Claire Rowe took over as Shoosmiths’ chief executive a year ago, after the worst period of the firm’s recent history. Can she turn things around?
Shoosmiths’ chief executive Claire Rowe is no larger-than-life extrovert. She smiles politely; fields questions admirably; and gamely takes part in the photo shoot. But with her neat crib sheet and careful answers, it’s all a little too stage-managed. Yet she’s exactly what Shoosmiths needs right now: inscrutable, focused and serious. A year into taking on the role on 1 August 2009, Rowe is showing signs of turning things around for the firm after two years of poor financials and painful restructuring.
Having taken Shoosmiths to its zenith in 2007, Rowe’s respected predecessor Paul Stothard left in May 2009, a year into his third three-year term. His departure came during a truly dreadful period for the firm. Equity partners were taking home £261,000 less than they were in 2006/07, a drop of 54% on the previous year, thanks to a truly pathetic profit margin of 6% against a turnover of £99m. Rumours of de-equitised or ‘managed out’ partners swirled around as departures started to flow. More than 100 members of staff were made redundant during a restructuring programme earlier in the year.
Rowe never looks close to losing her cool, but is nonetheless keen to move on from talking about what she sees as history. ‘The more important questions are what have I done since to turn things around and how have I improved profitability,’ she says pointedly. Clearly, she wants to move on from the final two years of Stothard’s era.
Poisoned chalice
When Rowe took over in August last year, there was little doubt that she had inherited tainted goods. But if the road back to former glories is paved with self-realisation, then perhaps no one knows the firm better than Rowe, a rare Shoosmiths lifer. After qualifying at the firm in 1986, she joined the commercial litigation team, which includes the firm’s prolific debt recovery and insurance litigation business. Rowe became a specialist insurance litigator, making partner in 1990. She was head of the national dispute resolution team between 2000 and 2008, before being promoted to head of the firm’s commercial division later that year. Aside from commercial property, it’s fair to say that Rowe has been at the firm’s nerve centre all her career.
And while that may have led to her unanimous, unopposed election, it also feeds her detractors as well.
‘She’s a number-cruncher,’ says one former partner. ‘She knows nothing but Shoosmiths, which is quite a rare thing these days. She was head of division for the insurance team, which included the volume business for insurers, and all that matters is the bottom line in that area.’
But her predecessor is full of praise. ‘She’s an extremely disciplined person with enormous strength of character,’ Stothard says. He adds that he thinks Rowe is more introverted than he is, which means she’s more of a natural foil to Shoosmiths’ more gregarious chairman, Andrew Tubbs. ‘She’s been a respected member of the partnership for years and a key department head, she’ll absolutely have the respect of the partnership and be well understood,’ he says. ‘The firm put up with me for a long time, so I’m sure they’ll put up with Claire.’
One might argue that a focus on the bottom line is the driving factor behind any successful business, and Rowe is the woman to take Shoosmiths to the next level. She says the firm’s culture was a major reason why she never left once in her career.
‘I think it’s opportunity that’s kept me here,’ she says. ‘As a trainee, I was taking on far more responsibility for my cases than my peer group. I was also given the opportunity at a very early stage in my career to undertake client development and build a team around me, which is unusual in the legal sector. Shoosmiths has always had quite an entrepreneurial culture, so if individuals show the ability and the motivation to go out and grab something, provided it fits within the business, they are given the freedom to do just that.’ She says she was given the chance to lead the commercial litigation team at three or four years’ PQE. At that time, she couldn’t see anywhere else offering that same level of freedom and opportunity so early in her career. ‘There was always something more exciting for me to do here,’ she says.
The opportunity to run for CEO wasn’t one that the clearly driven Rowe was going to pass up, even if it did appear to an outsider that taking over the role after two shocking years was something of a poisoned chalice.
‘It was undoubtedly a challenging time; it was a challenging time for all law firms,’ she says. ‘But that’s part of the opportunity, isn’t it? Yes, it was a bad year, but it was driven by the market we were in.’
‘There is a vacuum for a firm like Shoosmiths. It’s a space that has been created by a number of national firms focusing more on international markets.’
