The Global 100: Analysis – What’s the deal with DLA?

‘The whole place didn’t collapse, did it?’ So quips Simon Levine, almost six years since he took on the leviathan challenge of succeeding Sir Nigel Knowles as global co-chief executive and managing partner of DLA Piper. Nevertheless Levine, characteristically self-deprecating and garrulous, especially in light of the firm not being razed to the ground, has clearly never shaken off the stigma of the succession being likened by Sir Nigel himself to Manchester United’s legend Sir Alex Ferguson stepping down. As if taking over from a man acclaimed for shaping DLA into what was once the world’s largest law firm over 18 years was not daunting enough. ‘I didn’t want to go the way of Moysey,’ said Levine at the time.

It is rare for opinion to be unanimously glowing about a law firm leader, but it was about Knowles, who in May became chief executive of listed law firm DWF in what may be perceived as arguably an even bigger challenge than what lay before him at DLA.

One former DLA partner echoes the fond praise of many: ‘Sir Nigel painted a picture and people followed his vision. He was never too bothered about the details. He opened DLA’s Spanish office before we even had one! Details seldom got in the way.’

Such eccentricity does not always translate to financial success but in this case it did. Having taken charge of Dibb Lupton Broomhead in 1996, Knowles transformed a Yorkshire-bred law firm turning over £61.5m a year into a global operation with revenues approaching £1.6bn.

However, that ex-partner is not quite so gushing about Levine. ‘I quite like Simon, he’s a nice bloke, but what has he achieved since he took over? Nothing.’ A harsh assessment, but is it justified?

Succession or failure?

Five years ago when Legal Business threw a spotlight on DLA’s leadership transition, the necessary direction of travel for Levine to take the firm was put into stark relief. Profitability and revenue per lawyer (RPL) needed to improve and this was to be done through winning bigger mandates for better clients, or ‘moving upmarket’, as Roger Meltzer, global co-chair for the US division, put it at the time.

There needed to be more cross-selling across the firm’s international offices to galvanise market opportunities, while a push to strengthen DLA’s underweight London, Paris and Asia-Pacific offices needed to continue. The inordinate impact of the global financial crisis on a business that was too reliant on property and acquisition finance teams in the UK with not enough firepower in disputes had to be avoided at all costs in the event of any future downturn.

Perhaps the biggest challenge facing DLA’s new head was unifying a sprawling global network, not least integrating the US and international businesses into a single profit-pool in a move that would correct an unwieldy verein-style structure that is notoriously much harder to manage than a single-profit centre equivalent.

There was also the unfortunate ‘Polo mint’ analogy – that DLA had outstanding support services but no core business. This inevitably raised the question of whether the firm’s model might not be better suited to merging with a Big Four accountancy firm to reach its stated aim (see ‘The strategy according to DLA’).

Despite early lofty ambitions to break $3bn global revenue and boost profitability accordingly, progress on improving these metrics has been sluggish. However, 10% revenue growth in 2019/20 to $3.112bn has finally ticked that box, contributing to 25% growth over five years. RPL growth has also been subdued, increasing only 13% since 2015, thanks to the sheer volume of lawyers. DLA now has 4,404 lawyers, diluting RPL to $707,000 amid 11% lawyer headcount growth in the last five years.

‘Disruption is our friend. In the midst of the global financial crisis, GCs revisited their panels and started looking elsewhere for better value. This is a perfect opportunity for a firm like DLA.’
Bob Bishop, DLA Piper

If closing the profitability gap between DLA and its competitors to attract and keep top talent was high on the agenda in 2015, the situation has hardly improved. Profit per lawyer (PPL) of $187,000 and profit per equity partner (PEP) of $1.95m is underwhelming. That DLA’s lagging profitability is usually the first thing peers and ex-partners mention about the firm is telling.

It is also one of the reasons it has many more management-style roles than its peers, according to several ex-partners. One notes: ‘The problem is, DLA is not profitable enough to reward the best-performing partners with the remuneration they would get at another firm, so the firm creates management positions as a way to compensate them.’

Mind the gap

Levine takes the profitability question in his stride: ‘We are an all-equity partnership with a big spread. We are not all London corporate people. You can take the profit number and divide by the number of partners and the PEP is lower than competitors but it’s not an apples for apples comparison. I gave up worrying about what other people think about our profitability a long time ago!’

He also admits that DLA is management-heavy but defends the position. ‘It is what it is and I don’t feel the need to change it. It’s part of the evolution of the firm. What I inherited was a lot of people from different countries joining as heads of those countries. We haven’t felt the need to rationalise that. People managing local offices is respectful of local business culture.’

