Marco Cillario caught up with CMS UK managing partner Stephen Millar to discuss the first year since the three-way union with Nabarro and Olswang went live
Legal Business (LB): What’s your general take on the first year and a half of life of CMS Cameron McKenna Nabarro Olswang?
Stephen Millar (SM): We have taken something which was a concept, turned it into a big story and then executed it, bringing a huge amount of people along. It’s worked from the day it went live.
In the summer of 2017 I spoke of ‘short-term pain for long-term gain’ and that was at the end of a very painful period: we did 100% integration and it was incredibly difficult to bring about, but all that pain has already started to be a distant memory.
LB: ‘Pain’?
SM: Some things going wrong, which always happens. But it was more about the sheer amount of change we were putting people through. Almost everybody had new team members. For those from Nabarro and Olswang it was a new office location. For many it was moving open-plan, new technology, new metrics, a new way of interacting with administrative staff…
But our calculation was it was better to do it [so that] within three or four months they get used to everything new, but at the end of that period there is no other change to come. In contrast, in many other mergers a lot of the implementation grinds on year after year. We had a dip in utilisation the first week, but even after three months the financials were in excellent shape.
‘It was better to do it so that within three or four months people get used to everything new, but at the end of that period there is no other change to come.’
LB: When the merger was announced there were expectations some of the top names at legacy Olswang and Nabarro would quit when the lock-in period expired. The firm hasn’t lost many big names in the UK so far [except for the ten-lawyer real estate team led by Alan Karsberg and Simon Kanter in October-November], although many left Olswang before the merger. Why?
SM: I spend a huge amount of time understanding where every partner is, making them understand their part. I want to have a partnership at peace with itself and excited to work together.
You sometimes hear partners move around on a whim. I just don’t think they do: where they feel their contribution is valued and part of a bigger team, that’s what they aspire to. They want to do that on the backdrop of solid, progressing finances and clear messages.
LB: Was there anyone the firm lost you were sorry to lose?
SM: There has been virtually no-one over the last year who has left. And we had a huge number of laterals as well – that was one of my metrics for success. The standout is probably in Hong Kong: Shirley Lau and her team have an impressive existing business. That sort of hire would have been challenging without the merger.
LB: The other claim when the merger was announced was that the firm would cut staff, especially in overlapping practice areas. Has this happened?
SM: Not at all. One of the reasons for the merger is deep sector expertise. That requires a broad church in areas you cover. The other part was scale: lack of scale was one of the weaknesses we had in London. Now we have scale but also specialism. We are not hunting just for the big transactions, the big litigation, because sometimes they don’t then drive the specialist side of the business. Clients want to deal with big brands, which are trusted – they want scale but also deep, deep experts. And that’s where we are investing hard. Measures like tier-one rankings in The Legal 500 in London are determined in a very objective way and tell us we have this depth of expertise. That’s what clients buy.
LB: In June the firm announced UK turnover of £518m and claimed a 19% increase in profitability, but kept other metrics under wrap: profit per equity partner [PEP] was missing. Why?
SM: We subsequently did put out PEP. I like to be entirely straightforward. I was looking for a measure completely apple-for-apple. The new partnership is based on the CMS partner model, which is a point-based system, a managed lockstep. The deal with Nabarro and Olswang was done on the basis of an average of three-year profits for each of the three firms. We put a number of points for each firm and each of them was able to allocate those points based on existing deals that each partner had.
CMS is the base and that’s where profitability in the first year has gone up by almost 20% on a per-point basis. This was a complete like-for-like basis.
The merger cost is about £50m. We took 50% of that cost last year and we’ll take 50% this year. If you took out that £25m, the underlying per-point basis increase in profitability is 36%. We’ve got that £25m or so to pay for this year again, but next year it will be gone: the redundancies paid for, offices paid for… all the various different things that go into merger costs paid for.
‘Business seems to be immune from bigger issues. I am a big believer in the UK as a service economy. Services continue to grow in a robust way and the UK is benefiting.’
LB: Didn’t you worry that only releasing this data, the firm would not look transparent?
SM: We need to work on that if it feels that we are not being transparent, but I am happy to show you all the papers.
LB: Revenue for the wider CMS global network was €1.3bn in 2017: are you happy, considering the UK merger and the 11 new offices the firm opened worldwide?
SM: Performance has been really good. Quite a bit of that growth is organic. Some of the new offices are in relatively small markets. Some of the economies within the wider CMS have been performing very strongly, such as Germany, central and eastern Europe. It has been a good year for many firms: we benefited from that as well, but we feel we performed in the upper quartile.
LB: Why do you think it has been such a good year?
SM: Business seems to be immune from bigger issues or got used to them. I am a big believer in the UK as a service-orientated economy. Services continue to grow in a robust way and the UK is benefiting.
