Global 100: Branded – Inside the troubled takeover of SJ Berwin

Since merging with King & Wood Mallesons, legacy SJ Berwin has lurched from one disaster to the next. Can the firm recover?

A dire 2015 brought matters to a head at the firm now known as King & Wood Mallesons (KWM). On a wet and windy evening on 22 March, 24 partners from legacy SJ Berwin were hauled in front of global managing partner Stuart Fuller and European and Middle East senior partner Stephen Kon to be told that they were to depart.

Some had been at the firm for over two decades, riding the ups and downs of the colourful City institution. But their time was up. Two and a half years since the much-touted union of SJ Berwin and Asia-Pacific giant KWM, the firm was still losing ground in Europe, while poor morale had gripped the partnership. It was the largest partner cull in the firm’s history. Or would have been if that firm still existed.

On paper, the union in November 2013 appeared a well-timed advance into Asia at a point when most international rivals were floundering in the fast-growing Chinese market. SJ Berwin should have been in prime position as the first Western practice to unite with a major national law firm to take advantage of the foreign M&A spree by Chinese corporates.

‘The vibe changed. We had a bunch of mavericks but it became corporate. When you go to meetings and all you hear is the new thing, you wonder if your relevance remains.’
Former King & Wood Mallesons partner

Instead SJ Berwin partners have struggled with a loss of identity, its individualistic culture at odds with institutional demands placed upon it. Meanwhile, Asia-Pacific colleagues have seen their global agenda stalled by its troubled purchase. In the last 18 months the firm has lost over 20 high-billing European partners – including a Paris team that took more than €10m in annual billings with them – gone through two partnership shake-ups and seen a string of key clients follow partners to rival outfits.

Partners complain of delayed distributions, while profit per equity partner (PEP) still lags well behind SJ Berwin’s boom-time high of £802,000. Aggravating the situation was the resignation in January of William Boss as managing partner just nine months into the role amid much internal intrigue.

Kon concedes the situation has gone beyond the inevitable post-merger integration grind but argues that the upheaval comes with the territory. ‘When we announced the merger I said it was going to be a three-to-five-year process to integrate and the changes would be challenging. We are right in the middle of that now but it is no more, no less, than we suggested to our partners at the time of the merger.’

When asked by Legal Business if the firm is facing an existential challenge in Europe, Kon responds: ‘You might say that but I don’t agree. We have a very sound practice. The practice has had challenges but, going back to legacy SJ Berwin, we’ve had challenges in the past. It’s no more than that.’

That is not an assessment shared by many in Europe. Is there a way back for a practice positioned several years ago as one of the key global law firms to watch?

Quiet on the Western front

The first 12 months post-merger seemed plain sailing (see box, ‘The winding road to King & Wood Mallesons’). There was no significant loss of talent as partners gave the combination a chance. True, some noted that the much discussed cultural challenges of combining with a Chinese law firm, even one as Westernised as King & Wood, were proving considerable, not only for SJ Berwin but also Mallesons Stephen Jaques partners.

The decision to wall off the IT system of the Chinese practice amid security concerns underlined how substantive some of those issues would be, while initial partnership meetings were stilted. The slick governance and high-end plc focus of legacy Mallesons was very different to SJ Berwin.

While such issues were accepted as teething problems, a sharp drop in profitability in Europe just four months after completing the union meant stricter management was required. Revenue came in £6m lower in 2013/14 than SJ Berwin’s final year of operation and PEP dropped 22% to £440,000. Worryingly, the expected stream of Asia-Pacific referrals to SJ Berwin’s transactional practice disappointed many.

‘I don’t accept this is an existential challenge. The practice has had challenges – the legacy SJ Berwin had challenges in the past.’
Stephen Kon, King & Wood Mallesons

A three-point plan to boost profitability was laid out by Kon in a partnership board meeting in October 2014. Kon had the mandate to make changes, having just been re-elected until April 2017, but there was a leadership issue with wearied managing partner Rob Day declining to stand for another term and his replacement, UK real estate co-head Boss, not yet in the post. The plans, which centred on governance, strategy and performance, secured 85% of the partnership vote in Europe and the Middle East to change a partnership deed largely untouched since SJ Berwin was founded, passing a 75% threshold.

