approaches from a wide range of firms including Norton Rose, Simmons & Simmons, Eversheds and Wragge & Co. Accounts differ of how serious such opportunistic venturing was – though it is thought such an approach never proceeded far.
Critics of this period argue that – despite a wide range of measures designed to reshape the business and keep a closer eye on profitability – Camerons had hardly galvanised its business or mounted a more coherent challenge to top rivals. And revenue had continued to decline. (Camerons’ revenue figures vary somewhat depending on the accounting for offices backed by several CMS members.)
Searching for the formula – partnership and pay at CMS Cameron McKenna
CMS Cameron McKenna has refashioned its partnership a number of times since the merger of Cameron Markby Hewitt and McKenna & Co in a search to find its formula for success.
In the early 2000s the firm moved against trend when it went all equity but then in 2007 announced it would introduce a band of non-equity ‘gateway’ partners, a status new partners would have to serve before being considered for equity.
That move evolved further in the wake of the banking crisis when it became clear that Camerons’ equity had become unsustainably top-heavy. In response Camerons, during the 2009/10 year, made an unusual offer to buyout equity partners on generous terms. The offer, which was taken up by 16 partners, saw this group move to fixed-share status while subsequent years also saw a substantial number of partners either managed out or demoted in the partnership.
There were additional changes made to its partnership in 2012/13 to expand the partner assessment process and increase a pot set aside for discretionary bonuses from 2.5% to 5% with the idea of making the system more meritocratic and flexible.
In its post-Dundas incarnation, the firm operates a heavily modified lockstep with 202 partners in the UK. The partnership is divided into a four-tier system, with the lowest tier, which comprises over 40% of its partnership, as a junior equity band. Camerons terms this group as equity but many partners consider the rank as effectively fixed share. The group have a restricted vote on some strategic issues, which blocks them from voting on mergers. There are also a handful of fixed-share or local partners. Around 70 Dundas partners were slotted into Camerons’ partnership, primarily in its lower ranks.
This leaves a ‘core ladder’ for partners on the top three bands, on an equity point range of 28 to 70, with roughly 120 partners in this class. The firm will see profits per equity partner (PEP) of around £738,000 for full equity partners for its 2013/14 year, a rise in PEP of over 10% annually. Plateau partners are expected to receive around £800,000 a year, with a potential for as much as £100,000 annually in additional bonus payments to top performers. In comparison the bottom band of partners earn around £200,000.
Camerons’ post-Lehman re-engineering of its partnership has led to a substantial expansion of its junior ranks and relative reduction in the number of plateau partners, with only 20% of its UK partnership now in the top band of equity.
While there have been some complaints from junior partners that it is unclear how to move past the firm’s gateways, Camerons argues the model will foster a more performance-orientated culture befitting its ambitions.
The last king of Scotland
If Camerons had faced its share of post-Lehman challenges, they were dwarfed by those at Dundas & Wilson. The 255-year old firm had long been established as Scotland’s top firm with a client base crowned by banking giants The Royal Bank of Scotland (RBS) and Halifax Bank of Scotland.
But the Edinburgh-bred firm had struggled to break out of its Scots stronghold and had been dealt a terribly unlucky hand when its much-feted tie-up with Andersen collapsed following the Enron-related implosion of the big five accountant in 2002, which ended the march of its Andersen Legal network.
This dynamic has caused huge upheaval among Scotland’s traditional elite, pushing arch rival McGrigors into a takeover by Pinsent Masons in 2012, while quality mid-tier operators like Burness Paull – not having the overheads of expensive City offices – have stormed onwards at the expense of larger rivals.
In 2012/13, Dundas saw an 11% fall in revenue to £48.7m, one of the worst performances in the Legal Business 100, while its top-line had shrunk 35% in five years compared to a 2008 high of £74.8m. PEP of £164,000 in 2012/13 compared to an LB100 average of £294,000.
‘The driver [for Dundas’ takeover] was shrinking panels from banks and other financial institutions, insurance companies and the big corporates, which are wanting to have a single relationship with a UK business with international reach,’ comments Turcan Connell senior partner Douglas Connell, a former Dundas man and an avowed admirer of the firm. ‘There are more mergers to come. It’s client-driven.’
