National thoroughbred Addleshaw Goddard has consistently struggled to find its form since the credit crunch. Kathryn McCann assesses if new MP John Joyce can galvanise the firm.
‘There is a general sense of optimism in the firm at the moment,’ comments one former Addleshaw Goddard partner of their old shop. ‘But then you have got to realise how bad it was. The reason why people are so upbeat is because the last four or five years have been nothing short of a disaster. It has stopped the rot, but the big challenge is what’s going to happen next.’
The optimism comes on the back of a positive run of events for the firm. Addleshaws grew 11% for the half year 2014/15 – its best performance since 2011/12. This, and a general market improvement in property, corporate and banking work mean managing partner John Joyce, almost a year into his first term, finds himself with the opportunity to revitalise the institution.
Addleshaws has been as susceptible to market volatility as any firm. Its impressive City merger with Theodore Goddard in 2003 and sustained financial growth under the leadership of Mark Jones and Paul Lee characterised the pre-Lehman phase. But the arrival of the global financial crisis gave way to a slump, internal discord, and the discontent that dogged the tenure of previous managing partner Paul Devitt and current senior partner Monica Burch. Revenues fell 15% between 2008 and 2013, the largest fall of any firm in the top 25 of the Legal Business 100 (LB100).
The 675-lawyer firm’s fortunes were further hit given the drain of moving to expensive new City offices, just as the credit crunch hit (a decision of earlier management).
The firm was also held back by a partnership that had plenty of polished performers but lacked entrepreneurial drive.
‘That is something we have learned,’ admits Burch. ‘You can reel off a list, but if you are not actually doing the work and you’re not persuading clients why they should use you – you are not getting anywhere.’
However, there is a general feeling that Addleshaws has reached a turning point in the last six months. Internal confidence is up – the result of a straight-talking Joyce, a recently unveiled strategy and a successful partner conference and – naturally – improved financial performance.
Yet the question remains as to whether Addleshaws can seize the moment and get the firm back to the point where it was one of the most effective operators in its weight class. Joyce’s new strategy, unveiled last year, has a core target of Addleshaws becoming a top 20 law firm within three years, which seems to be hugely aspirational without consolidation of some kind.
Dear John
Appointed in May last year following a contested election against real estate partner Adrian Collins, the restructuring lawyer Joyce is described by many as ‘firm but fair’ – a tough, down-to-earth Mancunian – by consensus, exactly the kind of pragmatic leader the firm needed.
Joyce took over after Devitt stepped down a year early, following an admission by the firm that it had overestimated its profitability and been forced to make a major write-off on an uncollected success fee.
While Joyce and Burch may not form the same combination of charismatic, ambassadorial figure and polished technocrat like Lee and Jones once were, few feel the discontent of the last few years will resurface. Certainly the dynamic between Joyce and senior partner Burch will be interesting – they are said to be very different characters.
‘The business feels content, excited and there is a peace around John,’ says corporate divisional managing partner Yunus Seedat. ‘He provides the reassurance for partners, both by ensuring they feel comfortable that there is a strong hand at the tiller and also that there’s somebody who will tell them things as he sees it. He has had a fantastically strong start and the partners feel a renewed sense of purpose and a renewed sense of ambition.’
Leona Ahmed, the firm’s real estate divisional managing partner, sees Joyce as a custodian of the firm: ‘That is why he became managing partner. He believed in this business. He is not in it for the short term, he is not in it for himself. He is not someone who is looking for glory, he hasn’t got an ego. There is actually something quite fatherly about him in terms of how he feels about the firm and for me that’s really important. That relationship is absolutely vital if you are going to grow this firm to a £250m business.’
Joyce joined Addleshaw Booth & Co in November 1998 from Manchester’s oldest law firm, Slater Heelis. Joyce, who was turned down for articles when he first applied to Addleshaw Sons & Latham, eventually came over with 40 others from Slater Heelis and carried on doing insolvency work, which he had specialised in since 1990. ‘I’ve done nothing but that ever since,’ he says. ‘I found it the most interesting, it was very varied with a quick turnover. It was very profitable and you could have a good laugh while doing it.’
‘It was a very collegiate team, it worked very well together and was massively profitable – certainly I suggested this was a great track record when I put myself forward for the managing partner role,’ he comments.
Tim Wheldon, corporate partner and head of the firm’s Leeds office, says Joyce has brought in specific initiatives during his first year that have been welcomed by all the partners, most notably simplified and coherent bonus arrangements. ‘That has been extremely well received because our bonus system was complex beyond belief before,’ he says. He also simplified management structures and created the regional heads in Asia and the UAE as well as formalising office heads in Leeds and Manchester. He has embraced the idea of a sector focus, which has been very helpful.’
