LB100 Macfarlanes: Swimming Against The Tide

At the time of the first LB100, Macfarlanes was three years into a non-exclusive international alliance that included US firm O’Melveny & Myers, Paris-based Simeon & Associés (now part of Lovells), and Germany’s Noerr Stiefenhofer Lutz.

There were offices in Tokyo and Brussels, and indeed Julian Howard, now managing partner of the firm, was the partner in charge of the Tokyo outpost from 1992 to 1997.

Today, the business is a wholly different animal, having entirely bucked the trend and abandoned its alliance and international growth pretensions. In 20 years the firm’s turnover has nevertheless steadily crept in the right direction, from £28m then to £102.2m today, with the only blip being a plunge of more than 15% between 2008 and 2010.

The international alliance ended in the mid-nineties. Today’s senior partner Charles Martin says: ‘It had been a useful experience for us and it didn’t end remotely acrimoniously. We remained friends with all of them, and when we came out of the alliance we redoubled our efforts to build a high-quality best friends network, in those days focused on western Europe and North America. The quality of the relationships that we built then has held us in good stead.’

Martin, who made partner in 1990, recalls how the significance of the international agenda had already hit home by 1992. ‘We were clearly of the view that we wanted to offer something different and do it in a distinctive way,’ he says.

Expansion was never on the agenda, but instead there was a commitment to independence and working closely with the best firms in each jurisdiction. That’s taken hard work. ‘Someone once said, when referring to us, that sitting back and waiting for the phone to ring is not an international strategy,’ says Martin. ‘That couldn’t be further from what we do. All of our partners work incredibly hard on our relationships with firms and clients around the world, and as a result our practice has become truly international. Today, we are doing significant work in Africa, the Middle East and Asia, with very little connection to the UK, that we rarely used to see five or six years ago.’

The practice mix has changed a little along the way: in the face of intense pressure, the firm has steadfastly remained committed to its private client practice. ‘It became fashionable to jettison private client and we decided not to do that,’ says Martin. ‘When we look at our practice today and what is important in the emerging markets, private client is central.’

For years Macfarlanes has been among the most profitable law firms in the City, and that is in no small part down to its strength in corporate finance. Vanni Treves was the firm’s senior partner from 1987 to 1999, and is credited with shaping that practice. He joined the firm in 1963 and went on to specialise in corporate governance, before becoming a non-executive director of Saatchi & Saatchi in the eighties and later chairman of Equitable Life and Channel 4. ‘Vanni was, along with a few other partners, responsible for starting and building the strength and depth of the corporate practice, and for creating a clear vision of where the firm should sit in the market,’ says Martin.

Treves was succeeded by Robert Sutton – another larger-than-life character who enjoyed a cigar in every meeting and was beloved of corporate clients – who ran the firm until Martin took over in 2008. ‘Robert takes enormous credit for having taken that vision and refined it very significantly, particularly in terms of the shape of the corporate practice and the need for continued strategic clarity,’ says Martin.

What makes the firm unique is its emphasis on individual partner responsibility, with very high expectations of partners but little central management. This fosters entrepreneurialism, leading to instances such as one-time corporate partner Peter Turnbull’s punt on private equity, which he came across as a largely US concept in the late seventies. His conviction meant that as early as 1983 Macfarlanes was one of the very few firms already building up a buyouts practice.

‘We have always prospered at the interface between entrepreneurs and capital, between private client and corporate,’ says Martin. ‘Essentially that’s what private equity is. While we like to think we have been perfectly acceptable to institutional clients and major corporates for some time and done great work for them, fundamentally ours is a practice that sits at that interface.’

Its strength in leveraged buyouts, and in real estate, meant the firm was hit hard by the financial crisis in 2008. ‘That clearly caught us at a point where we were very successful, but some of the things we were successful in were the things most seriously affected,’ says Martin. Turnover fell from £110m in 2008 to £92m two years later, and has yet to fully recover.

‘The job of leading the firm since then – we don’t really do management – has been about taking those basic principles that Vanni and Robert put in place, and adapting them to a time when we didn’t have an M&A boom,’ says Martin. ‘Basically, to make sure the things that are strategically and culturally important to us and our clients, the things that really make us different, didn’t go out of the window.’

The biggest change has been the growth of the litigation department, from a service unit to the rest of the firm into a much stronger group generating work for the rest of the business.

Martin says: ‘What we offer is really very distinctive. It’s about a concentration of talent that is pretty hard to find in many other places, and a tightly managed cost base that is partly a result of our international strategy, which means we don’t have to support overseas offices. The combination of those things means we can offer clients really high-quality work and value for money. That is something that resonates in today’s market.’

The partnership has roughly doubled in size over the last 20 years, and while the culture has had to adapt, the essence of it has remained. Martin says the firm operates neither a lockstep nor an eat-what-you-kill remuneration policy, so management simply assesses each partner based on personal knowledge of their contribution to the firm. ‘That means we can do the right thing and not be formulaic about it,’ he says.

He says the quality of the people is Macfarlanes’ biggest achievement: ‘In almost 30 years I have never seen two people in the firm shout at each other. I’m proud of that, because we operate in a very stressful environment. Basic standards of decency are fundamentally important.’

In many ways not much has changed at Macfarlanes, even if it has become more and more unusual. LB