With senior lawyers leaving in large numbers, the 78-partner firm was known to be looking for a merger after having held unsuccessful talks with Bircham Dyson Bell in 2011, not to mention persistent claims that it had failed to engage Eversheds’ interest in a takeover. Given the rate of senior departures, there were questions being raised over Dundas’ long-term viability as an independent practice.
Becoming the saviour of Dundas was not in Camerons’ game-plan. Despite having flirted with beefing up its national coverage, there was no strategic imperative to secure a merger in Scotland. The opportunistic move came out of discussions between Camerons’ energy-focused Aberdeen branch, when up-and-coming partner Stephen Millar, a protégé of Warne, met longstanding Dundas corporate partner Douglas Crawford for a coffee after Dundas opened its own Aberdeen outpost in March 2012.
Crawford later introduced Millar to Dundas restructuring partner Caryn Penley. Penley was voted in as co-managing partner alongside real estate partner Allan Wernham in June 2012, after the firm’s former managing partner Donald Shaw announced in March 2012 that he was stepping down from his post midway through his second term.
Penley and Wernham were given a mandate to steer the firm towards a long-term solution to its ills, likely meaning a rescue deal.
Following the proposal by Millar, negotiations began between Weston, Warne and Millar on the CMS side, and Dundas chairman Laurence Ward and managing partners Penley and Wernham on the other, starting in the summer of 2013.
The two firms consulted with a number of joint clients, including Clydesdale Bank, RBS, Lloyds Banking Group and National Grid before taking a vote in December. The deal was backed in a partner vote, with Camerons’ passing an 80% majority hurdle, against a 75% at Dundas. The vote was restricted to the partners in Camerons’ core equity, as more junior partners hold a restricted vote. (Dundas characterises its four-tier partnership as equity, though some partners describe the lowest band as effectively fixed share.)
Despite the limited franchise, there is little sign internally of discord regarding the deal, with Camerons partners in general willing to trust management, in part because it had obviously secured a strong asset in effective sale conditions. As expected management remains driven by Camerons, with Dundas’ Ward becoming Scots senior partner, while Wernham is Scottish practice head for real estate. Penley became Scottish group manager for banking and has joined Camerons’ UK partnership board.
The logic for the tie-up, which went live on 1 May, is thoroughly opportunistic and regarded to have been to a considerable extent pitched with the support of Camerons’ influential oil and gas team, in particular Warne. Camerons secured a strong brand in Scotland on good terms; has raised its top line; and is able to bolster its offering in two core sectors: energy and financial services. While Dundas has struggled in London, its City arm retained a productive real estate team.
Warne talks frankly. ‘I deliberately say combination and not merger because of the relative difference in sizes of CMS and Dundas. Because of our energy expertise, we were strong in the Aberdeen market. It was logical for both our energy and financial services practices to combine with the traditional number one firm in Scotland. It gave us a pool of high-quality lawyers – that wouldn’t be so easy to find in the London market. It also gives us the opportunity to deliver real efficiency.’
Camerons also hopes to pitch its Scottish operations as a means of handling work for City clients – a form of northshoring with solicitors rather than the paralegal-driven ventures seen in some markets by City peers. This approach will be further supported by a small paralegal-led team set up by Dundas in Glasgow in 2012.
‘One of the key benefits of the merger is that we can offer our clients more choice as to where the work is undertaken,’ says Millar. ‘Whereas a number of our Magic Circle competitors here have opened in places like Belfast just using paralegals doing the work there, we will be able to do the work with lawyers with partners supervising. Our client feedback is that there is a place for the paralegal model, but there is also a place for premium work to be done more efficiently outside London. This strikes us as a stronger client proposition.’
Weston is likewise keen to play down the broader strategic significance of the Dundas deal. ‘The impact will be small in terms of the whole picture – my interest isn’t just growing for the sake of growing, it’s making sure the UK is competitive and profitable so we attract the best people. I honestly believe we’re doing that.’
Warne adds: ‘When discussing this with Stephen Millar, we agreed that the DW combination was a clever and smart move in the UK giving clients more choice, but we also have a bigger focus in the global market, looking both West and East.’
Given the huge disparity in profitability – Camerons’ PEP is on course to be around £738,000 this year – the bulk of Dundas’ equity partners will slot into the bottom rung of Camerons’ four-tier partnership. The takeover has led to job cuts, with Dundas cutting 40 support staff roles and 20 roles going on the Camerons side.
