Two’s company

After getting Beachcroft fit for the modern age, senior partner Simon Hodson and managing partner Paul Murray will run the firm for five more years. Time for a progress report

Beachcroft senior partner Simon Hodson (see left) often has his tongue firmly in his cheek when commenting on the industry, but this time he’s deadly serious. ‘These pissing contests over how many hundreds of thousands people get paid are obscene and, frankly, not good for the profession.’ You might expect this from a buyer of legal services, but not from the senior partner of the 23rd largest firm by revenue in the UK. To his left, managing partner Paul Murray (see right) nods in agreement.

It’s perhaps less surprising that these comments come from the management of a firm that has always struggled to offer City-level rewards. The firm is ranked 81st out of the LB100 across key profitability metrics. But make no mistake about the commerciality of their leadership: this a management duo, which, since beginning their first term in charge almost simultaneously in 2005, have boosted revenues at the firm by 46% from £89.7m to £131m.

Although no Beachcroft partner will ever see their take home pay reach Magic Circle levels, Murray and Hodson have just been re-elected, uncontested, to serve another five-year term in their current roles. Either Beachcroft’s partnership can’t produce alternatives or these two are doing something right.

A smile curls at the edges of Hodson’s lips and the glint is back in the eye. ‘Of course, there’s nothing in our articles that says we have to stand down after five years,’ he says. Not that the firm would want to dispose of the duo after their contribution so far.

Early meeting

Hodson – a corporate specialist – joined Beachcroft as an associate in 1984, just a couple of years after qualifying at Clifford Chance legacy firm Clifford Turner. Murray, an insurance litigator, qualified at Trump & Co in Bristol before joining Wansbroughs Willey Hargrave in 1981. When the two firms came together to form Beachcroft Wansbroughs in 1998, both men met during the merger discussions between the two executive committees.

It’s clear to see how well they get on: there’s much blokey camaraderie in evidence when they are in the unfamiliar territory of posing for photographs, having to face each other. Hodson observes that the pose copies those of the iconic Smith & Jones comedy partnership of the 1980s, and there are elements of that relationship between Hodson and Murray. They mock each other frequently, but then there’s clearly mutual respect. They don’t finish each other’s sentences. They don’t repeat what the other one has said. They are very clearly at ease with each other: Murray even recalls the time when, thanks to a booking mishap, they ended up sharing a double bed in France at the 2007 Rugby World Cup.

When former senior partner Lord Hunt and managing partner Robert Heslett stepped down from their roles in 2005, Murray and Hodson were nudged into the firm’s top management positions. No fuss, no election campaign. ‘I think we were promoted with a small “p”,’ says Hodson. ‘It was a slightly Tory-party campaign, with grey-suited individuals thinking that it was best for the firm going forward.’

They had a tough act to follow: Lord Hunt of Wirral needs no introduction, while Robert Heslett was recently president of the Law Society. As the senior partner, Hodson has the charm and talks a very good game. He’s happy expanding on the firm’s market positioning and the future of lawyers and law firm management. Murray is strong on the finer details and more measured in his responses, but both swap roles easily and assume wider responsibility for managing the firm. ‘Because we get on well and want to make the most of our combined talents, we will, without interfering, occasionally pick up stuff which isn’t strictly speaking our remit,’ says Murray.

While Heslett and Hunt were respected leaders of the firm post-merger, Murray and Hodson’s time in charge can be characterised by a concerted push to raise Beachcroft’s profile and what Hodson describes as a more ‘business-like’ approach. He cites the firm’s LLP conversion in 2006 as a catalyst for this change. ‘We both share a common interest in the business of law and enjoy running a law business,’ says Hodson. A major part of the strategy was to clearly define the firm’s two key strengths – insurance and healthcare.

Murray says there was a real need to ‘punch at our weight or above and a yearning to be better recognised for our business’. Both suggest the old regime hid its light under a bushell, with Hodson saying the firm was ‘secretive – but not in a Halliwells way’. This chimes with what others see. One recruitment specialist says, ‘they haven’t trumpeted as loudly as some of their national competitors’.

Second time around

However, during their first five years, Murray and Hodson brought Beachcroft out of the shadows. The firm became an LLP in 2006 and crucially established an LLP management board. The board is the firm’s senior governing body and includes six other members in addition to Murray and Hodson (Elizabeth Adams; Michael Bothamley; Julian Gizzi; David Pollitt; Chris Wilkes; and Ruth Winterbottom). Partners have delegated almost all of their powers to the LLP board, allowing it to manage the business while they get on with their day jobs.