Happier times
Stothard himself has no cross to bear. ‘It’s a fantastic firm, absolutely brilliant,’ he says. ‘There’s a very cohesive partnership that is innovative and thinks ahead.’ He occasionally forgets himself and slips into using ‘we’ when talking about Shoosmiths, although he is now with Stanley Tee in Bishop’s Stortford (see box, ‘Moving on’, page 75). He clearly still holds the firm and its partners in some affection.
Maybe it’s because it had all been so good just two years before. During Stothard’s tenure, the firm opened new offices in Birmingham – which has become a clear success story – and more recently Manchester. Most importantly, fee income more than doubled from £44m in 2002 to £103m in 2007. In 2005, PEP rocketed by 51%. In 2006, the firm was shortlisted for law firm of the year at the Legal Business Awards, where judges said: ‘strong management once again weighs in to lift it above many of its non-London-based rivals’.
A year later, Stothard himself was shortlisted for management partner of the year. He drew plaudits for presiding over one of the strongest financial performances of any national firm, while simultaneously helping to make a once-traditional practice one of the most innovative and progressive outside London.
It had taken 150 years, but Shoosmiths finally had the credibility it had sought for so long. After years of being known for its bulk debt recovery, personal injury and conveyancing practices, the firm had turned a corner by persuading its blue-chip clients, which include Alliance Boots, McDonald’s and Nissan, to regularly use it for sexier, higher-value transactional work.
Stothard’s business plan of developing transactional work and introducing a merit-based element to partner remuneration had paid off. But it was short-lived. By 2008 Shoosmiths had become the worst performer in the Major UK peer group of the LB100 and compounded that following its annus horribilis in 2009.
Invest for the future
On pinning down what exactly went wrong, Rowe is keen to blame the economy, saying that all firms have been experiencing what Shoosmiths has been going through. When it is pointed out that not all firms suffered a 54% drop in PEP, and few other firms in the LB100 had profit margins of 6%, she says: ‘There had been a lack of transactional work as a result of the recession. If you look at the period, we’d made quite a significant investment in people, in Manchester for example. All of that will have an impact, albeit short-term, on profitability. So if you have that combination of factors, if you have all that investment and are impacted by the recession, you will have a poor year.’
Stothard agrees investment was a factor and exceptional costs probably came at the wrong time. ‘What happened was probably twofold,’ he says. ‘First, obviously the economics generally had a knock-on effect, but secondly, the reprofiling of some of the business areas caused a bit of a pinch at the same time. So, where the firm was repositioning some of its volume businesses, for example, it happened that the business was bearing the investment or the cost before the revenue streams started coming through. But we weren’t beating ourselves up internally. It was largely budgeted and largely understood.’
The Manchester launch was one of those exceptional costs. It opened in January 2009 with five people from DLA Piper and HL Interactive, a volume business owned by Halliwells. It now has a team of 30. Rowe says the office delivered an additional £1m in revenue during its first year. The driver behind the office opening was debt recovery for the firm’s financial institutions clients, a counter-cyclical practice if ever there was one.
Rowe adds that previous success with opening a new office in Birmingham in 2002 helped give the partnership stomach for the risk. Although a different beast to Manchester – ‘We weren’t going to launch with a transactional team in Manchester, in the middle of a recession,’ says Rowe – the Birmingham office was launched with a handful of lateral hires charged solely with winning market share in an ultra-competitive commercial property market. The office has undoubtedly delivered and is home to the firm’s corporate high-rollers in what many outsiders see now as Shoosmiths’ marquee office. That kind of success makes swallowing the start-up costs a lot easier.
‘The partnership have borne the cost and that’s to their eternal credit,’ Stothard says of Manchester. ‘I hope they’re starting to see the benefits of it now.’
Rowe’s predecessor Paul Stothard has popped up again at another law firm, Stanley Tee in Bishop’s Stortford, Hertfordshire. He was brought in as chief executive by the firm, taking on much of the day-to-day running of the firm from managing partner David Redfern, who is also one of the firm’s main fee-earners. ‘When your managers are the biggest fee-earners, it becomes difficult to fit management time in,’ Stothard says.