LB: After the merger you said you wanted to promote more partners to make people feel they can build a career here. Partner promotions in the UK are up by just one to 11 this year.
SM: You need to look at it on a three/four-year basis. It’s a relatively flat market. The only way to create new careers at a healthy level is to bring about growth. Principally, what we were doing through the merger was creating the means by which we would grow and win clients we wouldn’t have had before. A number of the hires this year have come in as partners from non-partner or junior partner positions.
LB: Back in January, the LLP books provided some evidence on the last year of life of Nabarro and Olswang. All three had profits down – Olswang had operating profits down by 76% and revenue down by 14%. Doesn’t that prove the firm was in trouble?
SM: You have to bear in mind those accounts were massively impacted by statutory things you have to do in a situation in which the businesses of Nabarro and Olswang were being brought to an end. In addition, Olswang had just been through a restructuring, which involved some of its continental European businesses. It’s very hard for the statutory accounts to give a comprehensive picture. Onerous leases have a huge impact: millions and millions of liabilities the new business takes on in the following year that have to be crystallised in the accounts.
LB: How would you describe post-merger CMS in a couple of sentences?
SM: We are a uniquely sector-focused firm that has deep expertise in these sectors and also scale [CMS’s core sectors are: energy; financial services; infrastructure and project finance; tech; real estate; life sciences and healthcare]. It is a place with fantastic entrepreneurial spirit – there is freedom for partners to dream and go make it happen, and a collective sense of purpose.
LB: You dropped the names of Nabarro and Olswang from the core brand. Hasn’t this hurt recognition from clients?
SM: It hasn’t affected the amount of business. There has been education for clients and transfer of goodwill from one brand to another. CMS was an understated brand before and that’s remarkably changed in the last year.
LB: Through the Dundas & Wilson merger in 2014 and now through last year’s merger, you have acquired a number of offices in lower-cost centres. How do these fit within the network?
SM: If you start with the Scottish heritage coming both from CMS and Dundas, Edinburgh is a big legal centre in itself. We wanted to bulk up there substantially for the financial services and energy [sectors]. Same for Glasgow in many ways. Aberdeen is all about oil and gas. None are service offices. But also one of the rationales for the Dundas merger was that if you can use lawyers who can be at a lower cost point but operate a very professional legal structure, that’s a very good mix, and this applies in Edinburgh and Glasgow in particular. In England, Manchester is all about the local economy. Sheffield, Bristol and Reading, the heritage of the three legacy firms, would probably be seen as service offices.
‘Does CMS need a US union? Absolutely. Because of clients, the flow of capital and because legal service is globalising. We can try and push against it, but consolidation in the legal market will continue.’
LB: You need three English service offices?
SM: We moved the real estate services people out of Reading, but beyond that we don’t see any need to change.
LB: Why?
SM: Because they are different. Reading has a great employment team, it is near a lot of big corporate clients and we want to use it as a flexible office for the people who live in that area. Sheffield is huge and mainly in real estate, Bristol in real estate and insurance.
LB: One of the big things you still want to achieve in your term, which ends in 2022, is a merger in the US. How are you going to achieve that?
SM: It’s a work in progress. A lot of US firms are doing very well. We have to find the right firm for culture and quality, and we need them to be properly motivated in terms of their international strategy. There are quite a few stars to align, but I don’t want to talk about it in a sense of just speculating as if nothing will ever happen. We have a strong track record for execution and retaining the sense of a partnership.
LB: Does CMS definitely need a US union?
SM: Absolutely. Because of clients, the flow of capital and because legal service is globalising. We can try and push against it, but consolidation in the legal market will continue, and everything is directed at what the clients need and expect.
LB: How long will it take?
SM: If it still takes five years for it to be the right choice, we’ll wait five years. We have a lot of people coming talking to us about opportunities. But we want to do it right.
LB: No plans for more international integration?
SM: My suspicion is the future will involve a number of professional services organisations like ourselves being simpler. There is nothing happening immediately. [But] there is an awareness that in time things need to be simpler.
LB: Isn’t it hindered by having separate profit pools?
SM: You have to work harder to make it work. As clients are becoming more global, their expectation is becoming greater too. That means we need to drive further integration of information. But the separation of profit pools is not particularly unusual: it allows more flexibility around being more representative of the local market. There are firms with a single profit pool which struggle for integration and firms with separate profit pools where integration works much better.
LB: It’s ten years since the collapse of Lehman Brothers. How did this change the legal profession?
SM: It brought a flat legal market. That was the time when pressure started to grow on law firms to operate in a more efficient way and give more for the same price. I don’t see any time soon when that trend is going to change. The great thing for the legal sector is that it is a very professional sector and still a very segmented sector. There are still a lot of opportunities.