There has been some debate about the terms on which the takeover has been secured, with one ex-Camerons man claiming that Dundas’ management was effectively handed 500 equity points from Camerons’ partnership to distribute as it saw fit (a figure roughly equivalent to £5m).
Warne refutes that there is any formal lock-in in the deal, stating there are some extended notice periods to ‘bring about stability on both sides’. She also dismisses claims that guarantees have been offered, rather than simply slotting Dundas’ partners into Camerons’ partnership.
One former Camerons partner sums up a fairly common assessment: ‘Dundas had nowhere else to go. CMS was the only real fit for them. And they made CMS an offer it couldn’t refuse. Dundas realised what it had to do but hardly any are going into the equity – they’re all tied in and all on the lower rungs.’
Pockets of brilliance – Camerons’ practice
With its broad practice reach CMS Cameron McKenna has long been renowned for having technically polished individual partners and a broad collection of credible niches, while arguably still struggling to secure a decisive breakthrough in engine-room practices like corporate finance or litigation.
This is reflected in the firm’s rankings in the UK edition of The Legal 500, where the firm has eight top-tier rankings, including professional negligence, environmental law, human resources and hotel and leisure real estate work. In contrast, the firm is ranked only band four or lower in many mainstream transactional areas like private equity, equity capital markets and acquisition finance.
Strong individual performers include Daniel Winterfeldt, the head of international capital markets, who was recruited from Simmons & Simmons in 2011, corporate partner and head of consumer products Louise Wallace, and insolvency veteran Rita Lowe, who heads the banking and finance team. With litigation generally regarded as a safe rather than a potent team, international arbitration head Guy Pendell has nevertheless built a name for himself. The firm also has a respectable position in the financial services regulatory field, where partner Simon Morris has long been a prominent figure, as well as in civil fraud and insurance litigation.
While the firm is traditionally characterised externally as underweight on corporate partners Charles Currier and Gary Green were all cited by clients interviewed for this piece, as well as head of regulated industries Robert Lane.
As such the firm has often looked more comfortable trading on its sector focus, where it has built a strong profile in energy, financial services, insurance, life sciences and TMT. Of these groups, energy – in particular oil and gas and related project financing – is generally viewed as the jewel in Camerons’ crown, with new senior partner Penelope Warne one of the firm’s most respected names and credited alongside Fiona Woolf as being a major force in building its profile in the sector.
The firm secured a coveted position on Shell’s global legal panel last summer, gaining one of 11 spots to cover three or more jurisdictions for the company and was also re-appointed to the BG Group panel. Other major longstanding clients for Camerons include BP, Statoil, National Grid and General Electric.
The energy focus is reinforced by its top-tier network in Central and Eastern Europe (CEE), which is backed by the UK partnership. The reputation of current managing partner Duncan Weston was largely made in driving the CEE practice to great success in the mid-2000s.
The firm hopes to further its international reach in energy following its 2013 launch in Turkey – which has a vibrant energy and natural resources sector with plenty of infrastructure and renewables work.
The firm also has a respectable showing in the financial services area, with clients like The Royal Bank of Scotland (RBS) and Lloyds Banking Group (LBG).
In corporate, the firm has traditionally held its own in the mid-market space with clients including LBG, RBS and Amazon, while London partner Currier led a multi-disciplinary team advising a consortium owned by Hong Kong tycoon Li Ka-shing on a $1.25bn acquisition of the Netherlands’ largest waste management group.
In finance the firm has wide coverage, with its insolvency and projects teams typically seen as standout areas. The insolvency practice previously advised on both the Halliwells and Manches administrations. Having been reappointed to both RBS EMEA and LBG’s own account panels two years ago, the firm has invested with the hires of partners Peter Crichton and Ashley Smith from DLA Piper in 2012, followed by Allen & Overy asset finance specialist Tim Elliott last year. The firm also re-hired another finance partner Martin Brown from Ashurst last year.