This structure has stream-lined decision making, which has been particularly evident in the evolution of the firm’s international strategy. In 2006 the firm set up an international practice group to advise UK-based clients on their interests overseas. It was Beachcroft’s slightly peculiar approach to globalisation – running a team of lawyers based in the UK focused on overseas opportunities.

The firm quickly realised that the idea of having a UK partner responsible for each jurisdiction didn’t work and shut down the practice in 2008. Instead it shifted in 2009 to a best friends strategy, as well as announcing a joint venture in India with local practice Khaitan Jayakar Sud & Vohra. Hodson says that extending its own offering would have been flogging a dead horse. ‘It’s not worth investing in Europe anymore, it’s a dead and dull market,’ he says. ‘The opportunities are further away, such as India, and it’s much more exciting being in a place where you feel there’s growth rather than the very attritional behaviour that’s taking place here.’

However, a lot of Beachcroft’s investment priorities have been closer to home of late. At the end of 2008 the firm launched in Newcastle after acquiring Eversheds’ clinical negligence team in Newcastle and Leeds, a practice that Eversheds said it wanted to move out of at the time.

Then, in March 2009 the firm opened an office in Dublin, initially specialising in professional indemnity and personal injury, before expanding into wider insurance and healthcare work. The office trebled in size in a year and now has 16 lawyers. In the summer of 2009 the firm acquired Welsh defendant insurance boutique Kingslegal, creating a limited company called B2 from Beachcroft as part of its LLP group.

It didn’t stop there. In April 2010 the firm took over niche City insurance firm Williams Holden Cooklin Gibbons. The acquisition gave Beachcroft more capability on the ground to handle high-end insurance work in the City and, bizarrely, an office in New Zealand.

While many other firms have been cutting back and focused their plans on international growth, apart from the Auckland outpost Beachcroft has embarked on a significant period of domestic expansion. Murray and Hodson simply say that the opportunities were there to be grabbed and a downturn is a better time than any to seize the initiative. ‘We had declared our intentions for it to be a year of consolidation, but in a fast-changing market and one in which opportunities present themselves and must be seized, standing still is not an option,’ says Murray.

This surge of investment is all the more impressive when you consider that Beachcroft, despite posting a 3% decline in revenues from £62m to £60m at the half-year stage recently, was the only firm in the major UK peer group of the LB100 – a group that includes the likes of DLA Piper and Eversheds – to post both revenue and profit growth in 2010. However, problems still persist behind the positive spin of what has been a largely successful five years. Perhaps the biggest elephant in the room is profitability.

Bottom line basics

Hodson may talk a good game about lawyers being paid too much, but being a partner at Beachcroft will never assuage avarice. He even admitted this in an LB article in 2007, saying ‘our profitability is too low and we are addressing that’. A comparison of profit per lawyer figures (see table, page 38) with other insurance and national peers shows that the firm has so far failed to deliver on this front.

Murray argues that it is difficult to benchmark the firm’s financial performance against a specific peer group as Beachcroft is a national firm competing against specialist insurance and healthcare firms. When you compare Beachcroft against other national insurance firms, such as Berrymans Lace Mawer and Russell Jones & Walker, it stands up favourably.

However, when compared to the star performers in the insurance field, such as Kennedys and Clyde & Co, the picture isn’t as rosy. In the healthcare sector, analysis of the profits per equity partner (PEP) of the top-rated firms in The Legal 500 shows boutique Capsticks streets ahead of the pack on profitability, with a PEP of £452,000. However, Beachcroft does perform better than Bevan Brittan, which is also in the LB100 and has been struggling of late.

Hodson suggests that Weightmans would be a good firm to benchmark against in terms of practice mix and geographical spread. While the firm is half the size of Beachcroft, the main practice areas are broadly similar. However, while its PEP is slightly higher, the equity is much more tightly held, distorting that metric. But profit per lawyer and profit margin are £27,000 and 16% respectively, both behind Beachcroft.

‘Because we get on well and want to make the most of our combined talents, we will, without interfering, occasionally pick up stuff which isn’t strictly speaking our remit.’
Paul Murray

‘This obsession with PEP is tiresome, we’re focused on entity profit,’ says Murray. This backlash against PEP may be in vogue right now, but whichever way you slice the profitability pie, Beachcroft’s performance is unspectacular. The profit margin is 19% and profit per lawyer is £32,000, down from £46,000 when it peaked in 2007.

But both Murray and Hodson are remarkably phlegmatic about it; there’s almost a Gallic shrug when it is suggested that financial performance has been unimpressive. ‘Revenues go up, margins go down: that’s life,’ says Hodson. ‘We’re looking at the sustainability of the business. We can’t recruit on the basis of paying more than the next firm.’

