When we left Allen & Overy in June 1971, Jim Thomson had just died. "He, more than any one other single individual, represented Allen & Overy; in the minds of many people in the City, clients and competitors alike, Jim Thomson was Allen & Overy."
As Bill Tudor John, subsequently a managing partner, put it: "Jim Thomson was such a larger-than-life character and his influence on the firm so profound that his death threatened to stop the firm dead in its tracks."
It was time for the firm to re-group.
As it turned out, the firm—whether through foresight or serendipity is not clear—was extremely well-positioned to benefit from changes coursing through the global economy in the early 1970’s. Eurobonds were a new invention, and syndicated loans were just gaining currency. These two practices let the banking lawyers at A&O "make hay." As Bill Tudor John reported:
"At one stage I had 26 syndicated loans all going on at the same time. I remember once flying in from Iran, having the printer meet me at the airport, giving him the marked up agreement with instructions as to where he should distribute it after it had been printed, and then catching another plane to go off somewhere else. I think in all I went to 73 countries."
Despite the bountiful flow of business from clients, disagreements can always arise over distribution of the spoils, and so they did in 1974. The essential problem seems to have been that partner shares had not been fundamentally revisited since George Allen and Tom Overy retired into a closed room and determined points.
Junior partners who felt they were giving more than they were receiving brought matters to a head. (To be fair, the history points out the analogy between their sentiments and those that had led Allen and Overy to leave Roney & Co. four decades earlier.) The result of their complaints was introduction of the lockstep system that prevails at A&O to this day:
- newly minted partners receive 20 shares
- they accrue two more shares per year for the next 15 years (for a total of 30 additional shares)
- and the lockstep maxes out at 50 shares.
Thus the span is 2.5:1, a very conservative, collegiality-inspiring span. (To take a rugged contrast, the span at the deservedly ill-fated Finley-Kumble in its unlamented last days was 17:1, ensuring there was no way individuals at opposite ends of that spectrum would remotely consider themselves to be "partners" with the other.)
Testament to the power of this system is its endurance for 35 years—confirmed, of course, by the powerful growth of the firm during that time.
That’s not to say serendipity did not play a part. My favorite story on that score is of John Kennedy, a partner returning from Jeddah to London, who was asked by the stranger sitting next to him whether he had anything with him to counter an upset stomach (an occupational hazard of doing business in the Middle East, then if not now). Kennedy religiously carried his "medicine bag," and from it he produced an antidote. The stranger turned out to be a senior executive of UBS who discussed during their chat on the return flight UBS’ desire to set up a London operation to deal with Eurobonds. Cards were exchanged. "UBS remains an extremely important client to this day."
Serendipity aside, the firm was becoming more self-reflective as an institution, and more aware of its place in the world and its internal cultural attributes. Geoffrey Sammons, "whose close attention to recruitment shaped the nature of A&O through the 1970s" (when many of today’s partners were coming on-board), put his philosophy this way:
"[The ideal A&O person is] someone with a good degree and the better it was, the better. But t what really mattered was the personality. I was clear we did not want just highly intellectual people coming into the firm. We wanted people who were intelligent but who could communicate."
Whether it was Sammons’ recruiting efforts or the general economy (Thatcherite in the latter half of this period), the firm was prospering. From 1976 to 1986 revenue grow from £3-million to £20-million and profits from £1-million to £8-million. But reading between the lines, this good fortune strikes me as largely unplanned and uncontemplated, a wonderful example of being one of the prominent firms in one of the right places on the globe in what we now know was very much a right time.
I could well be wrong—and I hereby invite any of those present at the time to correct the record forthwith—but if passive it was, that passivity would not last out the decade.
The late 1980s were famously the era of yuppies and Gordon Gekko, and the City exerted gravitational pull on the ambitious and the talented. A&O was not exempt: In one year, 3,000 trainees applied for 60 positions. From 1983 to 1993, the volume of borrowing on international markets grew ten-fold. Cross-border transactions in securities in the UK in 1990 was seven times the country’s GDP. Allen & Overy was in superb position to capitalize on cross-border transactions.
Capping this period was the October 27, 1986 "Big Bang" deregulating fixed commissions and allowing foreign companies into the Exchange. The fallout in the legal world took an entirely different form: The following year, Coward Chance and Clifford Turner merged to form Clifford Chance. A&O was "forced out of its comfortable shell:"
"It was not that we were doing anything wrong professionally," recalls Chris Roberts, one of the 1985 group of partners, "It was just that Clifford Chance was suddenly getting all the attention." […]
"Tony Herbert recalls: "I remember being told that one week after the merger Freshfields had circulated a paper setting out their position on it, and someone asked, ‘What are we doing about it?’ The fact of the matter was that we weren’t doing anything about it.’"
But react A&O did, starting with creating a 14-member partnership committee charged with determining overall strategy, and following by beginning to hire its first non-lawyer C-level executives. Most notable among these early hires was Ian Dinwiddie, brought in as director of finance from the merchant bank Guinness Mahon:
"’I remember my first talk with John Kennedy [the A&O partner] who said, ‘We really want you to have authority: we’re going to allow you to sign cheques up to £1,000 (at Guinness Mahon I think my limit was £50-million) and we want you to have the authority that when a partner comes in and says he wants to buy a new desk, you can say, no.’ That caused me to have a few doubts.’"
