‘This is a gritty place’: Macfarlanes’ leaders on the hustle it takes to look effortless

Victoria Young talks to the singular City player about success and bucking the market

‘Strong culture’, ‘high quality’ and ‘entrepreneurial’ are phrases repeatedly associated with Macfarlanes among peers and former staff. And its recently re-elected executive has no desire to debunk the image of a hard-nosed, competitive shop.

‘We might look like a white, male, old boys’ club of public school-educated lawyers,’ says senior partner Charles Martin, ‘but this is quite a different place. This is a gritty place. It is not a comfortable place; it is a meritocratic place.’

This could be dismissed as tough talk from one of the elder statesmen of City Law, but with Macfarlanes, the numbers back-up the pitch.

In 2014/15 profit per equity partner (PEP) at £1.55m topped the big four international firms in London, a 30% increase on the £1.2m it posted the year before.

Revenue grew 14% to £159.6m for the 2014/15 financial year, up from £139.7m. On a five-year track, the revenue is up a striking 73% – putting Macfarlanes among the top-five firms in the Legal Business 100 for organic revenue growth between 2010 and 2015. It was a marked turnaround for the firm, which bounced back from falling revenues of 10% and 7% in 2008/09 and 2009/10 respectively following a major decline in corporate work post-Lehman.

It is this strong run which in January saw Martin and managing partner Julian Howard re-elected a year early in their respective leadership roles until 2020.

Yet Howard is less confident about the years ahead. He tells Legal Business: ‘I don’t think we’ll see over the next three years the same aggressive rise in turnover, because we won’t grow hugely in terms of numbers. I would like to see continued growth because we are working on broadening and deepening the client relationships we’ve got but we wouldn’t expect to see the figures we’ve seen in the past.’

Martin adds: ‘We are not fixated with growth but we are not growth-phobic. Part of our difference is being tighter, there is a point where growth could become problematic but we are not that close to that yet.’

The greater good

By its usual standards, the firm has had a lateral growth spree over the last five years. Across 2012 and 2013 it upped the ante, hiring seven partners, up from its usual average of one per year. In 2015 the firm hired Allen & Overy corporate partner Andrew Barton as well as its final real estate lateral, Gerard Kelly from Ashurst.

‘I don’t think we’ll see over the next three years the same aggressive rise in turnover, because we won’t grow hugely in terms of numbers.’
Julian Howard, Macfarlanes

The well-documented real estate push from 2011 – during which it recruited Ashurst head of construction Ann Minogue, former head of real estate Ian Nisse and partner Anthony Burnett-Scott, along with Shearman & Sterling partner Clare Breeze – helped boost the firm’s practice, which now makes up 15% of turnover.

Martin comments: ‘We needed to reposition our real estate practice, and that has now run its course.’

Corporate partner Barton’s arrival is part of a push into insurance for Macfarlanes, although Howard points out the firm is only interested in high-end corporate insurance mandates. He says: ‘Yes, there is a large part of insurance which is commoditised work but that’s not us. This insurance push comes from the client, and is, if you like, an extension of our derivatives and asset management practice.’

Martin adds: ‘We have started building an insurance capability. We didn’t do any insurance work before Barton joined us. But the other thing we need to do is cross-fertilise private client into corporate and the other way round.’

The firm’s strength in private client and the desire to mix it with its transactional practice illustrates the entrepreneurial spirit within Macfarlanes that is at the root of its success today. The firm has remained committed to private client, when it became fashionable among corporate firms to jettison the practice in the 1990s. Before that, as early as 1983 Macfarlanes was one of the very few firms already building up a buyouts practice after taking a gamble on private equity.

But bringing in new talent is not easy for a firm with a close-knit culture like Macfarlanes, which has a reputation for promoting internally. Martin says the firm’s track record over the years in the lateral hire market has been ‘mixed’. Fifty-seven percent of the current partnership started with the firm as trainees.

As former senior partner Robert Sutton, who left the firm in 2013, remarks: ‘If you join a close-knit community, or group of people, who have to learn the language and become part of that community. If you grow up in the community then it is fine but for others it wasn’t easy. Many managed and some didn’t.’

Of the 11 laterals brought in since 2011, only one, former head of structured finance and capital markets Rachel Kelly, has left, joining Bryan Cave after four years. While the firm would not discuss individual departures, Martin says this recent record of recruitment reflects a changing attitude within the partnership. ‘You pay a price for culture. It is a vital thing but sometimes it does make it harder for laterals and sometimes it makes it harder to change. There used to be a strongly-held view that if it’s not broke don’t fix it, but we need partners to be more open about change.’

As another former partner, Jane Marshall, who set up her own consultancy in 2014, points out: ‘The culture is a strength but also a weakness. Sometimes it has people come from the outside and it doesn’t quite work. Sometimes, while Macfarlanes tries to stay in touch, it doesn’t understand what other firms do.’

 

Question everything

Martin says management’s job is to challenge received wisdom. ‘One reason we are in this market position today is because partners pushed back against the high-growth, add-foreign-offices trend and that in hindsight was a smart push-back.’

Macfarlanes remains true to its London-only stance, but is realistic about what it means for its future prospects.

‘Let’s not be too rose-tinted about it, we do pay a price for how we operate. We lose work every month because we don’t do US law.’
Charles Martin, Macfarlanes

‘Let’s not be too rose-tinted about it, we do pay a price for how we operate,’ says Martin. ‘We lose work every month because we don’t have US law capability of our own and sometimes clients insist on having that on an integrated basis. We rarely lose a client but sometimes will lose a category of work and a partner will come to me miserable over it.’

Indeed two former partners Legal Business spoke to cited frustration with the firm not having a US practice as a key reason they left.

Martin won’t completely rule out an international play, but says the business case has to be clear: ‘I wouldn’t for a minute say the global model is dead. The overall trend is toward the global model but that doesn’t mean there aren’t sub-trends going on and certainly for the complex work, there is a deeper appreciation from the client.’

While the London-only focus of the firm has had a long history and will take something significant to reverse, management wants to soften other aspects of Macfarlanes’ image. Diversity is an issue for the firm, which at June last year had 16% female partners, half the Solicitors Regulation Authority’s estimated female partner average of 31% at UK firms. And, while only 2% of partners are a declared ethnic minority, Macfarlanes will not set targets, favouring initiatives such as CV blind recruitment.

Martin says: ‘Our people don’t want targets. This is an exciting and genuine meritocracy and it has always been if you read our history. It has always been a meritocracy and hasn’t been open to more obvious diversity initiatives as it is now, and we want to make more rapid progress.’

Despite the security of having the top positions until 2020, the management duo have few fixed plans for the future. While the firm moves into a refurbished premises in summer 2017, Howard insists the firm ‘doesn’t do’ three-year business strategies or turnover goals.

‘There will be a drive for efficiency, some of which will come from technology, the structure of our team, flexible working, outsourcing, paralegals and the other stuff which other firms are doing. We don’t get the advantages of scale which larger organisations have.’

Who needs a plan? There are few better examples in law of Peter Drucker’s oft-quoted soundbite: culture eats strategy for breakfast.

victoria.young@legalease.co.uk