Stothard says he was approached by Stanley Tee shortly after he walked away from Shoosmiths. At first he was reticent, but as discussions went on he was convinced. ‘I initially asked myself if I wanted to go through all that again,’ he says. ‘But then I looked at myself in the mirror and realised that it’s what I do.’
On his departure from Shoosmiths, Stothard says he simply felt after seven years it was time to move on. He jokingly suggests that of management guru Tom Peter’s list of 50 key attributes to being a leader, he met the last criterion – knowing when it’s time to go. There was no single catalyst to his departure, he says, no big falling out – and if he felt it wasn’t working from his side, there’s an inevitability that it wasn’t working for Shoosmiths. He points out that the key thing, particularly in a leadership role, is that you’re adding value and making a difference, and if that isn’t happening and is unlikely to change in the future, it’s probably time to give someone else a go.
He denies that taking on a third term at Shoosmiths was down to a personal desire to try to turn things around before leaving. ‘There were a lot of things going on at the time which meant that succession wasn’t clear, so I carried on,’ he says. ‘Quite soon into that third term I realised that it wasn’t the smartest move I’d made in my life.’
‘There was no feeling of a need to turn things around at Shoosmiths,’ he adds. ‘What the firm was suffering from was no different to any other law firm. It’s still tough. If anybody thinks the next years are going to be easy, I’d like to know what model they’ve got.’
Regrets? Stothard doesn’t really see the point, but concedes that he probably didn’t risk making enough mistakes and, as a former accountant, he got caught up in the risk averse world of lawyers.
‘Were we nimble enough when the bottom fell out of the property market? Probably not, but there’s a culture in the firm where everyone pulls together. Looking back, should I have been more robust and driven cutbacks? I don’t know,’ he admits.
As for his legacy, he says his greatest achievement was playing a role in putting Shoosmiths on the map. Despite winning plaudits up until 2007 then dodging muck slinging in 2008 and 2009, he argues that his main achievement was making the firm one that the market felt was worth watching. ‘I think perhaps the firm wouldn’t have been on the radar eight years ago,’ he says.
Operation Rowe
Objective number one for Rowe when she took over was improving profitability, and this remains a key concern today. Her first task was a root and branch review of all work streams and to analyse the budgets to see if workload was sufficient to meet them. ‘We are now managing our cost base against the levels of work we see coming in,’ she says. ‘We’ve been successful in the sense that we’ve improved our financials while at the same time retaining some key talent.’
The signs are certainly more positive. While revenue has dropped again, this time by 10% to £89m, the profit margin is now 12%, significantly higher than the 6% posted last year. PEP now stands at around £256,000, well up on last year’s £147,000, but still way short of the halcyon days (see box, ‘Zenith to nadir’, below). The cost base has clearly been attacked unflinchingly. A number of partners leaving in 2009/10 will have an effect on the bottom line (see box, ‘Shoosmiths’ partner departures’, page 75), but Rowe will not be specific about whether these individuals were encouraged to leave or all took the decision collectively for a career change. Certainly, these partners are circumspect, or have signed non-disclosure agreements. The overwhelming majority of recent departures either refused or did not respond to requests for an interview for this article.
Shoosmiths also laid off a total of 107 staff, following a painful consultation. Then the firm announced a 2.5% pay cut for all employees earning over £25,000, introduced by Rowe towards the end of 2009. She is keen to point out that this scheme was ‘entirely voluntary’ and was taken up by 90% of the eligible staff.
‘If I could level one criticism at my firm it would be that we actually deliver more than our brand’s strength would tend to indicate.’
‘The reason why we implemented that was so we were managing our cost base against work coming into the business,’ she says. She warns that now is not the time to be looking to end the austerity. ‘It is a firm objective to look at pay and incentives going forward, but that has to be on the back of financial performance, so my commitment is to review that again at the half-year stage,’ she confirms.
The firm is unafraid to make unpopular decisions in cutting costs. This was no more evident than when it took the controversial decision last year to ask its 2009 trainees to withdraw their contract with the firm or defer until 2011 without any offer of financial compensation. The move led to an online petition against the firm’s tactics (which attracted just 59 signatures) and widespread condemnation that overshadowed the last weeks of Stothard’s tenure. A year on, and the firm has reopened its trainee intake for 2011 and 2012, and it will be interesting to see if the negative publicity will have an effect on the number of applicants. Given how difficult securing a training contract can be, it seems doubtful.