The strength of its insurance practice has come under scrutiny following the departure of a 28-strong team, including six partners, to RPC in 2011. Longstanding partner Andrew Symons departed to DLA Piper after nearly 18 years at CMS in 2012. He was followed by the high-profile head of commercial regulatory and disputes group Liam O’Connell, who exited to Norton Rose Fulbright. O’Connell’s move was widely felt as his leadership extended to the firm’s insurance and reinsurance group. Although CMS has made efforts to recoup the losses with the addition of RPC’s head of reinsurance, Simon Kilgour, last summer, some argue the firm is less focused than previously on the sector.
One big family
The candid talk that serves Camerons well in discussing the Dundas takeover speaks clearly to the former’s desire to be seen as focusing on the larger stage, in particular its CMS grouping.
Despite existing for 15 years, the entity’s image struggles in the sense that there is no other grouping quite like it, though Camerons compares it to verein-backed outfits like Hogan Lovells, Norton Rose Fulbright or DLA Piper that operate different partnerships under a common brand.
The neutral view would be that CMS is something slightly distinct, comprising sizeable national brands and partnerships grouped together via a European Economic Interest Grouping (EEIG).
Since calling in Deloitte in 2007 to advise on more closely integrating its network, Camerons has been attempting to both sell the grouping as a big four-style proposition, while pushing to report and monitor its business at a CMS-wide level.
Weston insists that collectively this constitutes a strongly integrated institution for clients: ‘Other verein firms are far less integrated than we are operationally. They couldn’t possibly have established the depth in practice groups as we have done over 15 years. But they are using the same business model.’
In some cases pushing CMS has been more cosmetic. Camerons made a concerted push to get major legal publications to report its financials, alongside multi-profit centre firms like DLA Piper, in 2011. Judged on this basis it is certainly a sizeable operation, with revenues of €838m for the 2012 financial year, up from €797m the previous year. The grouping currently has around 830 partners and 3,000 fee-earners across 32 countries and 58 offices.
The more than respectable growth over recent years has been driven primarily by its major European partners, notably Germany’s CMS Hasche Sigle and France’s BFL, by far the largest other members.
This has shifted the dynamic of the grouping. Camerons was the largest firm by some margin in 2008, with income of £235m according to 2007/08 figures submitted to Legal Business, against €192m at Hasche and €155m for BFL. For the 2012 financial year, 228-partner Hasche’s income rose to €238m with BFL billing €171m, while Camerons’ UK revenue was only a little above £200m.
This reflects the substantial strides that Hasche has made over the last decade as one of Germany’s most upwardly mobile players and shifted CMS from a Camerons-dominated entity to a genuinely pan-European creature. Hasche’s revenues have nearly tripled since 2000, when it generated around €84m.
Indeed, many see the German firm as now punching well above its weight in its respective market in comparison to Camerons, thanks to eye-catching mandates like acting on Lehman Brothers’ German insolvency. With clients including Telefónica, Allianz, Axa and Hochtief, revenue per fee-earner is also understood to stand at over €450,000.
‘We have a growing large-cap business and a strong mid-cap,’ says Hasche Sigle managing partner Hubertus Kolster. ‘We see more and more bluechip companies coming to us. Cameron McKenna is quite important to us because of the importance of the UK market and it also has a strong presence in the CEE region.’
Rita Lowe, Camerons’ head of banking and finance, echoes the point: ‘We benefit from the CMS network and so do the clients. We work on a greater number of cross-border transactions. We’re a global village. We only win work to the extent that we can manage that cross-border dynamic.’
Further aiming to bolster CMS’ approach, Weston has increasingly pushed the group towards CMS-wide monitoring, reporting and practice management. Set against that, rapid decision-making can be hampered in that CMS gives each member firm a full vote on major strategic decisions. However, the reasonable argument runs that this allows genuine buy-in.
The typical critique of CMS airily dismisses the grouping as little more than an alliance, with all the limitations that entails, but even the least on-message Camerons partners are modestly upbeat on it, while by consensus CMS has made some real progress over the last five years in becoming a more unified force.
‘I get minor benefit,’ says one Camerons partner. ‘I benefit when clients ask where we have offices, and we have what they need; that puts me in the running. Client-facing wise, it’s better than it is internally. Internally, [they] are separate firms with their own pricing model and pressure, you have to squabble with them to work out a way to price it.’