Billed as making it easier to deal with under performance, partners who left by their own volition had their notice reduced from six to three months, with managed out partners having notice cut from a year to six months. The changes were made in anticipation of a performance review, which many felt was needed. SJ Berwin had taken a light touch on post-banking crisis retrenchment.

One former partner sums up the attitude of many critics: ‘The plans for the last ten years have been to say: “Please don’t leave, we’re going to restructure the firm and make it more modern and sensible.” And every year there is a reason why it didn’t happen.’

Boss was painted as the moderniser willing to take hard decisions ducked by Day. Assertive chief operating officer Rachel Reid was likewise presented as a change agent capable of modernising the firm and was herself an advocate of Boss’s appointment.

In November 2014, one year since the deal went live, the SJ Berwin brand was entirely cut in Europe after an interim period of being known as King & Wood Mallesons SJ Berwin in the region.

Given how well established the SJ Berwin brand was in Europe, particularly in private equity and funds circles where the firm had invested large sums in marketing, the move went down badly, as KWM had little name recognition in the Square Mile. (One common gripe among European partners is that the firm also had to contribute a back payment of around £400,000 for set-up costs associated with the original merger between King & Wood and Mallesons.)

This tapped into an unease that the firm was being heavily steered away from its core sponsor and mid-market clients towards acting for corporates and, in a wider sense, away from the SJ Berwin ethos that had bound many partners.

The arrival of M&A partners Tim Bednall from the Mallesons side and Mike Wang from the King & Wood practice to drive cross-border work tapped into fears that SJ Berwin partners were losing autonomy. One ex-partner comments: ‘The vibe changed. We had a bunch of mavericks but it became corporate. Management was pushing towards acting for large global corporates and away from private equity. When you go to meetings and all you hear is the new thing, you wonder if your relevance remains.’

But the more pressing issue with private equity was simply holding position, given the huge investment from more profitable US rivals. KWM became prime hunting ground and the notice period changes made getting out easier.

A damaging loss came in September 2014 when influential former head of corporate Steven Davis resigned to join Proskauer Rose. While the group had lost partners before, with private equity duo Ed Harris and Tim Wright having quit in the previous 12 months for Hogan Lovells and DLA Piper respectively, the departure of Davis, who had been sceptical of the KWM merger, was on a different level. ‘He was SJ Berwin man and boy,’ says one ex-partner. ‘No-one expected him to ever leave.’

The damaging run continued, including Davis’ replacement as corporate head Richard Lever, who quit for Goodwin Procter in April 2015. Lever had been positioned as a key name to watch and was valued so highly that his temporary stint as corporate co-head during Davis’ six-month sabbatical became permanent in mid-2014, much to Davis’ ire.

Lever’s exit coincided with the loss of another young star, litigation partner Alex Leitch, who quit for Covington & Burling several weeks before. The following months of 2015 would see similarly damaging departures to the firm’s intellectual property (IP) group, as Ray Black moved to Mishcon de Reya after wrestling with conflict problems with the firm’s Chinese clients, and productive partners like Duncan Woollard in funds, Gregg Beechey in financial regulation and Simon Fulbrook in finance left in quick succession for Paul Hastings; Fried, Frank, Harris, Shriver & Jacobson; and Goodwin Procter.

More damagingly, clients were frequently moving with departing partners. Private equity clients shifting their work included Lion Capital, Duke Street Capital, Lime Rock Partners, European Capital, Better Capital, Graphite Capital, NorthEdge and Investindustrial. One recently departed partner observes: ‘The number one criteria on the remuneration review at KWM, and this goes back to SJ Berwin, is matter partner. Pay reviews are all based on that, which encourages client hoarding. This is one reason why the firm struggled to hold onto clients. It didn’t encourage good behaviour.’

Judged on matters attributable to the partners there were major disparities in individual performance. In the last financial year, 13 partners generated over £3m annually attributable to their clients, with real estate partner Steven Cowins and litigation veteran Craig Pollack the two top billers. The remaining 11 partners include seven in London, with one partner in competition, three in funds, one in litigation, one in real estate and one in corporate. Also in this camp were four Paris partners, two in funds and two in corporate. French partners aside, the relative absence of corporate or banking partners among KWM’s top billers in Europe is telling.

