Legal Week has just run a lengthy piece diving in to the recent history of Linklaters, which provides the occasion to reflect on some of the signal tensions within law firms.
Sensitive to the risk of being perceived as overindexing on articles covering the Magic Circle, their New York white shoe brethren, and other globe-spanning Top XX firms, the editors must hasten to point out to readers that we do our level best to cover issues facing all firms of any size or aspirations to sophistication. In addressing systemic and structural issues, it matters not how many digits appear to the left of the decimal point. So with that throat-clearing prelude, which is globally applicable to anything you read on Adam Smith, Esq.: What’s up with Linklaters?
The tale in 25 words or less is that of the delicate balance between enforcing rigorous performance standards and maintaining a sturdy and cohesive spirit. (The astute will note I detoured around the opportunity to use the word “culture” in that last sentence, which is a new resolution of ours, sure to be honored in the breach. Promiscuous overuse has long since rubbed away any bite or grit the word “culture”might once have had.)
The piece starts with a bang:
“In battle if someone gets killed or wounded, you have to leave them behind. Lockstep in its purest form is
similar – policed properly, it’s the toughest remuneration system on earth” – Partner, Linklaters
If lockstep is the toughest management model, many would argue Linklaters is the toughest law firm in the
City. Over the last decade the firm has monitored partner delivery and managed its lockstep to such an
extreme level that it has almost become defined by its efforts to maintain financial performance at all
In the past decade or so, Linklaters has had three partnership restructurings, two under current managing partner Simon Davies and one by his predecessor Tony Angel; the most recent led to 25 partners being excused. (Links has no “non-equity” partners, in case you were wondering, so these were all as senior-level as they come.) But here’s the key question:
Is Linklaters merely taking the only realistic approach to a bleak market? Or has it become so brutal that its brand is becoming tarnished? On a more basic level, even admirers of the firm ask if its institutional bonds can withstand such regular and far-reaching upheaval.
And here Legal Week performs the invaluable and woefully too often overlooked of putting facts into context. Here are a few facts:
- Reuters recently reported that since the start of 2011, 29 banks have cut about 160,000 jobs globally, with Europe especially hard hit.
- UBS just announced that nearly 10,000 jobs could go as part of its latest restructuring.
- Citigroup is cutting 11,000.
- And, bringing it all back to the City of London, The Centre for Economics and Business Research estimated that finance jobs in London have fallen from 354,134 in 2007 to 249,512 now (-30%).
But Linklaters under Tony Angel (his tenure was 1998—2008) performed spectacularly well. Tony made no secret of his desire to remake Links along the lines of Goldman Sachs or McKinsey, and accordingly he emphasized strong management and operational rigor to cement the firm’s earlier global expansion. 2000-01 revenue were £505M with PEP of £800,000, but by the end of the boom in 2007-08 the comparable figures were £1.29-billion in revenue and PEP of £1.4-million.
To accomplish this, Tony adopted disciplined performance metrics and a process approach, “managing out” dozens of partners and suffering high associate attrition as well. Necessary to a high-performance organization, or ruthless and destructive? Here’s one perspective (disclosure: Tony Williams is a good friend):
Jomati consultant Tony Williams argues: “The level of ruthlessness in the profession was necessary and long overdue. In the corporate world people earning £1m a year have far less job security. There needs to be a reality check. This has been coming to every firm for 15 years.
The view counter to this is that Tony Angel was an “axe man” who pursued a single-minded vision of the firm at risk to its cohesion. His successor, Simon Davies, has also adopted a focus on the bottom line, and reportedly with less institutional good will than Tony Angel had. Revealing is this comment:
“Simon isn’t really ruthless. You have to be self-aware to be ruthless,” argues one Linklaters veteran. “He’s just very focused on getting from A to B and that can create a kind of tunnel vision. He won’t always be aware of the bumps along the way in getting from A to B.”
LegalWeek doesn’t cite any Links partners as saying it, so I will: An enormous part of the problem of managing a sophisticated high-wire act like Links is that markets are increasingly dynamic. What worked yesterday may not work tomorrow. Here are some hints:
It is also widely accepted that Linklaters’ lockstep had become top-heavy. And it became apparent that its corporate practice was being hit not only by a cyclical lack of deals but also increased pricing pressure and a greater willingness of key blue chip clients to hand out some work to cheaper providers.
Internal critics of Linklaters’ M&A practice furthermore argue it has failed to cultivate enough commercially minded operators and up-and-coming partners and looks over-reliant on a handful of names like Charlie Jacobs (an impression not helped in the City by the transfer of Matthew Middleditch to Hong Kong last year).
These breadcrumbs say to me that Links has to be asking itself whether its traditional corporate and M&A focus will be enough for tomorrow, and indeed a large part of the remainder of the article focuses on its international strategy, an oblique acknowledgment that the future may lie abroad.
On other fronts, from an initiative in “women’s leadership” to increasing use of its back office in Colchester as a paralegal-led legal services center, Links seems to be slowly entering the 21st Century. Yet all indicators, as I read them from across the pond (and having consulted no internal sources for this piece) are that the firm is quietly thrashing about looking for a strategy.
Let me hasten to add that to put the name Linklaters and the phrase “thrashing about” in the same sentence may strike most of you as either preposterous on its face or a lovely problem to have. I agree; but everything’s relative. LegalWeek cites Allen & Overy as another Magic Circle firm that seems to have articulated and followed a clear strategy. A&O’s PEP is up 68% since 2004/5 against an 18% rise in partner count, while Linklaters’ PEP is up 47% against a 9% decline in partners.
Here’s where the lack of a clearly articulated strategy comes home to roost:
As one former partner warns: “There is certain logic in what they’re doing. You can criticise them for shrinking but there’s no other way to boost profits but to narrow their focus. They’re a little short-termish in strategy as it’s hard to keep going down this route and still motivate partners. My advice would be get people together over some wine and really think about where the market is going and where you want to be. A&O has clearly done that and it’s now a threat. Do they know where they want to be in five or 10 years’ time or what their competitors are doing?”
Perhaps the wider issue facing Linklaters is less about what difficult decisions the firm is taking than why. There are some credible critics of the firm that argue that Linklaters needs to develop a clearer vision of where it wants to sit in the market as it moves increasingly further from the London-centric, corporate driven partnership that built its brand.
Obviously, Linklaters can pull it off; they have stupendous resources, brand recognition, and smarts. But they need to decide, and to get their partners behind it.