King & Wood Mallesons (KWM) told its London partnership this morning that 15% of its European and Middle Eastern partners will be axed, with an additional 45 business services roles in London to be made redundant.
Stephen Kon, the senior partner of KWM’s Europe and Middle East business, and global managing partner Stuart Fuller (pictured) informed staff at the firm’s London office that 15% of its 160-strong partnership across the UK, continental Europe and the Middle East would lose their roles as part of the restructuring. That means up to 24 partners will leave the firm as part of the process.
Fuller told Legal Business: ‘This is the most important thing the firm has done so that it is stronger and we focus on core markets and core clients and make sure we grow in the right areas. It is also so that we pay market returns to all people at the firm so this has the full support of Europe and the global firm.’
The move inevitably raises serious questions over the success of KWM’s 2013 union with London’s SJ Berwin amid claims from former partners that the level of expected referrals from its huge Asia-Pacific practice have failed to materialise. The firm’s core City private equity and funds practice has also been hit by competition and predatory recruitment from more profitable US rivals in recent years.
It is the second shake-up of the legacy SJ Berwin partnership in 12 months, with another 15% of the partnership across the region being asked to leave following a partnership review last year, though the previous initiative was cited as being based more on individual performance. The firm’s managing partner for Europe and the Middle East, William Boss, resigned less than a year into the post in January to focus on client work.
KWM also announced this February that it was overhauling its practice structure, cutting 17 practice teams into three overarching streams: corporate finance and funds; dispute resolution and regulation; and real estate. The three teams will be headed respectively by Tim Bednall, Tom Usher and William Naunton.
With 425 business support staff operating across the region, which covers nine offices, the redundancy of 45 of these roles will cut headcount by 11%.
Europe was the worst performing region of the firm last year, behind its cornerstone practices in Australia, Hong Kong and China, as global revenue dropped 1% to $1.02bn in 2015. London is by far the largest office in the Europe and Middle East region, generating around 65% of the region’s revenue of £191m.
KWM has been dogged by cash flow problems over the last year, with delayed payments to partners, but reduced its net debt position in the year ending 30 April 2015 by nearly £1m to £15.87m. The partnership also has a £20m bank loan set to expire in July 2016, according to the firm’s most recent filing for the Europe and Middle East LLP on Companies House.
However, Fuller denied that the drastic measures showed that the 2013 merger had failed, adding: ‘I have no concerns around the balance sheet. This is all part of the firm’s 2020 strategy and making sure that the practices are aligned globally around the core business areas and getting the benefit of the merger. We are strengthening the firm and it’s actually so we can execute even better the regional and global strategy. This is all part of the firm’s journey, the 2020 strategy, to be a globally elite firm.’
The announcement comes amid a challenging 2015/16 financial year for major commercial law firms, with transactional activity hit by a turbulent global economy and uncertainty ahead of the UK’s vote on membership of the EU in June.
To read more about the firm see: ‘Sum of its parts – can King & Wood Mallesons match the hype?’