‘I don’t think we’ve had many defections on the basis of profitability,’ says Murray. ‘Fortunately most of our partners buy into a business that is sustainable and that they have a stake in.’

Hodson says that unlike other firms, Beachcroft hasn’t been interested in short-term profitability gains. ‘I think the value of investment by law firms generally will have dipped remarkably in the past two years because what they are doing is taking out investment and taking out costs to sustain the profitability model,’ he says. ‘But they are not necessarily sustaining the business model.’

Despite shrugging off low profitability, the firm’s actions in recent years show that it definitely has its eye on financial performance and is equally capable of playing some of the slight of hand tricks that all firms use to bolster PEP. A simple analysis of the change in shape of the partnership demonstrates this. In 2005, when Murray and Hodson took over, the firm had 95 equity partners and 42 non-equity partners. By 2010 that figure had changed to 78 equity partners and 70 non-equity partners. The percentage of partners sharing the equity has fallen from 69% to 53% in five years. Just 10% of the firm’s lawyers are now equity partners: only six other firms in the LB100 are more highly leveraged.

‘We’re not trying to be different from where we are now but we’re ambitious to be better at what we are doing.’
Simon Hodson

Hodson points out that any improvements to profitability will be achieved by changing processes and not by ‘slaughtering the members’ – the firm’s recently signed five-year back-office outsourcing deal with Williams Lea being one example. However, Companies House records show that since the start of 2007, 34 members have left the partnership while only 17 have been appointed. Former lawyers, while having their own axes to grind, have told LB that partners have been shed to free up equity.

Damned if you do, damned if you don’t. On one hand the firm is criticised for its lack of profitability. On the other, it is lambasted for trimming the equity fat. But at the same time the firm cannot be accused of shying away from investment. Figures for the past financial year show an 11% increase on its 2009 costbase, one of the highest in the LB100.

Only three other firms saw greater cost increases. During the large redundancy wave between 2007 and 2009, Beachcroft did not resort to redundancies: the only group laid off were six people in the defunct international practice group. Murray and Hodson can also point to a Silver Award given to the firm by Investors in People in 2009, only the second law firm to achieve that level of accreditation.

Recruitment specialists report seeing very few Beachcroft CVs floating around the market. This, they say, is a testimony to the firm, as you would expect to see people moving from a firm of its size. Clio Demetriades, owner of Partner Moves, says simply: ‘They are obviously doing something right.’

Eyes on the target

One thing that Beachcroft has certainly got right is client focus and brand. The firm is synonymous with work for the insurance and healthcare sectors, and in that sense is unlike many firms currently struggling to find a client base that they can identify with. The firm’s top five clients are Zurich, Allianz Insurance, Guy’s and St Thomas’ NHS Foundation Trust, McDonald’s and Bupa. In 2005 Allianz and Zurich still topped the list, alongside various NHS trusts.

The management team point out that the firm is, and has been for some time, focused on developing relationships rather than chasing deals. While this is a common retort from firms that lack the power to compete on a transactional footing with the deal machines, there is evidence to support this claim. The real estate practice, for example, has a strong tie with Westfield Shoppingtowns, while the firm’s recent performance in retaining and winning new places on panels to corporates has been impressive. Manchester United reappointed the firm to its panel for employment work in July; in May it was appointed to Citigroup’s revamped EMEA panel. A year ago it was, unsurprisingly, reappointed to Zurich’s slimmed-down panel for another three years, alongside Pinsent Masons.

Hodson points out that the firm thrives on long-term, large accounts with key clients. ‘We tend to be relationship followers, rather than transaction followers,’ he says. ‘We’ve had some clients for a very long time and we tend to think it’s how you protect that relationship that is in the sustainable interest of the firm. The investments we’ve made are as much in the interests of the clients as anything else.’

Murray says that the proportion of revenue from single client accounts are greater than most firms would expect from a single client. ‘That is something that is different about us,’ he says. ‘We have a large number of quite substantial, several million-pound accounts here.’

However, this also leaves the firm potentially exposed. With clients such as Zurich looking to drive down costs and putting increasing pressure on firms to comply with more arduous demands, any resistance to those demands could leave a major client walking away with catastrophic results. Some moves, like the recent Welsh office opening, were a response to client demand, as are all strategic decisions by the firm, say both managers. If that demand only comes from a small pool of clients, then problems can occur if a client moves its work.

Critics point out that chargeout rates can be very low to key insurance clients, who essentially want ‘something for nothing’. But the pair point out that all insurance law firms are accustomed to working to low margins as the industry has always been much tougher on costs than other sectors. This is why, they argue, insurance heavy firms are doing comparatively well now – they are used to delivering value to clients.