Be that as it may, Dinwiddie was among the first brought on board to respond to the firm’s strong growth—doubling in size just between 1985 and 1990. "As Angus Hewat cheerfully admitted to Legal Business magazine in 1991: ‘I don’t think anybody took much notice of administration. Normally we resolved problems having a laugh and a drink about what amiable chaos we lived in.’" This, it was clear, would no longer do.
As the firm grew internally, its external horizons grew as well. Key was the fall of the Berlin Wall on November 10, 1989. With extensive experience in privatization of formerly publicly owned entities in the UK during the Thatcher era, A&O rightly felt itself in a reasonably strong position to pursue privatization work behind the former Iron Curtain.
The only problem was: The firm had no offices on the Continent, much less in Eastern Europe. One of the A&O lawyers leading the charge to go international was Stephen Denyer, today International Development partner, and from 1997 to 2007 Regional Managing Partner for Europe, along with Michael Reynolds and Richard Rowland.
But in 1989 Denyer had been a partner for all of two years and the primary obstacle to his argument that the firm needed to seriously internationalize was nothing less than management’s continuing belief that A&O was a firm of English lawyers practicing English law, and under no circumstances would it be non-English lawyers practicing non-English law. "Working within this limitation the Denyer finesse was to hire a local lawyer," the first being one in Poland, as a consultant "in association with Allen & Overy," and wait the 18 months or so it took the firm to come around to the notion that local lawyers might actually be required to fuel its growth abroad.
The key insight, and business development driver, of expansion into hitherto-unknown territories was that there were major companies there, which were successful and ambitious in terms of moving onto the world stage. If A&O could get in on day one with local law credibility, they would be "tremendously well placed," as Denyer puts it, to develop work for those clients as they become more international and started to do bond issues, syndicated loans, and other financing issues under US or English law.
But those palmy prospects would be in the future; in the meantime, serious trouble had to be attended to in London.
Bill Tudor John was the incoming managing partner in 1994 and "hardly had time to settle before being faced with a looming crisis." For five months in a row, the firm was well below budget in billings; after another three months, it would be forced to borrow to meet cashflow. An emergency review panel was convened to look at ways to cut costs, increase market share and, above all else, improve profitability.
Their findings were unsettling. They asked for figures on how partners were performing—evidently a novel question—and learned, disturbingly, that some partners were earning 10 times more than others for the firm. But putting individual partners’ performance under the financial microscope was unheard of. For years, the firm had been content to carry a partner or two who were plainly unproductive. But times had now changed.
Thus was born "Project Alpha," whose raison d’etre, in a nutshell, was to put financial performance ahead of the traditional character of the partnership. Because? Only if the firm was successful could the professional and partnership ethos thrive. As Bill Tudor John put it: "Profits enable us to attract, motivate, and retain the best people, to invest in new offices, new technology, research and development training, to provide job security and a good career path for those who contribute to the business." A list of the most poorly performing partners was drawn up.
The path from here to there was painful, of course. Morale sank. Partners avoided Bill Tudor John in the hallway. Even productive partners were nervous and insecure. Ultimately, five partners were excused from the firm, "with generous pay-offs," and others were informed they’d need to increase their productivity or face a similar end. "Bruised but intact," the partnership continued.
Simultaneously with Project Alpha, the very texture of day to day life in the firm was being radically transformed. Partners and associates alike began regularly billing late into the night and on weekends; by 1993 every lawyer had a computer; videoconferencing rooms were installed; mobile phones and laptops, and then BlackBerry’s, followed. We had come a ways from coal stoves.
In 1996 came another milestone: Non-UK clients provided A&O with more of its revenue than UK clients. The firm was truly international beyond doubt. Just two years later revenue from non-UK clients would exceed 2/3rd’s, the rapid international expansion made possible by something I’ve commented on here before on "Adam Smith, Esq.," namely the global exportability of Anglo-Saxon common law, with its phenomenal flexibility and mutability, able to accommodate a chattel conveyance last century and the tranches of a collateralized debt obligation now.
So to what can we attribute the rise of A&O?
Surely, being in the right place at the right time—and with the right connections, starting with King Edward VIII—is part of it. But, so in the right place at the right time were many solicitors in the City in the 1930’s, the 1940’s, the 1960’s, and the 1990’s. Opportunity was there to be grasped, one might say in retrospect, but who actually grasped it?
Political and military history may be written by the winners, as the famous apercu has it, but economic history is written by winners of a different sort—firms which, faced with marketplace conditions, opportunities, risks, and pitfalls equally plain or obscure to see for all, nonetheless made the combination of prescient, fortunate, and skilled choices that would distinguish them down the years.
In the decade since the Big Bang, the number of partners tripled, staff quadrupled, and revenue more than octupled.
Volume 1 of the history of Allen & Overy ends with some pregnant questions:
"Allen & Overy, by constitution a partnership, has become the equivalent in size to a mid-sized public company. That statement of itself raises several important questions about the future direction of the firm. Can it continue to expand at the same rate as it has done over the past decade? Can it continue to expand while maintaining the same absolute standards of quality? More pertinently, can Allen & Overy possibly hope to maintain its partnership structure and ethos, so carefully nurtured over more than six decades, as it moves into the new century?
"The line between openness and unmanageability remains a fine one. […]
"From the vantage point of 1st January, 1930, the founders of Allen & Overy could not possibly have predicted what the firm would look like 70 years later. Indeed, the extent of their time frame is unlikely to have been further than the decade stretching ahead of them."
Can we see more than ten years ahead for our firms?
To be continued…