While the firm still has some highly productive partners the talk now is more of incentivising teamwork for larger clients. Fuller comments: ‘It was a very driven culture, where collaboration wasn’t as great as it should have been. That’s something we’re addressing.’

But for some the SJ Berwin partnership has simply lost its fighting spirit. Says one KWM veteran of the lack of determination to hold on to clients when partners quit: ‘We may as well have handed them over on a platter to rivals.’

Neither would the initial performance review provide much-hoped-for direction. Floated as a process that would trim the region’s then 165-strong partnership by 10%, only five partners were asked to leave. One former European partner comments: ‘Kon hasn’t been managing the firm. None of them have been and they haven’t for years. The performance review didn’t do anything. It’s not properly managed in any aspect.’

Kon admits: ‘We hoped, and I say this unashamedly, that it would address a lot of the issues we saw in terms of the structure of the firm and under performance in the partnership and it didn’t.’

Where the rubber hits the road

After a disappointing 2013/14, some good fortune presented itself in May 2014. A major piece of competition litigation against a rubber cartel was brought into the firm by Kon back in 2009 and worked on by partners Louise Freeman and Sarah Turnbull. With a substantial contingency fee arrangement in place, the case was expected to lead to a multimillion-pound payout.

Such was the focus on the case, dubbed Project Rubber internally, management took to communicating financial performance as ‘With Rubber’ and ‘Without Rubber’. It was a reminder of the spoils on offer but taken by some as evidence of financial weakness. ‘It was bizarre,’ recalls one partner. ‘They were obsessed with rubber.’

Although the case did not conclude in time to push up a poor 2013/14, Project Rubber came through the next month, with a settlement reached in May 2014 providing a windfall of around £10m. This helped revenue to rise 7% in 2014/15 to £191m. While notably lower than the £215m SJ Berwin had achieved in 2007/08, it was the strongest showing post-crisis.

PEP, meanwhile, was up to £610,000, 39% up on the previous year, but many partners were still being paid less than in the early 2010s. Project Rubber had lifted expectations, but ended up a washout according to several accounts. The cash mainly went to repay borrowings to Barclays.

One attempt to regroup after the exits saw KWM in September 2015 announce plans for a new global remuneration pot as a means of attracting marquee transactional partners. The move was welcomed, particularly as a means of rebooting in private equity and funds. KWM indicated that up to £2m could be offered for so-called ‘global partners’, backed by a central investment pot, effectively doubling what top earners could get in Europe (KWM’s partners in Europe are paid on a 20-60 point ladder with discretionary bonus awards on top).

Kon hoped the better financial year and the added firepower would help meet a target of adding five corporate partners by the end of 2015. In practice, recruitment fell short. Laura Brunnen’s arrival from Fried Frank last August was the firm’s sole addition to its European corporate group and the global partner initiative is still unused. Nonetheless, the new remuneration tool also caused some discord as it was only available to incoming partners.

Hiring instead largely came in real estate, following the arrival of Eversheds partner William Naunton and two Eversheds colleagues, Cornelius Medvei and Clive Jones, at the start of 2015. It was an opportunistic move, stemming from an email by Eversheds managing partner Lee Ranson warning Day that the group was planning to launch a boutique alongside KWM partner Cowins.

The planned boutique was anchored around Mayfair-based real estate fund Revcap, which was unhappy with Eversheds’ corporate real estate capability and put Naunton in contact with Cowins, another of its go-to lawyers, with the promise of work if they teamed up in their own firm.

The move led Day to invite Naunton to the firm’s London office where he instead offered him a job. On the back foot, Naunton postponed signing a lease for his new firm and presented a proposal to KWM to take on him and several colleagues. One ex-partner comments: ‘It was presented as all or nothing, but it should have been tested a bit more. A group of people were asking why we couldn’t do something more modest, like Clive and William, but not the rest.’

‘The rest’ soon followed, with Simon Burson, George Burrha and Jeremy Brooks arriving in May 2015. Naunton – who had been one of Eversheds’ top billers – is a productive partner but the recruitment of Eversheds veterans like Brooks and Medvei raised eyebrows, particularly given KWM’s stated focus on rebooting private equity.

