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Lockstep transfer: Freshfields Japan partners face profit cut as part of global review

Freshfields Bruckhaus Deringer is set to transfer partners in its Tokyo office from its traditional lockstep to its second-tier lockstep as part of a global profit review, Legal Business understands.

The move is expected to affect seven partners, including four practice heads, from the 31-strong office.

The review, which kicked off last year, was initially set to affect partners in non-core practice areas and smaller offices globally, is to also impact equity partners at the firm’s Fleet Street headquarters, notably in the employment and IP practices.

The move comes after the partnership approved the introduction of a second tier lockstep two years ago. The second ladder runs from 10-30 points and sits alongside the traditional 17.5-50-point ladder, which the majority of partners are currently on.

At that time, Freshfields – which had more than 400 partners – abolished its non-equity partner roles and transferred them on to the second ladder, which affected around 35 salaried partners. This increase in equity partner numbers drove down the firm’s profit per equity partner for the 2014/15 financial year by 8% to £1.37m. The change came as LB100 firms reviewed their partnership models following HMRC rule changes for LLPs. 

One partner at the Magic Circle firm said the profitability drive was not performance based but directed at certain practice areas and geographies. ‘There are some local offices that would love to pay less and be able to grow their office. Not everyone wants to be paid more because then they can’t hire or promote anybody,’ said the partner.

The profitability drive comes after the firm rejected the idea of introducing three separate profit pools for the UK/Europe, Asia and the US in 2014, to allow smaller and less profitable offices to set more realistic targets in accordance to market conditions.

Freshfields would not comment on the changes.

For more on Freshfields, see the feature: ‘The last champions – meet the leaders intent on sealing Freshfields’ place in the global elite’