Victoria Young and Kathryn McCann talk mergers, leaks and pay with Addleshaws’ no-nonsense head
For a firm until recently associated with dithering, drift and under-performance, Addleshaw Goddard has been in decisive mode of late. Over the last two years the national player has assumed a more assertive style under the leadership of managing partner John Joyce (pictured). Joyce, who took over after an unhappy period under predecessor Paul Devitt, quickly overhauled the firm’s strategy. But in truth, strategy changed little from that of Devitt and then senior partner Monica Burch. Transformed instead was the leadership style and managerial mood music from Joyce, a man who at times appears to be doing a parody of the bluff northerner but who pulls it off thanks to results and a good dose of humour and charisma. Not since Mark Jones at the height of his powers a decade ago has Addleshaws had such an unyielding operational grip on the tiller.
In the wake of his appointment in May 2014, there were some efforts to paint the veteran restructuring lawyer as a self-effacing figure reluctantly filling the leadership vacuum. No one tries that any more. Joyce’s PR team joke about Legal Business making sure this article highlights the difference between financial performance before and after he took over. Partners may tire of being directed (they usually do in the end), but for now they are largely enjoying the novelty of a means-business chief executive – and the financial rewards that go with it.
There have been a few speed bumps along the way. Last November it emerged that Addleshaws was in merger talks with Scots firm Maclay Murray & Spens, a deal that left many bemused. The talks were called off in March, amid claims that Maclays wanted better terms than Addleshaws was prepared to offer. (The Scots practice this year posted a profits per equity partner (PEP) figure of £248,000, against £682,000 at Addleshaws.) The talks came to light at the same time that a shake-up of Addleshaws’ partnership deed emerged. The latter process gets the thumbs up from Joyce’s many admirers, while annoying a few of the old guard.
Then in May, a very different merger bid emerged when it was confirmed Addleshaws was holding talks with Virginia law firm Hunton & Williams (see box below). Joyce plays down the Hunton discussions, describing any talks as ‘exploratory.’
‘I would not say we are in merger talks with anyone. We are in exploratory talks with multiple firms. It’s months from being close.’
‘If I find the person who’s leaked I’ll probably kill them. I’ll hang them from a tall tree.’
John Joyce, Addleshaw Goddard
Addleshaws has the goal of achieving £250m turnover by 2017/18. Its 2015/16 income of £201.8m suggests a merger or acquisitions will be needed. Joyce is also targeting material increases in profitability, tackling an issue that has long plagued the national thoroughbred. With improved performance under Joyce’s leadership, he has been given considerable leeway to make changes. And he intends to use it.
Late to the party
Addleshaws currently has international outposts in Dubai, Hong Kong, Japan, Oman, Qatar and Singapore, making up 5% of the firm’s revenue (though 8% of its partners are outside the UK). This is well short of the 25% target the previous management in 2011 said it wanted to reach by 2014, underlining the quandary the firm has been in after delaying its foreign expansion far longer than most of its peers.
Given this context, there is some question why Addleshaws should engage in such disparate talks as with an ailing Scots practice and a far larger US suitor 4,000 miles away. Joyce himself replies that ‘the two [mergers] are totally unconnected’.
‘You don’t merge with a Scotland firm to merge with a US firm. You merge because you have clients which have work in Scotland, which we have.’
Joyce maintains that a local move is still of ‘massive interest’, adding: ‘The point of being in Scotland is it brings work into England and if you can’t do that then you will lose your client work to CMS or Pinsent Masons.’ Indeed it is understood several of the firm’s clients, such as National Australia Bank, have called for a Scottish outpost. The ideal may be to unite with Addleshaws’ regular referral partner Burness Paull, but the Scots firm has recast itself from mid-market operator into top-tier player and made much of its independence.
Mike Potter, head of the firm’s much-touted paralegal service, dubbed its transaction services team, says: ‘Having leaks is not healthy. We are open to a merger, but the leaks have impacted the workforce, it unsettles people because unless you have the full context, it looks like another merger has not happened for us.’
Not everyone is so happy clappy. Addleshaws still has to carefully manage its northern heartlands in Leeds and Manchester, which generate half its income and considerable profit, even as it turns its attentions progressively to London.
At the time of the Maclays talks one partner told Legal Business partners were furious at the lack of communication. He said: ‘Support staff know about [the merger], which added insult to injury.’
New senior partner Charles Penney
Senior partner since 1 May, veteran corporate partner Charles Penney (pictured) is described by partners as ‘complementary’ to tough-talking managing partner John Joyce.
Respected in the City, in particular for his work for the Takeovers Panel, where he did a two-year secondment as secretary, Penney expects to spend around 30-50% of his time on client work. A former corporate partner at Lovells, Penney joined Addleshaws in 2005, while clients in recent years have included Bibby Line, Charles Stanley Securities and Guardian Media Group. The role sees him chair Addleshaws’ board.