Unease was also stirred when Boss, who having spent 2015 focused on the hires lined up by Day and the strategy shaped by Kon, resigned at the start of 2016. While the partnership was told the move was due to Boss wanting to return to client work, there were personal factors at play with Boss becoming increasingly stressed and uncomfortable in the managing partner role. Kon and chief operating officer Reid, a robust operator who had alienated some staff, had pushed for Boss’s appointment and his resignation went down badly. Four days after, Reid quit to join Taylor Wessing. ‘It was not a decision I wanted, but one I respected,’ says Kon. ‘If I knew at the beginning of William taking the job that it would have only lasted a year I would not have chosen that.’

For some, the Boss episode was a debacle and an abrupt loss of leadership at a key moment. It also went down badly in Australia where Fuller was facing increasingly urgent questions over Europe.

Boss had also been presented as a welcome generational shift. Indeed, European head of competition, trade and regulatory Simon Holmes was dissuaded from standing against Boss on that basis, though there was not a wide group of potential candidates.

Boss’s appointment had been well received by the younger generation who had backed private equity partner Perry Yam in a bruising managing partner contest back in 2010. Yam – who wanted a leaner SJ Berwin positioned for a US merger – had won the first round with around 45% of the partnership vote in a three-way managing partner race with incumbent Day and disputes veteran Hilton Mervis, before Day won the run-off after older partners conspicuously swung behind him.

One ex-partner comments: ‘Hilton was a maverick, who dissected the vote. Perry would have won it but lost the element of surprise. The old guard were scared as they didn’t want some young whipper-snapper telling the founding fathers the way it should be run. Kon was marauding down the corridors saying: “If you don’t vote for Rob I’m leaving.”’

Another partner recalls: ‘Perry was very much the Donald Trump to Rob’s Hillary Clinton in that things needed shaking up and Day was put forward as Kon’s choice. In retrospect the firm would have been better off if Perry had been in control – he would have shaken it up, gotten rid of a lot of the old guard and shaken-up the back-office staff. But he would have pissed a lot of people off. In retrospect it was exactly what was needed but Perry was never a details guy and people were worried about how big a revolution it would be.’ Yam joined Reed Smith in 2011.

Yam, who had a frosty relationship with Kon, was particularly critical of a misfiring Hong Kong launch, the expensive move to Queen Street Place and bloated back office infrastructure that had been built up.

‘The plans for the last ten years have been to say: “Please don’t leave, we’re going to restructure the firm and make it more modern and sensible.” And every year there is a reason why it didn’t happen.’
Former KWM partner

A successor for Boss has still to be named and is not expected to be until autumn. That has left Fuller to fill the vacuum in Europe and to provide a calming presence to support an evidently wearied Kon. Fuller asserts: ‘The firm has taken steps to compensate so we didn’t go backwards. I’m spending 50% of my time here. The firm has announced and started implementing our 2020 strategy, we didn’t need William for that, and we implemented a restructuring without William in place. We’re doing all our normal business.’

In truth, leadership has been a problem for the firm since the astute David Harrel stood down in 2005, with SJ Berwin unable to find a figure to unite the firm while moving it forward. While Fuller is well regarded in Europe, his presence has only underlined concerns over loss of identity and direction.

A walkabout in Paris

Replacing Boss is a delicate process, in part because of a reluctance by partners to move into senior management but also because of sensitivities about who takes on the role. There have been claims that Naunton is set for the role, though this has been denied.

One of the first acts post-Boss was to address profit distributions. The firm, which long operated a system where the bulk of payments were paid quarterly with a relatively small monthly drawings facility, switched to monthly payments to address delays that had seen partners paid up to six months late. Delays sometimes linked to missed targets for getting bills paid on time but capital was also obviously constrained. The legacy SJ Berwin had also delayed distributions amid the 2008/09 recession.

‘We should run a business where we pay partners regularly,’ says Fuller. ‘Quarterly payments are a quaint feature of UK firms.’

