King & Wood Mallesons news, updates and analysis | Page 2 of 19

Hearing that Legal Business was gearing up for an in-depth look at the collapse of the European arm of King & Wood Mallesons (KWM), a well-informed contact told me that this story could not be told without going back to the Stanley Berwin days.

True, the old SJ Berwin had a maverick spirit that mesmerised its own partners but, having twice presided over lengthy pieces about the firm, I had no stomach to dwell once more on its legend.

Instead we get in this month’s cover feature the final chapter of what was, for a lot of good and even more ill, a remarkable institution. And the firm in that final year packed in leadership intrigue, a partnership restructuring, multiple attempts to overhaul its capital, a divisive management election, spiralling debt, a stream of departures and toxic office politics. All this before the old SJ Berwin reached the administration and firesale that concludes the story.

What went wrong? It is easier to ask what – if anything – went right? The collapse of Halliwells and Dewey & LeBoeuf by comparison are one-dimensional and event-driven. The old SJ Berwin was in contrast riven with serious issues before it opted for its 2013 merger, a deal that looked fine on paper but was inaccurately sold to all sides, creating a global ‘firm’ without the governance or cultural affinity to function as one.

Certainly, the much-cited difficulties of combining Western and Asian law firms proved to be on the money and KWM’s administration has been only the latest evidence to pile up on the material limitations of verein law firms. The notion much touted five years ago of Asian practices reshaping the global legal market is currently nothing more than a professional fairytale.

But ultimately the legacy SJ Berwin partnership bears the greatest responsibility. Thanks to a partnership of colourful and sometimes selfish and bullying characters, the firm never gripped the financial and operational challenges facing it. Big names got their way, or blocked those that attempted to modernise the firm. Even in the final months, with debt topping out at £37m and its lenders putting intense pressure, one team ‘chose not to bill’ for a month in a gesture of defiance.

If you are looking for heroes in the final months, there are a few who come out well but, at the senior level, not many.

The final disastrous leadership election – which killed off the modest chances of a last-minute reprieve – was the final hurrah for its rampant office politics. But perhaps it was always going to end this way – there were too many forces externally and within pushing in this direction.

Which is a reminder that in the end, it was a collective failure of all who signed up to the partnership and chose to dwell on the mythic side of the firm’s ethos and turn away from the uglier side of that culture. Some the senior hands that bailed out in 2014 and 2015 think the claims of professed surprise about the collapse from the partners there at the end are a lie but that kind of collective denial is common within partnerships.

One partner still with KWM told us: ‘Something I will not forgive myself for is not looking at the broader picture and not asking more questions. I started asking in November when the articles started coming out.’ At that point, ‘the articles’ about the state of the firm had been appearing for over a year. There were staff that didn’t realize how bad it was until December, when it filed for administration.

Years after leaving SJ Berwin, former senior partner David Harrel in 2013 wrote an article for us about the dramatic impact of culture on institutions and the ability of the people in those institutions to delude themselves about it. You did not have to be a deductive genius to work out who he was writing about.

The consequences of that collective failure will now play out as usual: messily and with scant relation to the virtue or culpability of those involved. You want a moral? It’s not really that kind of story but I wouldn’t lend any law firm more than 5% of revenue and do remember that private equity lawyers are hard to herd. That’s me done. This is my last SJ Berwin leader.

alex.novarese@legalease.co.uk

For further coverage of King & Wood Mallesons, see Shattered – The final chapter of ‘SJ Berwin’ (£)

Click here to read David Harrel’s article on culture.

Happy New Year, profession. Barely have we gotten into 2017 and the inevitable has happened: the legacy SJ Berwin business has entered administration, becoming the largest collapse in European legal history.

From the point last spring that a high-billing Paris private equity team quit for Goodwin Procter, it was hard to see King & Wood Mallesons’ (KWM) European business avoiding a bad outcome. But this comment is not really about KWM’s fate, more about how we try to interpret events and re-write history after the fact.

Take Halliwells, until last month Europe’s biggest legal insolvency. In the aftermath a once-lauded institution was vilified, in some cases by the same people who did the lauding. I would argue that Halliwells was a well-run business that made one or two bad judgement calls that – thanks to largely unforeseeable economic events – had disastrous consequences.

In that case a £24.5m property deal punched a hole in its finances at the wrong time. In itself it was a reasonable bet but the spoils were handed out in a way that harmed the business long term. And it was done in a way that divided the partnership, and law firms struggle to come back from that.

But that is business – you make your decisions in an environment in which you have to make wild guesses about the outcome. Sometimes they are right, sometimes wrong – often people in the business do not even know if chance or agency gets you the result. Halliwells managing partner Ian Austin was no villain to me, I quite rated him actually.

But then the need to pretend we comprehend more than we do grips, hindsight bias takes hold and blame gets parcelled out. ‘The market’ talks, the pundits opine, ex-partners sing and we all get too self-righteous. Journalists, being hugely disposed to pomposity once past the age of 26, are usually the worst offenders. I flatter myself I have a pretty sound take on the legal services market but I have lost count of the wrong judgement calls I have made as a pundit, including giving a qualified thumbs-up to the KWM/SJ Berwin tie-up three years back and initially taking a jaded view of Herbert Smith’s merger with Freehills, which proved far more successful. The longer you do this, the more you need to keep challenging your prejudices with the facts as they come in. Well, you do if you want to avoid spouting nonsense.

That is not to whitewash KWM. As best I can tell its problems were considerably more systemic and foreseeable than Halliwells, and there will be time to delve into the events leading up to the collapse and find those teachable moments. Neither am I massively sentimental about the old SJ Berwin. It had admirable qualities and its collapse is to be regretted but it was always a pretty hard-edged environment, not the mecca of entrepreneurial group-hugging some old hands now remember.

So as we settle ourselves into what promises to be yet another turbulent and eventful year for City law, let us keep the schadenfreude on a leash and remember there are no angels here, only interests.

alex.novarese@legalease.co.uk

Read more: ‘‘Morality is a difficult term’: King & Wood EUME collapses in Europe’s largest legal failure’

Read more in the cover feature: ‘Branded – Inside the troubled takeover of SJ Berwin’