Joyce says his main achievement so far has been putting the firm’s focus back on the basics – developing the client offering and improving Addleshaws’ positioning. He admits the firm hasn’t performed to its full potential in recent years.
‘I was a big fan of the firm and the reason for standing for the managing partner role was that I wanted to make sure the firm did achieve its potential because I didn’t think it had,’ he says. ‘This is a great firm – yes, we’ve not had the easiest few years but actually we have got a load of great qualities and we need to take all of those and get on and make the most of them. That re-focus is the biggest thing – the introduction of more accountability so that people understand it’s not just about turning up every day – partners in the business, they are responsible for its wellbeing and its success. There’s no single measure as such that says “this is now the way it is”. What’s changed is people’s focus.’
| Addleshaw Goddard: Key Financials 2004-14 | |||
|---|---|---|---|
| Year | Revenue | Revenue per lawyer | Profits per equity partner |
| 2004 | £125.2m | £181,000 | £321,000 |
| 2005 | £139m | £210,000 | £404,000 |
| 2006 | £161.2m | £285,000 | £471,000 |
| 2007 | £176.6m | £254,000 | £540,000 |
| 2008 | £195.4m | £268,000 | £586,000 |
| 2009 | £173.1m | £242,000 | £400,000 |
| 2010 | £167.5m | £248,000 | £425,000 |
| 2011 | £162m | £237,000 | £328,000 |
| 2012 | £169.5m | £249,000 | £446,000 |
| 2013 | £166.5m | £250,000 | £440,000 |
| 2014 | £171.4m | £254,000 | £390,000 |
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Source: Legal Business 100
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Hard targets
Nevertheless, Joyce’s ‘A Fresh Perspective’ strategy, unveiled last December after a lengthy consultation process, has been criticised outside the firm for being unoriginal and unrealistic.
‘You can put lots of bells and whistles on it but fundamentally it is the old strategy regurgitated,’ says another former partner. ‘What John Joyce is saying, as I read it, is: “I’m going to execute it better.” And it’s a better environment in which for him to succeed now because the firm is going to be busier.’
The strategy aims to re-establish Addleshaws as a premium UK law firm with an international reach and continued dominance in Leeds and Manchester. The aim is to be the go-to law firm in its chosen markets and compete with leading City firms but also to operate profitably in the volume-driven market and achieve top 20 status through measures including a renewed focus in eight new and existing sectors: financial services; retail and consumer; real estate; industrials; energy and utilities; transport; digital; and health.
More significantly, there are a number of financial key performance indicators, including the target of achieving at least £250m in fee income by the financial year 2017/18 with an equity spread of £300,000 to £1m, almost double the £560,000 top-of-equity currently. The firm is also chasing a 30% profit margin (currently 23%) as well as a goal of £6,000 per equity point in three years’ time in an attempt at a more collaborative, performance-driven culture. The current model runs from 50 to 140 points with the opportunity to award bonus points for performance.
In one sense these concrete financial targets show that the firm isn’t lacking ambition, however with top-line revenue standing at £171.4m for the last financial year, it is unlikely that the firm can reach that £250m target by organic growth alone. Also, there is a conflict in those ambitions: if Addleshaws is targeting top-20 status in three years, chances are it will have to extend revenues significantly beyond that £250m target – Berwin Leighton Paisner occupied 20th place in 2013/14 with revenues of £246m.
But it is no secret that the firm is open to a merger. ‘The £250m is a target for us – are we interested in looking at that and in finding something that will give us that, yes,’ admits Joyce.
Pursuing a domestic tie-up does not leave a lot of attractive partners. Speculative talks with Nabarro stalled quickly in 2013. Two years on, it is questionable whether a City-based outfit with an international offering would be interested in Addleshaws’ larger national presence.
Burch counters: ‘What would we bring in terms of any type of combination? It would be a fantastic client list and that ready-made combination of the northern offices and the London office as well as a strong international offering in key regions.’
Yet internationally, the firm lags behind its peers in terms of greenfield sites, relying on a number of preferred-firm networks in Europe and America with emerging markets supported by jurisdiction teams. The firm has overseas offices in Doha, Dubai, Hong Kong, Muscat and Singapore as well as a formal alliance in Japan with the Tokyo-based Hashidate Law Office, with no more office openings planned for the foreseeable future.