‘With all the stories of doom and gloom out there, there may be some opportunities.’
Paul Murray

The sustainability of the business, which is a key message from both men, has depended on the focus of the firm in sticking to its guns. It has resisted the temptation to recruit heavily into non-core businesses and consequently suffering self-inflicted wounds as it loses out to more established players.

The firm is clearly comfortable in its own skin. However, Hodson doesn’t want comfortable to be confused with a lack of ambition. ‘We’re not trying to be fundamentally different from where we are now but we’re extremely ambitious to be better at what we are doing,’ he says. ‘Nigel Montgomery [head of the health sector group] told the board 18 months ago that he wants to double the size of the health practice in the next four years. That’s not a comfortable thing to do.’

He recounts the tale of a partners’ conference a few years ago, where the firm flew over a gamekeeper from South Africa to explain how a pride of lions hunt. Each member of the pride, the gamekeeper explained, knows its job and never deviates from the chosen prey. Should a warthog appear in view, say, none of the lions would become distracted – the focus was purely on killing the chosen target. ‘For a few years after that, we had a saying in the firm: “don’t chase the warthog”,’ he says.

Reap what you sow

According to Murray and Hodson, the chosen theme of this year’s partners’ conference is ‘change’, recognising opportunities and making changes, and specifically looking at what gets in the way of chasing opportunities. If that sounds rather vague, that’s because it is – neither are willing to provide too much detail on the agenda. Certainly the firm has been fully embracing change during the past five years and particularly in the past 18 months, so perhaps there’s a need to take stock, have a little breather. Hodson reveals that he doesn’t intend to push the work agenda too hard, but to allow partners to spend some time in each other’s company.

Does change involve a big merger at some point – the main industry talking point of the past 12 months?

‘I think these days we don’t really entertain mergers,’ says Hodson. ‘We like the idea of taking bits that fit.’

Recent acquisitions by the firm certainly bear that out. In addition to the insurance teams in Wales and London, and the healthcare group in the North East, the firm took on a two-partner healthcare team from Halliwells in February, just before the Manchester firm collapsed.

However, Murray says the ‘never say never’ cliché still applies. ‘With all the stories of doom and gloom out there, there may be some opportunities,’ he says. He is currently keeping a keen eye on the New Zealand market, particularly now the firm has its own Auckland office. ‘It’s brought to the forefront something we’ve been keen to do to protect our high-end insurance and reinsurance business,’ he says cryptically, before refusing to elaborate further.

But this could manifest itself in one of two ways. One option could either use lawyers in New Zealand to help provide cost-effective work to key insurance clients in London, as the firm has done with some of its UK offices, such as Bristol. The other option is to establish some credible ties with Kiwi firms to build a cross-referral relationship. Certainly there is a precedent to follow: Kennedys, another successful UK insurance firm, has run its own New Zealand practice for a decade.

Murray says the priority is to establish where the key markets are going to be – like China – and start to make some moves over the next five years. The UK business of Beachcroft will always be large, he adds, but the international play will really start to develop, particularly for insurance work. ‘The key is to find places where there’s more opportunity and less attrition,’ adds Hodson.

Both wave away any suggestion that government cuts will have a significant impact on their core public sector business, arguing that work will still need to be done and many scrapped initiatives will reappear in different guises. ‘All clients want you to deliver value and demand more, not just the public sector,’ says Hodson. ‘Because we have always had to be cost-conscious, clearly that’s an advantage.’ However, a couple of weeks after our interview, Murray cites ‘a significant squeeze on public sector spending’ as a factor contributing to a 3% drop in revenues when the firm’s half-year results are published.

‘I think these days we don’t really entertain mergers. We like the idea of taking bits that fit.’
Simon Hodson

Despite the jokes about staying on forever there’s no indication from either that the next five years will be their last at the top. Neither have ever contemplated leaving the firm. Hodson says this is because his dad would have killed him (his father was a former managing partner of Beachcroft) while Murray says that management was his ultimate ambition.

When it is time to go, they are both adamant that there is no legacy that they wish to leave behind: it’s not a personal crusade, says Murray. The firm has a simple mantra given to all new joiners: treat the firm as if you were working on a farm. Live off that farm as well as you possibly can and when you leave it, leave it in a better state than when you found it. ‘We’ll leave it in a better state, without question,’ says Hodson.

As a parting shot, Hodson typically has a riposte for those who are too focused on the bottom line. ‘It’s not about taking everything that you can. Do we have a plan to make this firm super-profitable? Oh yes. And when does the firm collapse? About 2016.’ Beachcroft is 250 years old in 2012. Like any antique, it needs to be carefully handled. LB