The second step, designed to focus the practice and increase cross-selling, was a London practice shake-up that reduced the number of practice groups from 17 to three. The move, also billed as improving financial visibility throughout the firm as the London office had been operating separate profit and loss accounts across those 17 groups, has consolidated down to the core groups: corporate, funds and finance; dispute resolution and regulation; and real estate.

Tim Bednall is leading the corporate, funds and finance division, which will also include employment, commerce and technology, restructuring and insolvency, employment and incentives and tax. Usher took on the dispute resolution and regulation division, which will encompass litigation, arbitration, competition, financial regulation and IP, with Naunton heading real estate.

There have been some tensions over Naunton and recently relocated Bednall overseeing roughly 70% of the London business. Naunton’s launch this year of a Cambridge branch for low-cost real estate work has also raised eyebrows at a time of cost-cutting.

The appointment of long-time SJ Berwin competition lawyer Usher appealed more to the City firm’s veterans. Comments Usher: ‘You’ve got a couple of guys who have not been here that long who have stepped up and me who has been here forever. I know who all the naysayers are but things move on. We can make it our firm.’

The third, and most difficult step, was the large redundancy round that saw 24 European and Middle East partners asked to leave the firm and cut 45 business services staff in Europe, a move which led to 37 redundancies in London. Fuller filled the leadership gap, visiting key clients, including £5m-a-year relationship British Land, and put on a united front with Kon.

Ahead of the March announcement, Fuller and Kon called on the axed partners individually. The following morning Kon stood before the partnership to announce the restructuring. Fuller followed, running through the firm’s new European strategy that marks litigation and EU, competition and regulation as the firm’s two European ‘priorities’. Other practices were placed in either ‘core tactical priorities’, ‘non-core tactical priorities’ or ‘non-core’.

The focus attracted some head-scratching. While KWM punches above its weight in competition, it is arguably not a big enough product line to drive growth for a large global firm. Disputes is obviously an engine room area but a practice in which KWM has been an uneven performer.

Private equity, though a global focus and a historic strength of KWM, is not singled out. And Naunton – one of the three core practice leaders, hails from real estate, a historical strength that there has been less emphasis on in recent years. Globally the 2020 strategy is based on KWM building in five key areas: corporate and M&A; capital markets; energy, resources and infrastructure; private equity and funds; and regulatory. Charitably, it looks a little unwieldy and not obviously aligned – less charitably, it looks a mess.

Kon told partners of the drive to increase profitability, while Fuller put forward a target to increase profit per point to £20,000 in Europe by 2019, which will require a huge hike in profitability against a current figure of around £14,000.

One partner at the meeting recalls: ‘Stephen stood up first and said it’s a process to make the firm more profitable. He added that the review of partner performance was based on the last three years and alluded to support staff. They then took questions from the floor. One partner asked ‘the rent review is coming up – what about that?’. Another said: ‘Is this going to be enough?’

There have been some high-profile casualties, with European finance head Jeremy Cross, London tax chief Heather Corben, former co-head of real estate Jason Juden and co-head of the firm’s Africa and Russia groups David Parkes all leaving or due to leave. Real estate was affected, despite the new recruits. One former partner says ‘there was politics involved in it’ and warned that the exit of British Land lawyers Corben, and real estate duo Darren Rogers and Patrick Williams, would put the firm’s relationship with that client ‘at risk’. Finance and funds partner Robert Andrews, whose biggest client was Barclays and whose matters were last year worth approaching £2m, announced a move to Ashurst on 1 July. Others note that Cross was a reliable banking lawyer who had been key to getting KWM on several major panels, including The Royal Bank of Scotland. However, the British Land panel is a three-year arrangement and Fuller contends that it is ‘open to introducing more faces into the relationship’. He adds: ‘Their reaction [to the restructuring] was: “We understand – let’s broaden the team.” Their view is that it is firms on their panel, not partners.’

‘Perry Yam (pictured)was the Donald Trump to Rob Day’s Hillary Clinton in that things needed shaking up. In retrospect, it would have been better if he won.’