Another current partner is more upbeat: ‘If partners [in other CMS firms] help you on a transaction, it gets them a fee and increases their profile and exposure to different calibres of work. There’s also a matter of professionalism about it; I’ve not heard anyone go “that’s a crap piece of work, I’m not doing it”. And you can get that even in larger firms – just because there’s shared profits doesn’t mean that because you’ve asked some guy in Paris to help you, they think it’s a great use of their time.’
Another partner comments: ‘The biggest selling point is the strength of the network. There have been teething problems with integration. But we’re much more familiar with each other as common partners.’
Nevertheless, it is hard to sustain the case that the network holds the same coherence as a truly unified firm. While partners are generally favourable on CMS there are mixed views regarding how effective it is in terms of cross-selling and managing the logistics of cross-firm client support.
Even for those with a more upbeat view of the network, the more candid partners concede the CMS brand can be a tricky proposition to communicate to clients.
‘The European angle is a big strength,’ says another Camerons partner. ‘It isn’t as well recognised as it should be. Maybe it’s taken a while for people to take on the brand name. I know when you mention to people that it’s the biggest law firm in Europe, they’re surprised. People’s perceptions are quite fickle and they like to pigeon-hole firms. If you’re looking for a European deal, for instance, people tend to look at Clifford Chance but don’t look broader.’
‘Branding has always been an issue,’ concedes Weston. ‘The strategy was always to maintain the strong local brands. These weren’t offices – these were law firms. Our policy wasn’t to say “let’s get rid of their brand”. There’s been a transition but we highly respect that culture. And if we have a strategic decision to make, the Austrians have one vote and the English have one vote. People say that makes it go slower but you tell me how many firms have 58 offices worldwide and how they grow year on year?’
Weston is also keen to emphasise that there are strong ties between each member firm, at least on an executive level. ‘CMS is effectively a top-down organisation, but it’s collaborative. It’s an evolution – it started with a bunch of people who were very good colleagues that developed a work association. Now it’s developed into a firm mentality with an executive board. That cohesiveness among management has allowed us collaboratively to bring to bear those various service lines.’
While it is clear that Camerons is more committed to the Deloitte-style CMS pitch than most of its European partners, there has been a steady march towards genuine integration. The days when CMS members would openly wink at conferences that they regard the group as just a loose network appear to have passed.
Weston predicts that CMS will phase out local brands where Bar rules allow within the next five years, a forecast that Kolster at Hasche agrees is a realistic aspiration.
A major aim for CMS in recent years has been for the grouping to move beyond its European heartlands, most crucially to secure a US member. Kolster comments: ‘You know, even though CMS historically was European-driven, we now have a global approach. For the time being we have no CMS member firm in the US or Latin America but we are considering our possibilities there. I would also look to Asia, especially South Korea, Singapore, Japan and further expansion in China. But for me at the end, it’s very important to maintain our identity. We don’t want to be taken over by a global organisation. We want to keep our positive CMS-spirit.’
The firm has opened a series of offices outside Europe, including Beijing, Dubai, Oman, Rio and Tirana, though some branches remain tiny outposts. Last year saw the launch of branches in Mexico and Turkey. CMS’ offices in Russia, China and Turkey are either funded by some or all of the group.
With the constituent firms having made efforts to improve the CMS brand in the US, Kolster believes that more domestic firms in the region are increasingly interested in the concept. ‘For the Americans it is a new concept that such an organisation is not financially integrated. We are not in concrete talks right now but we have talks about our general vision.’
On the big question of securing a US partner, Weston comments: ‘There’s a huge amount of consolidation – they’re obsessed. But Europe hasn’t been flavour of the month in recent years. It’s good that Fulbright and Dentons have promoted a business model of this sort. Now we’re getting to know some of the best firms in America. Now I can see us building relationships. But I wouldn’t be surprised if it took several years.’
CMS Cameron McKenna – the client view
‘Camerons have been our advisers since National Grid’s privatisation in 1989 – we go back a long way. They are approachable, pragmatic, give first class legal advice… the energy team is second to none, especially on the electricity side and they do any excess work that the in-house team do not have the capacity to handle. In the UK, our relationship partner is Robert Lane. Because they understand National Grid so well, they are an extension of our in-house team in a number of areas. They add a huge amount of value. We believe we get value for money from Camerons. Our mantra here, however, will always be how do we get more for less? Camerons are very good at providing extracurricular support like training and secondees. That helps the relationship in terms of the headline rate.’