He observes: ‘If you are trying to support and motivate other partners it is important to be at the coalface. And I would not have wanted this job if I couldn’t do the client role.’
Penney secured the appointment in March after running against energetic private equity partner Andrew Carpenter, who some feel would have been more of a counter to Joyce. Fitting neatly into the ambassadorial mode of senior partner, Penney looks set to leave Joyce clear space as Addleshaws’ ‘chief executive’.
Addleshaws head of retail and consumer Andrew Rosling says: ‘The choice between Charles and Andrew didn’t feel that different to me, they are both focused on similar things, both inherently international in outlook, but I suppose my view is Charles offered us something specific around City brand, which is what he has always done.’
The senior partner role – which had carried huge clout under figures like Paul Lee – is seen to have weakened as Joyce has taken a strong leadership hand. However, a recent review of the job – which floated whether the role should be part-time or open to an external appointment – concluded with no official changes.
Despite differing personal styles, Penney and Joyce both profess similar agendas.
Another partner comments: ‘We have a relatively new strategy and I don’t think anyone would come into that role and say: “We should have a different strategy.” A lot of Charles’ role is about execution, sharing that strategy with clients and reinforcing it with our people.’
The partner adds: ‘Andrew [Carpenter] has got lots of bold new entrepreneurial ideas, but he isn’t necessarily in the senior partner mould. He is also several years younger than Charles and hasn’t been settled in London doing that work for several years, so in that sense Charles is the one with the relationships.’
Penney says his aspiration is to ‘build and grow the reputation of London and the City practice – we could still do more with what we’ve got’.
Addleshaws partners talk the new senior partner up at length, but the praise extends well beyond the cheerleading squad, with several former partners and peers speaking warmly of Penney. One law firm leader at a rival firm comments: ‘Charles is a great guy and will make a difference. But the City corporate space is a competitive market and if you want to stand out you have to do something special.’
Joyce is strident on the topic of partners talking out of turn: ‘If I find the person who’s leaked I’ll probably kill them. I’ll hang them from a tall tree.’
He is joking. Sort of.
‘A credible platform’
Joyce is clear that the foundation of any foreign adventure is stronger performance at home, observing: ‘To achieve our international ambitions, the firm needs a credible platform.’
Joyce made a great play of key benchmarks in the three-year strategy – dubbed ‘A Fresh Perspective’ – unveiled in 2015.
As well as the £250m target, the firm aims to boost top of equity to £1m, with a target for junior equity partners of £300,000 on a 30% profit margin. In 2013/14, top of equity was £560,000 on a margin of 24%. Pointedly, Joyce told partners that he would have failed if the firm hit all its softer strategic goals without achieving key financial benchmarks.
(The firm’s core equity ladder ranges from 50 to 140 points. Around 15 partners were paid discretionary bonuses, ranging from five to 25 points in 2013/14).
After a more robust 12% growth in 2014/15, Addleshaws posted a 5% turnover jump to £201.8m for 2015/16, up from £192.5m, which will be viewed as a solid performance amid a choppy market. Similarly at Pinsents, revenue is up 5% to £382.3m and Eversheds’ turnover has risen 6.5% to £405.5m. On profitability, Addleshaws showed more dramatic results, with PEP spiking from £491,000 to £682,000, reaching an all-time high.
Asked what has contributed to stronger growth, Joyce quips: ‘stunning management’. New senior partner Charles Penney quickly chimes in to cite ‘the corporate team in London’.
Joyce elaborates: ‘Last year, the first three quarters were good. We definitely saw a Brexit downturn from January. If it weren’t for Brexit, we wouldn’t have that number.’
Hunton & Williams – some common ground
While it seems every law firm in the top 50 has their eye on a US union, it was surprising to some that Addleshaw Goddard was towards the front of the queue.
In this context, news of merger discussions with Hunton & Williams has gone down considerably better than the Maclay Murray & Spens talks.
Though Joyce says discussions are at an early stage, a combination would hugely scale up Addleshaws. The Virginia-based Hunton has around 700 lawyers and 167 equity partners across 19 offices in the US, Europe and Asia. In 2015 it posted gross revenue of $528m, a 7% drop on 2014. Hunton, best known for its work in the media, telecoms and real estate, has suffered some reverses in recent years, underlining the pressure on large US regional practices seeing more fee pressure from clients. Over the last five years, the firm’s turnover is down 12%, one of the worst performances in the US top 100. This year, profit per equity partner (PEP) is down 5% to $950,000 from $998,000. Comparatively, Addleshaws’ PEP performed better this financial year at £682,000 or $999,982 – meaning the two firms have at least broad comparability in finances.