If the restructuring was seen as the emphatic measure KWM needed to move forward, the timing proved disastrous. Barely a week after the announcement, Goodwin Procter returned to KWM with devastating effect. Lever, who had already hired leveraged finance partner Simon Fulbrook in September 2015, returned to hire a highly-rated Paris private equity team covering six partners. As the jewel of SJ Berwin’s continental practice, the team is worth at least £8m in lost annual billings – some observers put the figure considerably higher. The team included Paris managing partner and corporate co-head Christophe Digoy, European and Middle East partnership board member Maxence Bloch, Jérôme Jouhanneaud, Thomas Maitrejean, Pierre-Louis Sévegrand and William Robert.

Bloch and Maitrejean were among Europe’s top billers, with their clients generating more than £3m annually. Digoy and Jouhanneaud were both responsible for over £1.5m annually.

The damage to KWM’s Paris practice substantially weakens the firm in Europe given the mixed performance in recent years of its German practice, which was impacted by this year’s restructuring.

In addition, Bloch had been heavily involved in the restructuring and had championed the KWM merger so the exits left a sour taste, though the French office had long been exasperated by delays in profit payments. Answering claims that KWM is considering legal action against the departing team, Fuller said that ‘all options are being considered’. KWM subsequently confirmed that ‘it has written to Goodwin Procter in connection with legal proceedings by KWM against it’, rather than the Paris partners, but refused to confirm the details of the action.

‘It was a pretty self-contained team. Our working assumption is that the revenue will go,’ says Fuller. He adds: ‘We see it as an opportunity to do the mid-market M&A and go up. The funds group in Paris is staunchly committed. The funds team in Paris is exceptional, it’s long been the most profitable team in our Paris office.’

Despite the brave face, the firm has suffered a major reverse. With Olivier Vermeulen – responsible for approaching £1.5m annually – already having left the Paris office to join Paul Hastings in January, up to half the office’s €30m revenue is believed to have walked out the door.

One former partner comments: ‘Paris is a result of what’s happening at the firm, it’s just not working as it’s a firm that never managed the partnership. They are losing all the good people. They’ve managed partnership lately because they didn’t have a choice.’

Back in London, a further three resignations were handed in by IP partners following the restructuring, with Goodwin also taking Gretchen Scott, Mishcon recruiting practice head David Rose and Dentons hiring IP partner Campbell Forsyth.

Owned by the bank

The departures over the last 18 months raise more questions over the firm’s cost base in Europe. KWM moved last year to sublet parts of its London, Paris and Milan office space, but the Paris exits leave it with a €3.5m a year rent on a four-storey office on the Champs-Élysées without the lawyers to fill it. One Paris partner says: ‘There will be two floors fully empty at the beginning of July!’ Fuller responds: ‘We would look to sublet some of that space. We don’t expect it will be difficult. We have a wonderful space.’

At Queen Street Place, where the firm has already sublet the fourth floor to intelligence group Mergermarket and the first floor to City firm Bates Wells & Braithwaite, a rent review is coming up signalling the end of its generous signing-on package.

One bigger challenge, though, is a loan with Barclays that has hung over the partnership. While the terms of the debt are not public, partners were told at the monthly partners’ dinner in March that the revolving credit facility, which had been set to expire in July 2016, had been extended. It was also increased, with the credit line upped to £25m. Fuller comments: ‘The covenant is [set at] a number of equity partners and we continue to comply with the covenant.’

Nonetheless, the debts have been a factor in some partners quitting. One Paris-based partner comments: ‘The loan with Barclays is really used as a long-term overdraft. If you fall below a certain amount of partners, there is a change of control provision. My feeling is they are very close to that and if they go below that [Barclays] will [call in the loan]. The French partners had to exit and re-enter the partnership last year for tax purposes, which is normal, but Barclays insisted the firm could not fall below the change of control minimum and refused to give the waiver. So half of the partners had to exit first and re-enter and the other half after.’

Charitably, KWM’s European practice looks an unwieldy fit and not obviously aligned with the firm’s global practice and strategy. Less charitably, it looks a mess.

Partners were told in June that funds veteran Michael Halford was leading a review of the firm’s capitalisation aimed at addressing its strained finances.

So why has there been so little apparent upside following the merger? There have been some major Chinese clients putting work through the firm, including sizeable mandates in Europe for China Life, Shanghai Stock Exchange, South Korea and China General Nuclear Power Corporation.