National Grid, general counsel, Alison Kay
‘In my experience of dealing with CMS Cameron McKenna, I have always found the lawyers in the firm to be technically excellent, extremely practical and trustworthy and they always deliver to the highest standards.’
Lloyds Banking Group, corporate real estate legal counsel, Lesley Wan
‘They struggle with this perception of being fully integrated. I like them – I’ve tried to get them involved in more substantial M&A in the past but it’s difficult trying to convince your fellow execs… people still say “give me copper-bottomed firms”. There is a general worry… and wariness about networks and consistency of advice if there is the possibility of looseness… and perhaps local agendas.’
General counsel, major listed Camerons client
Checks and balances
An interesting aspect of Camerons’ attempts to drive its business has been its approach to management. Historically regarded as a laidback operator by the standards of City peers, even with a considerably more actively managed partnership the firm retains much of its reputation as a nice place to work.
What does remain is a notable ambivalence about leadership and an enduring commitment to the partnership ethos. Talk to a sizeable group of Camerons partners and there is much discussion of the firm’s board holding management to account.
By the same token, there were persistent claims that senior partner Richard Price and his successor Dick Tyler, who took the role between 2011 and 2014 after three years as executive partner of the umbrella CMS body, took a more cautious strategic view than Weston and was ready to challenge his expansive thinking.
Certainly, the details-orientated Tyler was seen as a break on some of the more creative instincts of his managing partner.
Some partners regard Weston as more of a business-builder, more naturally suited to driving a firm in buoyant markets, rather than the punishing detail of leading a law firm through a prolonged recession and argue his consensus-building style saw him focus too much on winning friends among the partners who voted for rival candidates in 2007. According to this view – certainly not shared by everyone – Weston’s growth agenda was diluted to the point of not delivering on his pitch for the managing partner job.
Weston openly concedes that the introduction of the unified board strengthened oversight and that the culture of robust checks and balances means decisions can take longer to agree. However, he argues, citing changes to its partnership and remuneration, associate pay and evaluation and its outsourcing deal with Integreon, that this approach allows the firm to achieve buy-in from the partnership and then quickly execute agreed plans.
One partner comments: ‘Duncan is a really personable can-do guy. He’s not aloof. You do see how positive he is.’ The same partner notes that Weston even saw the positive side of a serious skiing accident he suffered last year on a CMS trip – having been hit by a snowboarder, he needed several operations to recover, including re-attaching nerves in one leg. ‘There’s never a problem with Duncan, there’s always an upside.’
Weston is now well into his second four-year term as managing partner, which is set to come to an end in 2016.
The pressure to secure consensus – coupled with the inherently slow gait of CMS group democracy – has often made Camerons appear to lack movement. One former partner comments: ‘Duncan is a real enthusiast. He’s a warm, thoughtful, kind guy – I’d like to be like him. But he would sit on the bridge of the ship and pull the lever. CMS didn’t turn. Despite his efforts, the vehicle he is steering is much harder to manoeuvre than others.’
Yet this impression – held by some of the firm’s own partners – is belied by the level of re-shaping that it has undergone. To the firm’s credit, the robust level of debate in senior management and the move towards more active performance management has not resulted in either the in-fighting or plunging morale seen at many City firms that have pushed for tougher leadership.
However, the Integreon outsourcing deal still divides opinion. Initially signed in May 2010, it was pitched as pioneering for the legal industry, supposedly worth £600m over the life of the contract. The move – which impacted around 300 staff – transferred the vast majority of Camerons’ back-office staff to Integreon, with the exception of marketing and business development. The service provider also took on management of Camerons’ supply contracts.
A sizeable number of roles transferred to Integreon’s offices in London, Bristol and India, leading to the relocation or redundancy of nearly a third of Camerons’ support staff. The deal was supposed to forge a common platform that could be used by other law firms and would include access to Integreon’s large legal process outsourcing (LPO) operation.
The move inevitably went down badly among Camerons’ support staff but was also felt by many partners to have fallen somewhat short of the sales pitch in the first year of operation. While delivering cost savings equivalent to 10% of support staff according to one partner, it is conceded that quality of service improvements in some areas like cash flow management was offset by problems in other fields. The inability to attract other law firms to a shared service platform also took some wind out of the initiative’s sails.