Hunton – which has long been an informal referral partner to Addleshaws – has a small outpost in London with 11 fee-earners, and a focus on technology and energy, though the practice has been a persistent under-performer in recent years.
One former Hunton partner describes the firm as ‘friendly’ and ‘traditional’, noting that Hunton has held a number of other merger discussions in recent years, including with Watson Farley & Williams.
One City partner who has dealt with Hunton describes the firm as an ‘old-school, North Virginia, hunting-and-fishing sort of bunch. They have a great domestic project, and great annuity and dispute work, but their international expansion has been flawed’. In Asia, for example, the firm has no offices in financial centres, such as Singapore or Hong Kong, but has a well-ranked team in Bangkok.
Given broadly comparable finances, histories and cultures, and some apparent cultural common ground, a Hunton/Addleshaws tie-up looks one of the more promising potential unions the market has thrown up in recent years.
Growth has been driven by the corporate and commercial team, and the financial services practice, which make up 33% and 24% of revenue respectively. The other key parts of the firm’s business include dispute resolution (23% of income) and real estate (19%). The firm looks better balanced than the 2000s when its real estate practice ballooned, and it is also telling that deal work seems central again after a period when property and litigation were in the limelight.
Joyce adds: ‘The market has been buoyant, but over the past three years we have recruited some really talented people into London corporate and it paid off last year. Finance has been buoyant, and we have some great specialist teams in real estate finance and social housing finance, which have been absolutely flying.’
Addleshaws also improved its cash position, which at the end of the latest financial year stood at £26.8m, up from £3.8m, and paid off an overdraft facility. According to LLP filings the firm was carrying £18m in debt back in 2014.
Joyce sees the financial turnaround as a validation of his leadership and there is wide acknowledgement that the firm needed a more rigorous approach. It barely needs stating that financial strength is a boon in any consolidation play. As head of energy Richard Goodfellow puts it: ‘That is the precursor to having meaningful conversations, if you start in a position of strength.’
‘We are the new junior non-equity partners; we place more trust in the leadership – and we love the aspiration.’
An Addleshaw Goddard partner
Out with the old
With PEP open to engineering, management is focused on the underlying currency of partnership: profit per point. On this yardstick, Addleshaws has cause for cheer, with each point rising from £4,000 in 2013/14 to £6,700 in 2015/16, comfortably ahead of its £6,000 target for 2017/18 and surpassing its previous high of £6,200 in 2007/08.
Honing in on this target has come amid a thinning of the ranks in the last two years, including what Joyce unapologetically describes as highly-paid ‘cronies’, at the top of the firm’s equity.
Change has been substantial, for example, of 2013/14’s top 11 earners at the firm, which all took home at least £518,790, five have left. One partner estimates that 25 veteran partners have left during the last two years, including retirements and a handful of managed exits, while 19 new recruitments have come in. The firm’s equity ranks have also reduced, from 96 last year to 87.
High earners to have left include former managing partner Devitt, as well as head of employment Andrew Chamberlain, who quit for DWF, former head of real estate Mark Haywood, who is now at Nabarro, and finance partner Richard Papworth, who joined gunnercooke.
Of the 11 top earning partners of 2013/14, those who have remained at the firm include head of financial services Sally Butt, litigation partner Mark Hastings, head of international arbitration Simon Kamstra, Manchester head Malcolm Pike, employment partner Alasdair Simpson and Joyce.
Joyce says of these top earners only one partner has been lost that the firm wanted to keep, adding: ‘There are none of those who have had a weaker successor.’
He adds: ‘These [departures] are of the type of people which encourage the next generation to say: “Thank God they’ve gone now!” We can now get on with it and do things properly.’
As management put it, the departures left ‘headspace’ for new partners. In the past year, Addleshaws made two lateral hires and appointed seven counsel and associates from other firms to partner. The new recruits include Squire Patton Boggs partner Giles Distin and Jones Day partner Iain Hindhaugh, who both joined the London office.
However, departures have left some vulnerabilities, particularly in Addleshaws’ contentious insurance practice, which Joyce himself concedes ‘hasn’t performed the way we would have liked’.
Addleshaw Goddard: key stats
Number of lawyers: 706
Number of partners: 189
Turnover 2015/16: £201.8m
Profits per equity partner: £682,000
Key clients: BP, Barclays, British Land, Dixons Carphone, National Grid, Network Rail, Siemens
Key individuals: Head of retail and consumer Andrew Rosling, litigation partner Mark Hastings, head of financial services Sally Butt, real estate managing partner Leona Ahmed, head of litigation Michael Barnett and corporate managing partner Yunus Seedat
That practice was once led by former litigation head Richard Leedham, another top earner in 2013/14. He decamped to Mishcon de Reya early last year, followed two months later by partner
Sonia Campbell. In May, insurance head Mark Pring announced he had quit to join Reed Smith, meaning the firm will have no dedicated insurance partners. Joyce says the firm continues to invest in the practice and expects to rebuild the ranks through promotions rather than lateral hires. Litigation managing associate Richard Wise is tipped for a more senior role.