However, few would question that Levine has a problem on his hands, at least in terms of market perception of DLA’s ability to hold on to star performers. The sticking point keeps coming back to partner pay.

Notes one former partner: ‘The highest-billing partners leave because they don’t get paid enough. The firm doesn’t pay lawyers, it only pays management. The result is a constant turnover of talent.’

‘It is unprofitable. If ever a firm needs to get rid of half of its partners, DLA is it,’ comments another.

Levine, however, contests this view: ‘Can I pay people competitively and attract new people in? Am I losing people for money regularly? I can’t think of half a dozen partners who’ve left for money. They leave for other reasons. We are secure financially and if other people don’t think so, I’ve just got to suck it up.’

In London, the financial restructuring and real estate practices have borne the brunt of the departures. Veteran Richard Obank left for Brown Rudnick in January, following the March 2019 defection of Michael Fiddy and Amy Jacks to Mayer Brown’s restructuring, bankruptcy and insolvency practice. In Asia, the exit in January 2020 of respected restructuring partner Jonathan Leitch to Hogan Lovells also dealt a blow to DLA’s Hong Kong ambitions.

Other notable setbacks go further back, with the 2015 departure to Proskauer Rose of Alex Griffith, an influential City finance partner recognised for having built strong relationships with credit fund clients, still mentioned.

And McDermott Will & Emery has been something of a nemesis for DLA on both sides of the Atlantic. In April 2018, London real estate partners Laurence Rogers, Neville Wright and Tom Calnan swiftly followed McDermott’s move for a team of 50 lawyers from DLA in the US, including 20 partners, in a string of hires claimed to have the potential to add $100m to its top line.

The 2017 shock exit of Juan Picón – who sadly passed away in 2019 – DLA’s senior partner and global co-chair, to become Latham & Watkins’ Spain managing partner is still cited as DLA’s greatest corporate loss in recent years, a testament to his revered standing in the market and to his success in shaping the firm’s Spain offering. ‘Spain was fabulous under Juan Picón. He had the CVC relationship and great local clients,’ observes one former partner, adding: ‘The European offices are individual fiefdoms,’ pointing to the conundrum that Levine would wish to avoid.

More recently in 2018, the exit of Anu Balasubramanian to Paul Hastings, is cited as a major reversal for DLA’s already underweight private equity offering. Balasubramanian has been a prolific operator, acting for sponsors including ABRY Partners, Accel-KKR, Oakley Capital and Aurium Capital, typically on deals ranging from £200m-£600m, the mid-market range that is the heartland of DLA’s corporate practice.

The lingering suspicion remains that when quality lawyers do leave, they trade up to much more profitable law firms than DLA. While the London corporate practice is conspicuous for the infrequency of its partner losses, what has happened to the ambition to move upmarket?

One of the biggest failings levelled at DLA is its lack of repeat or institutionalised clients now the heyday of banking relationships has dwindled since the financial crisis.

Notes one ex-partner: ‘Because of its semi-organic growth, DLA has never had any massive legacy clients. It was more: “Build it and they will come”, rather than the clients demanding us to be in all these cities. The oddity is that it’s not well-loved by its clients and it’s difficult to work out why. People who leave go to great firms and do very well, so it’s not the people. When I left, clients said they didn’t really fancy having DLA as their lawyers. They didn’t like the brand.’

In response, the firm offers up a list of representative UK clients readily enough, including the Department for Transport, Hitachi, Gazprom, Abraaj, DekaBank Deutsche Girozentrale and Etihad Airways.

Levine holds his hands up but counters: ‘We are effectively a global firm operating in the big leagues for 15 years. We don’t have the same institutional clients as a firm that’s been in the City for hundreds of years. We are a baby compared with our competitors. But I totally accept that there is work to be done building longer-term relationships with large clients that use us on a global basis.’

Punching above weight

Described as ‘bright and credible’, Bob Bishop, global co-chair of DLA’s corporate group and co-chair of its M&A practice, is widely touted as a progressive force within the firm. For many, Bishop’s election as senior partner instead of steady hand Andrew Darwin would have been a vote for disruption and a break away from the status quo. ‘Darwin’s election was a vote for no change. Bob Bishop would have been a force for change,’ notes another former partner, voicing a common sentiment.

And talking with Bishop, it is easy to see how he has come by this reputation. He talks 19 to the dozen about the corporate practice’s numerous accolades – the verbal equivalent of the rapidity with which the practice must close deals.

