David made Goliath – Kerr on Bird & Bird’s re-invention as a leading global TMT shop

Victoria Young talks to veteran chief David Kerr about growing pains and going even more global

There’s no doubt chief executive David Kerr has overseen a rapid extension of Bird & Bird’s international reach, with additions ranging from a major takeover in Australia, to acquisitions in Denmark, and associations around the Asia-Pacific region. But for Kerr – re-elected in March for another three-year term after spending two decades as chief executive – a new priority is consolidating and tightening the firm’s focus as it comes off a flat 12 months in a crowded mid-market.

While 33% of revenues come from its headquarters in London, the firm has been one of the most expansive of the Legal Business 100 (LB100) in recent years. Notable additions include the 2013 merger with Danish player BvHD to complete its coverage of the Nordic region; a combination with Truman Hoyle for its first office in Australia in 2014; a new Dubai office opened in 2013; and a launch in Luxembourg early this year to take advantage of the new Unified Patent Court.

In the past three years, it has signed co-operation agreements with two Indonesian firms, Turkish IT boutique BTS & Partners and Korean firm Hwang Mok Park.

The firm’s whistle-stop expansion has led partners both former and current to label Kerr ‘a visionary’ and ‘a fantastic strategist’, with one ex-partner adding: ‘All bets have paid off after a long time at the helm.’

A current partner, who moved from another City firm during this period of expansion, says: ‘In some firms it is a constant battle internally to persuade domestic doubters who have no international practice. In some firms, international practices are starved of resources and funding – here it is totally different.’

They add: ‘In some places, if anything goes wrong, people immediately blame everyone outside of London. Here it is not the case.’

 

Internecine strife

But behind the platitudes, rapid growth of the Bird & Bird empire has had its tensions. In September last year, 20 lawyers in Hamburg, including five partners, moved to DLA Piper, doubling its practice there. And while the team that joined DLA was focused on soft intellectual property (IP), Bird & Bird has since hired Felix Landry and Felix Harbsmeier from local patent firm Uexküll & Stolberg as partners, along with two associates, bringing the number of lawyers at the Hamburg outpost to eight.

A former partner tells Legal Business the firm’s brand in Germany is still strong, particularly in terms of patent work. However, they suggest that a €130m professional negligence claim against Bird & Bird’s Hamburg office, brought against a real estate partner who has since departed, was one of the key reasons the team left. The claim is still before the Hamburg courts.

‘Every major retailer is moving into the digital world. Bird & Bird is at the forefront of trying to help clients out on digital commerce.’
David Kerr, Bird & Bird

Kerr brushes off the departure of the team, which was originally from Hogan Lovells.

‘Sometimes that happens. We are committed to the Hamburg regions and Germany; we have a very substantial operation and we are continuing to grow and build.’

He adds: ‘Culturally it is a very interesting question; sometimes we do get it wrong. Sometimes we find individuals but they don’t work out and it’s not because they are bad lawyers.’

More of a problem is the fact that LLP accounts reveal the firm is losing money in both Spain and Abu Dhabi.

According to the firm’s latest LLP filing for Spain, for 2014/15, office losses were up to €1.1m from €566,000 the year before. Turnover was relatively flat from €6.4m in 2013/14 to €6.5m in 2014/15 at the 38-lawyer office, which has recently opened a real estate practice.

In Abu Dhabi, the losses are more substantial: €2.1m in 2014/15, despite turnover lifting from €938,000 to €1.8m that financial year off the back of the firm increasing lawyer headcount from eight to 11.

Kerr argues that the accounts do not demonstrate how useful the offices are for referrals to other Bird & Bird outposts.

Kerr says: ‘The statutory accounts are not always a good indicator. If you look at any one country in isolation, you are not going to value the firm as a whole. We don’t assess that as being loss-making if you look at the firm as a whole; we work very hard to make sure people are generating work which moves around the whole firm.’

