Chris Pugh - Freshfields
Chris Pugh – Freshfields ()

Freshfields Bruckhaus Deringer co-managing partner Chris Pugh’s departure from the management team is attributable to the firm’s poor 2016-17 financial results, according to former partners.

They say Pugh’s return to practicing, which was announced by Freshfields Wednesday, is the result of partners’ dissatisfaction with management, which, they say, has failed to deliver on targets around profitability.

Pugh’s immediate return to the practice of law comes a little more than 18 months after taking up the co-managing partner role alongside Stephan Eilers, under senior partner Ed Braham.

News of his move came weeks after Freshfields was overtaken by Linklaters when it comes to profit per equity partner (PPP), and by both Linklaters and Allen & Overy (A&O) by revenue.

Clifford Chance and A&O both posted double digit hikes in revenue and PPP, with Linklaters confirming rises of 8 percent in PPP and nearly 10 percent in revenue. In contrast, Freshfields’ revenue stayed broadly static, with net profit dipping slightly, despite the gain all of the firms saw from currency fluctuations.

One former partner said: “Management seem to have had a hard time. They haven’t really delivered have they? I am surprised Pugh is the fall guy for it but I’m not surprised there’s been a change. They haven’t delivered on what they said they would do, certainly not in profit terms and revenue terms.”

Another said: “I’d heard rumblings it was on the cards, I think it’s frustration. He is not a corporate guy and it’s a corporate firm. Obviously the firm is going through changes, they didn’t hit the targets they hoped to hit and they lost the top of the rankings, they probably want someone more dynamic.”

Legal Week has previously reported that Freshfields wanted to boost profit per point to £40,000, hence the firm making a number of changes to its equity in locations including Germany.

The first former partner added: “If you’re a go-getting partner there you’d think, ‘What are you guys doing?’ If I was still there I’d be complaining like anything about the management team. I don’t think it is any secret that the aspiration for the last financial year was £40,000 a point—£2 million at the top of equity. And they did at least 10 percent below that.”

Despite the fall in profit, average PPP grew by 5 percent to £1.547 million at Freshfields, however this was largely attributable to a nearly 6 percent fall in the number of equity partners year-over-year.

The firm’s profitability drive has included a restructuring of the finance department, a plan to cut German partner numbers by up to 20 percent by 2020, voluntary redundancies among secretaries in London as well as the establishment of a large support center in Manchester, which has room for 700 employees.

Braham, Pugh and Eilers were elected on a joint ticket in 2015, taking up their roles in January 2016. On election Braham appointed New York disputes partner Michael Lacovara as executive partner.

Lacovara left the firm to join Latham & Watkins, just six months after the team took over the running of the firm. With Pugh’s return to practice this week, the management team has been halved since it was set up.

The trio won their 2015 election on a pledge of retaining lockstep, in the face of competing candidates who had promised to reform the firm’s lockstep if they were elected.

A former partner said: “Their pledge was that they wanted to retain lockstep, but what became clear after that was that if you are going to do that you need to boost profitability. That’s when they started looking at parts of the firm to work out where the issues were.”

Another added: “The problem is that management team ran on a ‘we are going to keep the company as it is and not change lockstep’ approach. That got the vote but if you want to increase profitability you have to cut equity and change strategy.”

The first partner added: “I think [all of the restructuring] has had an unsettling effect, I don’t think anywhere is safe from review.”

According to multiple former partners Pugh was the face of the management team in London, both during the election and after the new executive team took the reins, with some suggesting his departure could therefore destabilize partners.

One said: “For me, and for the partnership in London, Pugh was running the firm. He was the only visible person, he was the guy in charge.”

Another added: “He was one of the attractions of that ticket. During the election he went round and spoke to people and got a good idea of what people wanted. He was the key link to the partnership in London. I am not sure who would be that link to the London partners because Ed is more of a figurehead.”

Freshfields declined to comment on the overhaul beyond what Braham said in a statement yesterday when he thanked Pugh and said that the firm wanted to streamline management and reduce the number of hours spent on management activities.