Says Bishop: ‘Over the last ten years we have led the market in the volume of M&A deals. This goes beyond it being a coincidence. We are not the biggest group but are very active and we help repeat clients to execute their strategies.’ The corporate group’s 376 partners account for 29% of the total 1,291 global partner headcount and hauls in 28% of firm-wide revenue.

Bishop makes it clear that cross-selling around the firm’s practice areas is no longer a far-off ambition but something that is actively happening.

‘Around 30-40% of revenue comes from relationships built in or managed out of corporate and shared around other practice areas. The corporate group is not just focused on itself. It is a shop window serving multiple practice areas in multiple countries.’

He then reels off a respectable list of clients, including Carlyle, Merlin Entertainments, GE, Unilever, Aviva Investors and Liberty Global.

However, it is clear that the wheelhouse of the practice continues to be a high volume of mid-market M&A deals. ‘The upper end of the mid-market, £300m-£500m, is the heartland of the firm and keeps us growing revenue. We are comfortable in our niche and the size and scale,’ says Bishop.

Other notable figures in corporate are cited as Charles Severs, managing director of Asia-Pacific, Middle East and Africa, board member Jon Hayes, Edward Griffiths and Tim Wright, the head of European private equity and Robert Salter, a member of the firm’s London client group. The list is conspicuously dominated by management titles.

Speculating to accumulate

Elsewhere, strategic hires have also been paying off in securing quality clients, with the 2019 addition of Clifford Chance’s co-head of global oil and gas in Australia – Tracey Renshaw – leading DLA onto the Shell panel and resulting in its first instruction.

Similarly, the 2018 hire of Freshfields Bruckhaus Deringer M&A veteran Martin Nelson-Jones has paid dividends, with the Magic Circle firm’s former co-head of global infrastructure and transport leading on recent major mandates for Hitachi Rail and Ignitis Group.

Like peers, DLA’s 2020 deal volume was dealt an unavoidable blow because of the impact of the coronavirus outbreak, racking up 178 transactions for the first three quarters of the year, compared with 327 for the comparable period in 2019. Nevertheless, the corporate practice’s strategy has benefited in an unlikely way as desirable partners re-evaluated their work lives and priorities amid the pandemic and saw DLA as an attractive prospect.

The firm has made 17 lateral hires globally in the last 18 months, with August bringing the opportunistic additions of private equity partner Piero Carbone from aforementioned nemesis McDermott and corporate partner Jon Earle, who left Gibson, Dunn & Crutcher at the start of 2020.

Carbone will be a fillip to a private equity bench still struggling to convince critics of its firepower and is hoped will bring to bear his client relationships in London, Paris and Frankfurt and enhance the cross-selling agenda across the European network.

Carbone said he was drawn by DLA’s global reach and deep sector knowledge at local level, offering an excellent platform for his practice and clients.

Earle, meanwhile, calls to mind DLA’s legacy of entrepreneurial northern overachievers taking the City by storm. ‘The chippy northerners of the Paul Rhodes era’, as one former partner puts it, referring of course to Knowles’ predecessor, the indomitable insolvency lawyer hailing from Leeds, whose tenacity for growth put Dibb Lupton Broomhead on the map in London for the first time in the early 1990s.

Bishop says of Earle: ‘Jon has exactly the kind of generative relationships we were looking for. He is a refreshingly good team player and a self-starter when it comes to finding opportunities.’

Earle said of his move: ‘There are very few firms that can truly offer market-leading full-service practices in the world’s key business and financial centres the way DLA does. The team-orientated entrepreneurial culture and drive to grow the firm the right way suggests to me that we will continue our upward trajectory.’

Much headway has also been made with the June 2019 hire of five partners in Melbourne and Sydney from Norton Rose Fulbright, a move that is already paying dividends: ‘The hires have put us on the map in Australia. We are now top five for volume and value there, a major achievement given how overly lawyered and competitive that market is,’ declares Bishop.

‘We are effectively a global firm operating in the big leagues for 15 years. We don’t have the same institutional clients as a firm that’s been in the City for hundreds of years. We are a baby compared with our competitors.’
Simon Levine, DLA Piper

He is clear about his ambitions for the practice, which include continuing to strategically hire for private equity and funds and acquire clients accordingly. He is also alive to the opportunities the coronavirus world can bring. ‘Disruption is our friend. In the midst of the global financial crisis, GCs revisited their panels and started looking elsewhere for better value. This is a perfect opportunity for a firm like DLA.’

The thorny question of whether the firm is suitably hedged for the current downturn can be answered, in part, with the fact that dispute resolution is responsible for 37% of firm-wide turnover.