Camerons last year reviewed the agreement, scaling back the use of Integreon in favour of a new facilities service provider, though the firm has also pledged to expand the use of LPO with Integreon and still uses the company as its main supplier.
The collective savings of such initiatives have been considerable. The outsourcing of knowledge services, finance, IT, HR, London facilities, learning and development was estimated last year to save around £2.6m annually. An outsourcing of its print room to Xerox in 2012 has saved nearly £500,000 per annum. In 2013 the firm saved £823,000 from outsourcing London facilities to Initial. The Integreon deal also cut London rental costs by over £800,000 a year while the firm is estimated to have saved more than £3.7m in tighter management of third-party contracts by Integreon over three years (it should be noted that some argue that management estimates of such cost savings are optimistic).
The deal of the century
The firm is also about to gain a dividend from the outsourcing deal when it moves to new offices in Cannon Street later this year, in place of its long-time home in Farringdon.
The move looks set to be a long-lasting boon for Camerons having secured what one partner dubs ‘the deal of the century’ on the 140,000 sq ft let, taking up three floors in the eight-floor Cannon Place.
The long-term lease includes a six-year rent-free period with Camerons after that paying only a little more than its current offices at Mitre House, which are around £42 per sq ft. Thanks to its outsourcing of back office staff, Camerons is taking on 30% less space than its old premises, which currently cost about £10m a year to rent, but with capacity to handle more lawyers.
The development, which was completed in 2011, was originally intended for a major financial services firm, meaning its large open plan offices will allow Camerons to arrange its teams along its core sectors.
Management had in the summer of 2011 signed initial heads of terms on an ambitious pre-let at Principal Place in Liverpool Street, but in January 2012 Camerons announced it was postponing the move due to poor market conditions. The Cannon Place deal is far cheaper, with Camerons saving tens of millions over the life of the lease, according to the estimate of one partner.
Given that excessive property commitments have so often proved disastrous to law firms, the boost of modern new offices on favourable terms has understandably been viewed as positioning the firm well for the future.
Such bottom-line focused thinking on outsourcing and real estate means that Camerons is set to reap a sharp boost in profitability when economic growth returns. The firm is expected to generate PEP of around £738,000 this year, an increase of nearly 20%, with roughly flat legacy UK revenues for 2013/14 at just over £200m.
In recent years Camerons has increasingly sought to emphasise a focus on profit per point over PEP to encourage the business and teams to concentrate on underlying profitability. Business units have been called on to deliver a base-line target of roughly £10,000 per point, and teams submitting budgets below that level are expected to set out plans to reach that point.
Likewise, client relationship partners are expected to be billed out for at least £400 per hour and achieve a profit margin of 55% from clients, including deploying lower-cost resources or outsourcing to hit the target.
While it is arguable that Camerons could have achieved stronger revenue growth over the last five years, its focus on profitability and quality of work means the firm is clearly in stronger financial shape than its boom-time incarnation. Top performers are on course to earn as much as £900,000 per year, including bonus payments.
While Camerons has achieved such rigour without the fallout that has befallen many City peers – such tactics are not always popular.
Weston had called on Camerons’ board to collectively endorse him for a second term, arguing he would not stand for a second term if he was forced to go through the arduous process of campaigning against rival candidates in an open election; Weston was duly re-elected unopposed in November 2011.
In what some see as a miscalculation, Tyler did not seek a similar endorsement when standing again as senior partner last year. Tyler was to stand against Warne and veteran banking partner Simon Morris. According to one account, the strong-willed Morris was primarily standing as the voice of the partnership, rather than as a serious contender. That left Tyler and Warne as the two mainstream candidates.
One partner puts it bluntly. ‘Dick got slaughtered. He thought he would go to the partnership and win. It’s a shame because you lose someone with ability and years of experience running a firm.’
Another partner comments: ‘Dick steered the firm through a difficult recession. Penelope was offering a bolder, brighter vision for the future. This is undoubtedly to do with sentiment; if you think the world is going to be more positive; vote Penelope, and if it’s going to be tougher; vote Dick. They were equally great candidates.’