But one area that has been particularly successful in the past year according to Rowe is an overall increase in instructions from existing clients. She cites Hewlett-Packard and Thomas Cook as key clients that have entrusted the firm with more instructions and more are to follow. The firm managed to structure an innovative response to HP’s demands to reduce its legal spend. Shoosmiths’ umbrella deal with HP covers practice areas where it is easier to predict workload, such as employment law support, property and small- and medium-sized litigation. An annual budget is agreed with the client, and if the firm comes in under target, both client and firm split the difference. Shoosmiths must also write off half of any overspend, subject to a cap. HP was so impressed with the deal that it has increased instructions to the firm.
Rowe promises, as so many law firm managers before her have promised, that the firm she runs will actually listen to clients. ‘We’ve seen the significant inroads we can make in terms of client development and even client acquisition,’ she says. ‘Our client wins over the past 12 months have very much been on the back of the way we have responded to tenders we have received because we have listened to clients and delivered against what they want. It’s not new, but it’s very easy to talk about it and perhaps much harder to actually deliver it. The key is listening, but then doing something different from
what you hear.’ Another plank of Rowe’s strategy is strengthening the Shoosmiths brand, and here she has her work cut out. ‘If I could level one criticism at my firm it would be that we actually deliver more than our brand’s strength would tend to indicate,’ she admits. ‘Some clients have described us as a sleeping giant in many respects.’
Changing shape
Historically, Shoosmiths has made a great deal of money from its volume, commoditised debt recovery, personal injury and conveyancing work and has never been snobby about it. When Stothard became CEO in 2002 he sought to leverage off the relationships the firm had with key lenders and corporates for volume work in order to win more transactional work, something the firm has enjoyed some success in over the years.
But Shoosmiths has recently taken steps to cater for a different client base, again shunned by firms with delusions of grandeur: consumer law. With its February launch of a new brand, Access Legal, Shoosmiths has joined a number of firms trying to secure market position ahead of the new consumer market competition that could be introduced under the Legal Services Act.
The rebranding will envelop the firm’s volume business, covering conveyancing, employment law, disputes, medical negligence, motoring law, personal injury, wills, family and wealth advice. Three hundred staff at the firm will operate under the brand. It’s a serious undertaking, but as consumer clients account for 20% of the firm’s turnover, a necessary step.
‘The new brand helps us to better deliver, for life, services that we have always offered that cater for the consumer market,’ says Rowe. ‘We see it as a strength of our firm that we have a diverse practice, and in times of economic uncertainty it serves you well not to be wholly dependent on the transactional market.’
Bizarrely for a firm that has volume, commoditised legal services running right through it, and is keen on delivering value to clients while at the same time ramping up its own profitability, Rowe is lukewarm on legal process outsourcing right now.
‘Yes we will look at it, but it’s not top of my agenda,’ she says. ‘There are opportunities, and we are of course pursuing those where they can create efficiencies, but I’m in quite an investigative phase at the moment.’
When asked where she would like the firm to be come the end of her first term in 2012, Rowe says ‘a leading UK national law firm’. Sensibly, the costly international dream chased by so many firms has been eschewed. ‘There is, I think, a vacuum in terms of a space for a firm like Shoosmiths to occupy,’ she says. ‘It’s a space that has been created by a number of national firms focusing more on international markets. We work internationally through our World Services Group, but it’s not an ambition of ours to start opening up in other jurisdictions. There is more opportunity for us to increase our market share in the UK.’
It’s not a fashionable approach, but Rowe is happy with where the firm is at nonetheless. ‘There’s no one-size-fits-all for the legal profession,’ she says. ‘I think the strategy that we are pursuing is right for Shoosmiths.’
Paul Stothard agrees that the firm is comfortable in its own skin. ‘The thing I know about Shoosmiths is that they’re always keen to do things a bit differently and a bit better, and I think provided they keep looking at things differently they’ll do very well. It’s a pretty strong business.’
Strong business is perhaps pushing it for a firm with a profit margin of 12%, but when the man who walked away from the firm is singing the praises of Rowe and her partners, they must be doing something right. LB