While revenue at a global level dipped 1% to $1.02bn for 2015, China was the best performer with that business growing 26% in local currency. Even with the volatile exchange rates, its share of global income rose to 35% at $354m. Australia, though a more challenging market, has been a solid performer with revenue up 3% in local currency to AUS$415m for 2015. Firm-wide revenues have been impacted by reporting global revenues under a strengthening US dollar, with KWM growing globally by 8% in home currencies in 2015 despite sliding income in Europe. Of course, given that KWM operates separate profit centres a direct benefit from firm-wide performance in Europe is limited. Europe contributes around £2m annually to central costs.

With referrals growing, Kon concedes that the woes are home grown. ‘The European practice has had a challenging time. Being entirely frank, we’ve come under challenge in terms of the legacy firm.’

One of the biggest challenges will be holding the firm’s position in private equity. The firm remains a formidable presence in funds with a group of major billers, even if the firm’s once unassailable dominance has been eroded by the Americanisation of Europe’s funds sector.

Aside from productive partners like Halford, Sonya Pauls, Nathalie Duguay and Arnaud David, Ed Hall and Patrick Deasy have both been responsible for more than £2m in the latest financial year. There have been concerns that head of investment funds Halford, a protégé of former senior partner Jonathan Blake, would be a particular loss.

Never as strong on the transactional side of private equity, KWM could scarcely have afforded to lose the ground it already has. Cross-selling into corporate has long been hampered by the culture of its funds practice, which operates as a self-contained fiefdom. Taking a wider view of the deal market, it is hard to see how a firm that struggled even in its core buyout heartlands is to establish itself as a credible corporate player.

Corporate aside, the broader point is whether the partnership in Europe is up for the fight. Fuller picks up the point: ‘We are not happy with the financial performance. We want an improved performance and everything we are doing is to get to that point. It’s part of a $1bn-a-year organisation, so it’s got levels of support. We’re going through the process of integration and this year will be stronger than the last year in terms of cross-border work. We’ve had a significant number of partners join us [see box, ‘Incoming London laterals’] and there’s always a ramp up period. Those laterals will improve this year.’

There are issues of strategic clarity and alignment that could be addressed; how the European business fits into the global KWM empire is unclear but right now such niceties are secondary; KWM badly needs to win back the hearts of its partners if it is going to have a business in Europe. But whose heart are they appealing to?

There is no question that KWM will continue to be a major global law firm – its top tier Asia-Pacific practices continue to perform robustly. But how legacy SJ Berwin, with a very different culture and client-base, fits into that without being recast as an entirely different practice is a mystery. In Europe, KWM is a firm in need of more stability being progressively remade into a different kind of firm.

For some, the Boss episode was a debacle and an abrupt loss of leadership at a key moment. In Australia, Fuller was facing urgent questions over Europe.

Fuller comments: ‘Morale is up and down, to be frank, but that’s unsurprising with what’s happened here. When you’re going through these experiences you have to acknowledge that’s the case and be open, transparent and positive with the partners. This is the go-forward team. We look at opportunities globally and use the growth word a lot more. Growth is a state of mind.’

The other looming issue is the US, where the firm has made little secret of its hopes of securing a merger. Fuller says he ‘would be disappointed if the firm had not secured a merger by 2020’ but KWM would surely need to get a period of more confident trading in Europe before it has a hope of attracting a credible US partner.

For now, there are more pressing matters at hand. Some now ask if the Asia-Pacific bulk of KWM will soon reach a moment of truth where it either directly underwrites the ailing European practice or walks away.

Fuller concludes: ‘This place is unique. This combination of firms has created a platform with depth in Asia and depth in Europe. I don’t worry about most things. What I worry most about is not taking the opportunity that we have here. I can see the potential of our client base, I can see the potential of our platform and I can see the potential of our lawyers.’

There is nothing wrong with what KWM wants for its European practice. But it is increasingly doubtful that legacy SJ Berwin, battered by markets and shaped by management in London that has for a decade been behind the curve, is culturally, emotionally or commercially disposed to be that firm. Three years since its union, all KWM has to show in Europe for the SJ Berwin merger is potential. LB

tom.moore@legalease.co.uk, alex.novarese@legalease.co.uk

 

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