Bringing it together: governance at Cameron McKenna and CMS
Despite myriad leadership teams within the CMS group, Camerons has made attempts in recent years to streamline its own governance structure. In 2010 it overhauled its UK practice group, which saw the firm break up its commercial practice group to form two new departments called human capital and commercial, regulatory and disputes (CRD). The firm has since 2008 operated a single board after combining its former executive committee and board into one body responsible for strategy. Chaired by senior partner Penelope Warne, the board includes managing partner Duncan Weston, six practice group managers and a number of elected partners for staggered four-year terms. General counsel Craig Perry also attends board meetings.
Camerons practice group leadership includes corporate partner Andrew Sheach; banking partner Rita Lowe; real estate partner Mark Heighton; disputes partner Guy Pendell; human capital partner Simon Pilcher; and energy partner Stephen Millar.
There are several features of the CMS governance structure. The CMS executive committee sets out the strategy, which is implemented by CMS executive chairman and Hasche Sigle senior partner Cornelius Brandi. The Frankfurt-based team also carries out business development, IT, finance and marketing and is managed by CMS executive director Matthias Lichtblau, who took over the post last July from longstanding head Matthew Gorman. The committee is wholly comprised of the managing partner of each CMS firm and one other appointed partner.
There is also the managing partners (MP) group of which each MP is responsible for driving the CMS strategy. With meetings held every second month, the MP group determines operational issues and is currently chaired by the CMS executive director Matthias Lichtblau.
The group also operates an oversight council, which is made up of one partner representative from each member firm to approve accounts and admissions of new member firms.
Getting with the programme
Those attending Camerons’ partners conference last summer were presented with ten guiding principles for the firm’s three-year strategy to 2016.
What is interesting about the principles is less the individual points – many of which could be pulled from the internal comms of any peer firm – than how much they internally contrast. While some talk of broad concepts like ‘we will live our brand, putting our clients’ world first’ or seeking to ‘grow through developing our client relationships’ others focus on the nitty gritty of margin management and improving Camerons’ business model.
That contradiction runs through Camerons’ business and image. In trying to articulate its strengths and distinctiveness, Camerons has at times become tangled in corporate speak with little resonance, or put out confusing messages.
Partly that is due to the challenge of selling CMS. The alliance has in many respects outperformed expectations – it is entirely conceivable that it will continue to evolve to be a potent and distinctive global force in the legal industry. But it remains a challenge to articulate, in part because there is nothing quite like it. Selling a full-service law firm outside the elite is notoriously tricky given the diversification of the model; selling ten full-service firms slowly evolving towards a big four-style dynamic is unsurprisingly more challenging still.
While the emphasis on the CMS network is understandable, at times Camerons may do well to remember that UK clients would think better of CMS if they perceived Camerons itself as a rising stock. In this regard, there is an argument for Camerons to watch the quality of its partnership and move to further upgrade its foundation teams in corporate and litigation, even if still concentrating heavily on its targeted industries. After all, the firm has fought hard to achieve and maintain profitability that can attract and retain high performers.
Leadership is also a particularly interesting topic at Camerons – the firm is at once obviously resistant to centrally-driven diktat at home and across CMS, yet it has pushed through much change while avoiding a huge hit to its lawyer morale. Where that dynamic ultimately takes the firm will be telling but is hard to predict – there are few comparison points.
Likely a key issue will be how well Camerons can engage and motivate its expanded ranks of junior partners. Perhaps inevitably given its shift towards a more actively performance-managed partnership, there are concerns from younger partners about what it takes to secure promotion; Camerons cannot thrive in the long term if it is viewed as an institution that prioritises the interests of its older guard at the expense of the younger generation on whose entrepreneurial zeal it will be increasingly reliant.
Towards the end of Legal Business’ interview with Weston and Warne, some relatively good-natured banter almost threatens to get out of hand as Weston goes into full sales pitch over what the firm has achieved, stating the attending journalists need to ‘get with the programme’.
Contrary to popular opinion, there is a programme at Camerons and on closer inspection it looks like one of the more interesting responses to the post-Lehman legal landscape seen yet. LB
sarah.downey@legalease.co.uk, alex.novarese@legalease.co.uk
The print version of this article includes several earlier internal projections for 2013/14 profit per equity partner at CMS Cameron McKenna, which were the only figures available when Legal Business went to press. More up-to-date figures after accounting adjustments raised profit calculations have been included in the iPad and online version of the article.