Jean-Pierre Douglas-Henry, London-based global co-chair of litigation and regulatory, is widely regarded as one of the firm’s most influential and popular partners, to the extent that he is cited by many as the natural successor to Levine (whose second term expires at the end of 2022). It is also telling that such a high-profile figure in the firm is tasked with being international co-head of sustainability and ESG, as those concerns increasingly top the agenda for world business.

DLA sometimes comes under fire for launching too many initiatives that then never see the light of day but even naysayers concede that Aldersgate Funding – the £150m litigation funder for the firm’s corporate clients announced in August – is a smart move, positioning it as a credible contender in that ever-expanding market. And there has been progress. The firm is considering a dozen cases for funding across the UK, Austria, Italy, Canada and the Scandinavian and Nordic countries with a combined value of more than $500m.

Douglas-Henry is sanguine about the practice’s performance during the Covid-19 crisis and speaks of a ‘very short blip’ as a result of lockdown, with work bouncing back quickly amid a slew of triage work around contracts and force majeure, and a return to form in securing new and sizeable mandates.

‘The practice is growing year on year in terms of profitability and average rate billed. We are expecting a wave of coronavirus-related claims going into next year. Are disputes going to tail off with Brexit and Covid-19? No. They can only pick up.

‘As emergency government support and the furlough scheme come to an end, restructurings and redundancies will increase. The clock will start again and there will inevitably be disputes.’

The practice group has attracted 12 laterals in the last 18 months, including the high-profile duo of Bob Maynard and Caroline Pope from Bryan Cave Leighton Paisner in London last December.

There is much compelling talk from business leaders that the coronavirus pandemic is a dress rehearsal for the imminent and far greater danger of climate change. This has pushed sustainability to front and centre while Douglas-Henry sees the imperative as a key part of his ambitions and strategy. ‘ESG is at the top of the agenda. There is no free pass just because you’ve got a pandemic going on. Our ambition is to make the transition along with clients.’

US and them

A major part of Levine’s leadership manifesto was aligning the US business with the international firm and that remains an unsolved conundrum.

‘A proper merger with the US? The US doesn’t want to merge with Europe. London is seriously underweight. They have a slogan, not a strategy [see box, ‘The strategy according to DLA’],’ scoffs one former partner.

Another echoes that sentiment: ‘Simon was supposed to sort out the relationship with America but the two parts of the business are like two incompatible partners. If there is any work referred from New York it is through good will rather than from a cash perspective.’

‘Integrating the US is never going to be more important than keeping people safe. Nothing is perfect and this is a wonderful firm.’
Simon Levine, DLA Piper

Levine maintains that the businesses are only one step away from complete integration. ‘Nobody has managed to do this. It is a challenge and it would be great to be the first firm to do it. But we are not being left behind here – we are the most integrated firm of those that have tried it. I can’t say it will be next week or next year but it hasn’t been from a lack of willingness – things got in the way.

‘In 2005 we said: “No-one’s done this before so let’s do it after two or three years” and then the global financial crisis happened unfortunately. Nigel was wonderful but there was working out how and when succession would take place, then the cyber attack happened [on the firm in 2017] and then Covid. Integration takes quite a bit of time and attention and bandwidth but we are a global law firm – we tell clients that because we are. Integrating the US is never going to be more important than keeping people safe. Nothing is perfect and this is a wonderful firm. It’s important to recognise strengths and weaknesses and think of ways to improve things.’

Levine is also non-committal on the idea of merging with an accountancy firm, noting that DLA was chiefly building its consultancy services in-house under its Law& brand, but hasn’t ruled out a shift in strategy in future.

He insists his greatest achievement in recent years has been work on values, transforming them from ‘a wonderfully crafted paragraph with lawyers arguing where the commas should be’, into a valuable effort in enshrining the firm’s culture.

‘What we have achieved starts and ends with values. The single most important thing is making sure our people are OK and healthy. I don’t want to preside over a firm where people are stressed and struggling with mental health. Wellbeing is our biggest priority, not financial or workflow. In crisis, you learn how important the strength and the quality of the people is. If you don’t have values, people turn on each other in panic.’

Levine ends by challenging Legal Business to a table tennis match when lockdown is over. DLA does feel more like a genuinely collaborative place to work, and with coronavirus exposing the true colours of many organisations through panic and knee-jerk reactions, that focus on the human side – a culture that DLA has never historically been associated with – may turn out to be more valuable than anything else in weathering this storm. For now, we might compare Levine to the football manager that took over from a legend without calamity ensuing – if only we could think of an example.

nathalie.tidman@legalease.co.uk

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