Freshfields Bruckhaus Deringer co-managing partner Chris Pugh’s departure from the management team is attributable to the firm’s poor 2016-17 financial results, according to former partners.

They say Pugh’s return to practicing, which was announced by Freshfields Wednesday, is the result of partners’ dissatisfaction with management, which, they say, has failed to deliver on targets around profitability.

Pugh’s immediate return to the practice of law comes a little more than 18 months after taking up the co-managing partner role alongside Stephan Eilers, under senior partner Ed Braham.

News of his move came weeks after Freshfields was overtaken by Linklaters when it comes to profit per equity partner (PPP), and by both Linklaters and Allen & Overy (A&O) by revenue.

Clifford Chance and A&O both posted double digit hikes in revenue and PPP, with Linklaters confirming rises of 8 percent in PPP and nearly 10 percent in revenue. In contrast, Freshfields’ revenue stayed broadly static, with net profit dipping slightly, despite the gain all of the firms saw from currency fluctuations.

One former partner said: “Management seem to have had a hard time. They haven’t really delivered have they? I am surprised Pugh is the fall guy for it but I’m not surprised there’s been a change. They haven’t delivered on what they said they would do, certainly not in profit terms and revenue terms.”

Another said: “I’d heard rumblings it was on the cards, I think it’s frustration. He is not a corporate guy and it’s a corporate firm. Obviously the firm is going through changes, they didn’t hit the targets they hoped to hit and they lost the top of the rankings, they probably want someone more dynamic.”

Legal Week has previously reported that Freshfields wanted to boost profit per point to £40,000, hence the firm making a number of changes to its equity in locations including Germany.

The first former partner added: “If you’re a go-getting partner there you’d think, ‘What are you guys doing?’ If I was still there I’d be complaining like anything about the management team. I don’t think it is any secret that the aspiration for the last financial year was £40,000 a point—£2 million at the top of equity. And they did at least 10 percent below that.”

Despite the fall in profit, average PPP grew by 5 percent to £1.547 million at Freshfields, however this was largely attributable to a nearly 6 percent fall in the number of equity partners year-over-year.

The firm’s profitability drive has included a restructuring of the finance department, a plan to cut German partner numbers by up to 20 percent by 2020, voluntary redundancies among secretaries in London as well as the establishment of a large support center in Manchester, which has room for 700 employees.

Braham, Pugh and Eilers were elected on a joint ticket in 2015, taking up their roles in January 2016. On election Braham appointed New York disputes partner Michael Lacovara as executive partner.

Lacovara left the firm to join Latham & Watkins , just six months after the team took over the running of the firm. With Pugh’s return to practice this week, the management team has been halved since it was set up.

The trio won their 2015 election on a pledge of retaining lockstep, in the face of competing candidates who had promised to reform the firm’s lockstep if they were elected.

A former partner said: “Their pledge was that they wanted to retain lockstep, but what became clear after that was that if you are going to do that you need to boost profitability. That’s when they started looking at parts of the firm to work out where the issues were.”

Another added: “The problem is that management team ran on a ‘we are going to keep the company as it is and not change lockstep’ approach. That got the vote but if you want to increase profitability you have to cut equity and change strategy.”

The first partner added: “I think [all of the restructuring] has had an unsettling effect, I don’t think anywhere is safe from review.”

According to multiple former partners Pugh was the face of the management team in London, both during the election and after the new executive team took the reins, with some suggesting his departure could therefore destabilize partners.

One said: “For me, and for the partnership in London, Pugh was running the firm. He was the only visible person, he was the guy in charge.”

Another added: “He was one of the attractions of that ticket. During the election he went round and spoke to people and got a good idea of what people wanted. He was the key link to the partnership in London. I am not sure who would be that link to the London partners because Ed is more of a figurehead.”

Freshfields declined to comment on the overhaul beyond what Braham said in a statement yesterday when he thanked Pugh and said that the firm wanted to streamline management and reduce the number of hours spent on management activities.