Such thinking underlines the generational shift in favour of younger hands and against the Addleshaws grandees that many feel allowed one of the most promising national players to bump along after the mid-2000s. One fixed-share partner observes: ‘There are about 20 partners which have come in. We are the new junior non-equity partners; we place more trust in the leadership – and we love the aspiration.’ The partner adds: ‘There has been uncertainty, but what I’ve seen in the last two years is that it has genuinely been positive and financials last year were strong.’
A shift in power
Joyce is obviously banking on the numbers to give him the mandate he needs to reshape Addleshaws. As such he is confident he will get the 75% vote needed to implement a raft of changes to Addleshaws’ partnership deed, impacting remuneration and management.
As Legal Business went to press, partners were voting on the reforms before the firm’s partnership conference in the first week of July. Joyce says: ‘The feedback on all the discussions is positive,’ conceding: ‘we have taken some points on board’. He adds: ‘We’ve done the consultation to death since October. I’m surprised how long it’s taken us, but I’d rather take the time and not have an issue with it than try and force it through.’
While conceding there are ‘individual personalities’ who are against the changes, Potter comments: ‘There is a common acceptance that there is a need to modernise the partnership articles and, yes, the actual nitty gritty is subjective, but there is a relatively healthy debate and the general mood is absolutely fine.’
Joyce says the firm is shifting towards an all-equity partnership, although there will be a fixed share element for junior equity partners.
When the articles were first written about 20 years ago, the partnership was made up of two-thirds equity partners and a third fixed share. Last year the firm had 96 equity partners to 77 fixed-share partners, but equity partners are now in the minority with just 87 of the firm’s 189 partners full equity.
‘There is a common acceptance that there is a need to modernise the partnership articles. The nitty gritty is subjective, but there is a healthy debate.’
Mike Potter, Addleshaw Goddard
The expected changes mean there will be two categories of partners, but all members’ remuneration will eventually be directly linked to profits. Current equity partners will be classed as category B partners. Fixed-share partners, who will be known as category A partners, will be able to become equity partners, though the process involved is unclear.
Category A partners will be given more powers and rights, including participating in elections for Addleshaws’ remuneration committee, which reviews partner performance and pay. Category A members would also be able to join the firm’s board.
Other changes include terms of office for senior partner and managing partner extending to four years from three. Although this won’t extend Joyce and Penney’s current terms, the change is likely to benefit Joyce, who has made clear he will stand for managing partner again before his term ends in May 2017.
The most contentious changes have been restrictions on partners leaving the firm. Addleshaws has a ‘bottleneck provision’, which means no more than seven equity partners can leave without board consent in one financial year. Under the proposed changes, category A partners, those current fixed-share partners, will now be under exit restrictions. The ceiling on equity partner resignations would remain at seven a year, though there will also be a higher combined total in force. Joyce refused to disclose the total number of partners that will be able to leave in one year, though the current reforms appear to have been somewhat watered down from earlier proposals, which had last year suggested current equity resignations as low as three.
Joyce stresses that the board can give consent to let people leave and the limit has never been enforced. Also proposed are ‘bad leaver’ provisions and restrictive covenants relating to soliciting staff. In Joyce’s words:
‘If you act like a bastard, we’ll treat you like a bastard.’ Joyce will not detail the covenants, terming them as ‘market standard and not aggressive’.
The final major changes relate to management and appear to increase the authority of the managing partner. The changes are designed to record the managing partner’s accountability and authority for running the business, with the board operating in a supervisory mode to which the managing partner is accountable on behalf of the partners.
The ten-member body is chaired by Penney and includes four appointments by Joyce with the rest by election.
An interesting dynamic for the firm will be how well Joyce and Penney gel in the core leadership roles given their hugely contrasting styles (see box, page 17). While Joyce receives generally strong praise as a results-getter, there are some grumblings regarding the firm’s positioning as a serious City practice. Several London partners queried if Addleshaws is ready to focus relentlessly on quality City work and ask if the firm remains committed to its previous efforts to sustain a high-end disputes practice. Nevertheless, the appointment of the popular Penney is viewed as welcome in putting a ‘proper’ City deal
lawyer at the head of the firm. Penney has also been astute in moving early to cultivate Addleshaws’ Leeds and Manchester arms, nodding to the delicate balancing the firm’s ambitions require.
Such diplomacy may come in handy to avoid Joyce’s brand of Northern imperialism turning from asset to liability. But it is hard to question the basic tactics and rationale behind a reinvigorated Addleshaws.
They may even get another decent merger.
victoria.young@legalease.co.uk; kathryn.mccann@legalease.co.uk