International expansion has not always driven the top line. Turnover at the firm was unchanged from the 2013/14 to the 2014/15 financial year, at £259m, although it is up 28% over five years.

The five-year figures look less impressive when compared to other tech-focused firms in the top 40 of the LB100, with Taylor Wessing’s revenues up 35% over the same period and Olswang, which has endured its fair share of problems of late, posting 39% growth. But Bird & Bird’s performance has been dwarfed by Osborne Clarke (OC), which has hit its stride, posting five-year revenue growth of 80%. The first LB100 firm to report its 2015/16 financials when it released its figures last month, OC led the way with a 23% revenue boost to £171.6m. Bird & Bird’s financials for the period were unavailable at press time.

Similarly, in terms of profit per equity partner (PEP) the firm has had a mixed run of results, with partner profits down 4% overall over the past five years. Last year’s PEP of £448,000 was down from £470,000 for 2013/14. It had posted £517,000 in 2012/13.

In the eyes of one senior law firm leader, Bird & Bird needs to focus less on its international reach and more on practice area diversity.

‘Bird & Bird is still very much seen as pre-eminent in terms of hard IP and litigation. The challenge is whether or not it can broaden that practice,’ comments the partner, observing that clients looking for diverse panels will usually pick the firm for an IP spot at the expense of its other practice areas. ‘It’s their million-dollar question.’

‘Of all the international firms, we are unique and we are very deep into the tech world.’
Morag Macdonald, Bird & Bird

Kerr says that while IP work is one of the ‘crown jewels’ for the firm, others misunderstand and do not realise that the range of work at Bird & Bird is far wider.

‘We have evolved. We realise that IP has remained an important part of what we do, but it is a part of the work that we do which is broader than any other law firm, if not bigger.’

The firm’s joint head of international IP Morag Macdonald – herself one of the UK’s most respected patent litigators – adds: ‘Sometimes it is irksome; in some parts of the world we are still thought of as the IP boutique – you have to explain it to people – but of all the international firms, we are unique and we are very deep into the tech world.’

Where the firm is growing, Kerr points out, is in the financial services sector, which now makes up more than 10% of global revenue. Second only to technology and communications (27%) in terms of worldwide revenues, financial services is one of the firm’s eight sector groups, which from the start of this month has been cut from 11.

Kerr says the boost in work for banks has developed out of institutions’ need for technology: ‘It’s growing like crazy because our heartland was IT and media, and now increasingly it is the industries which are being transformed by tech.’

A new sector for the firm is retail, Kerr says. ‘Every major retailer is moving into the digital world. The digital reality is less about bricks and mortar. Bird & Bird is not interested in real estate work in a traditional way, but we are at the forefront of trying to help clients out on digital commerce.’

As part of its narrower sector focus, the firm will also merge life sciences with healthcare. Bird & Bird’s other sectors are now media and sports; aviation and space; automotive; and energy and utilities.

 

Transatlantic gap

For Bird & Bird, geographical expansion has been most rapid in Asia, but this has come at the expense of development in the US, which Kerr says has not been ruled out, but was looked at hard in the 1990s and decided against. This policy may be regarded by many to be significantly at odds with its declared focus on tech across its sector groups, particularly with US firms such as Cooley making their own moves in London.

‘We have some good best friends in the US, but like everything else, the world is moving so quickly and we are keeping a very open mind about launching there,’ says Kerr.

In the meantime, Kerr says future expansion is likely to continue in Asia, while over the next five years the firm will also look toward the Middle East, Africa and South America.

With 962 lawyers now compared to around 100 when Kerr began his reign as chief executive back in 1996, Bird & Bird has been transformed. That the firm has given Kerr another three years is not just a testament to what the leader has done in the past but an endorsement of his ability to prepare the firm for the future.

Macdonald concludes: ‘David is able to think in advance, outside the box, do the vision thing – whatever you want to call it. He is really good at that and it is so important.’

victoria.young@legalease.co.uk