‘We deliberately targeted two regions internationally – Asia and the GCC – and that has stemmed from the sort of practice we’ve had in the UK, the clients that we act for and the places we thought we needed to be both as defensive in terms of losing work and as offensive in terms of winning work,’ says Burch. ‘Global domination from where we were would have been completely unrealistic for us but also part of what we delivered worked very well for clients. Of course, you need to keep an eye on the market and how it is developing but you wouldn’t change that for change’s sake.’
Some would argue, with UK legal spend largely flat since 2008, a lack of international presence is a risky move to make.
‘They have been incredibly slow to the international party,’ observes a management figure at a rival law firm. ‘They believed they could do it without an international strategy and they almost prided themselves on being distinctive because they didn’t have an international strategy. It’s tough but what’s happened since the 2008 financial crisis is that UK legal work has declined. If your strategy is domestic, you have a problem.’
This may go some way towards explaining why Addleshaws has failed to convert an impressive list of FTSE 100 clients into solid financial performance over the last couple of years. Joyce himself acknowledges that the benefits of working with a preferred network of firms has been difficult to convey to new clients in the past.
‘The thing about our international network that people don’t understand is that other firms’ international offices operate under verein structures but they are not one firm. Their offices in those jurisdictions could be nowhere near as good as the offices that we work with and our relationship with those best-friend firms in those jurisdictions can be much better than another firm with international offices. But how you can demonstrate that to people unless you actually work with them is very difficult.’
Tough decisions
Part of the key to success for Addleshaws will be tackling what observers call its ‘Achilles heel’ – its north/south divide. Such is the calibre of its Manchester and Leeds offices that its greatest strength is also perceived as its greatest weakness – being seen as regional heavyweight by clients and less as an international force – with mandates reflecting this perception. However, with the likes of Latham & Watkins and Freshfields Bruckhaus Deringer announcing near-shoring offices in Manchester recently, Addleshaws needs to do more to promote its northern practice to clients in London.
Addleshaws is hoping to capitalise in this regard in part by further developing Manchester as a hub for more efficiently handling volume work, via several initiatives such as its client development centre and transaction services team. The firm is also looking to roll this out further, with plans to establish a flexible resourcing capability using a mixture of qualified lawyers and paralegals, as well as a possible future contract lawyer service in a similar vein to Berwin Leighton Paisner’s Lawyers On Demand and Pinsent Mason’s Vario network. While such efforts look very well timed given the cost-conscious mood among general counsel, some of Addleshaws’ progressive initiatives have previously been lost amid strangulated jargon, creating a confusing message for clients.
‘The range of what we can offer across the business in terms of client work is huge,’ comments Burch. ‘And it’s not a price race at all – it’s about real quality and how we can do that with a mixed offering. Other law firms are going and buying those things now. We have that. We need to take advantage of that structure as well as the international element. There used to be a glass ceiling for us in terms of how people perceived us and the work they gave us. That is going. The FTSE 100 essentially is our sweet spot.’
‘There are a lot of people on the market,’ says another former partner. ‘A year ago, a lot of partners got together and said they would give the business a year to get its act together. That year is coming to an end now and my worry for the business is that it will start to see those people leave now and it will be a real mess.’
However, the disruption does not appear to have had an adverse effect on the firm’s client base, with one new client praising the firm’s ‘quality submission’ and ‘innovative approach to value-adds’ in particular.
‘We use a system where by putting a certain amount of work their way, we earn credits and we can spend those as we like on different sorts of value-adds. It gives us some flexibility which we quite like. The firm has a combination of London capability and also a regional offering which is cheaper and good for managing costs. Firms go through rough patches and if you look in the media it is having a few partner exits and a new strategy, which suggests the old strategy wasn’t working. But what matters to me is not what the press is saying, it’s what we are getting when we ask them to do work and we are happy with them.’
Joyce appears to have a window to galvanise the firm and plenty of goodwill from partners wanting to see the firm regain form after years of surprising under-performance. Still, the new managing partner looks unlikely to get another opportunity as good as now to get Addleshaws back on track once and for all. If Addleshaws can’t seize this moment for all its worth then one of the UK’s most storied legal institutions really will risk being out of contention as a serious force given the swelling ranks of upwardly mobile firms in the UK 25-50 band vying to over-take it.
As one law firm leader concludes: ‘At least the new management team can take a deep breath. But your advice to a partner there now would be: “You really need to back your management team to make some hard decisions now.”’ LB
kathryn.mccann@legalease.co.uk