David Morley is a man on the go. The Allen & Overy senior partner spends a full six months touring the Magic Circle firm’s fast-growing international network each year. His relentless travel schedule dictated that the interviews for this feature take place via videoconference from the firm’s Tokyo office. (It also explains why the accompanying photographs show an English, London-based head of a U.K. firm posing in New Delhi, India.)
“I’d rather be at home,” says Morley with a tired sigh as we sit down this fall in front of screens that are eight hours and 6,000 miles apart, “but nobody ever got anything done just waiting behind their desk in London.”
His current travel is so extensive that it’s practically a secondment. In mid-September, Morley flew east for a two-month trip. Using the firm’s Singapore office as a base, he’ll visit A&O’s outposts in Japan, India, China, Hong Kong, the United Arab Emirates, and Australia.
The sojourn follows similar jaunts to New York in 2008, when he spent three months investigating business opportunities shortly after Lehman Brothers Holdings Inc. went under, and to the firm’s five offices in Germany, where he stayed for two months last year.
“It’s important to get around and meet people in person,” Morley explains. “If you just make a flying visit to an office, everything has been polished up for your arrival. That polish only usually lasts for about 48 hours, so if you stick around a bit longer, you see what’s really going on.”
Since taking over as A&O’s senior partner in 2008, a role that places him in charge of the firm’s overall strategy, Morley has spearheaded a program of rapid international expansion. He has transformed the 2,500-lawyer firm from one known for its reticence—earning it the moniker Allen & Overcautious—into an established member of the global elite.
Under Morley, A&O has opened 11 new offices in the past three years alone. The launches, including the controversial relocation of 180 back-office staff to Belfast and equally ambitious moves in Australia and Morocco (the latter is the first permanent base of any Magic Circle firm in Africa), have increased A&O’s total number of offices by almost 40 percent. The firm now has 39 outposts across 27 countries. (The next most internationally extensive Magic Circle firm, Clifford Chance, has 33 offices in 23 countries.) That geographic diversity is paying off. International offices contributed more than 60 percent of A&O’s 2011 revenue. Before Morley was elected, the firm’s 24 foreign offices accounted for less than 20 percent of total revenue. (A&O has not taken on any debt to finance the new offices. Its balance sheet for the fiscal year ending April 30, 2011, which The American Lawyer has seen, shows a cash balance of £106.6 million, or $165 million—up from £91 million, or $141 million, the previous year.)
Morley has overseen a similarly dramatic improvement in the firm’s financial performance. Starting in 2003, when he began his previous job as A&O managing partner, the firm’s revenue has increased 73 percent, to a record high of £1.12 billion ($1.76 billion). Average profits per partner are up 56 percent, to £1.06 million ($1.7 million) over the same period—even with a slight increase in the proportion of equity partners. PPP has been above £1 million ($1.6 million) for the last five consecutive fiscal years [see "The Morley Effect,"]. A&O’s combined revenue and profit growth over the past five years outstrips all of its Magic Circle rivals, although Freshfields Bruckhaus Deringer, Linklaters, and Slaughter and May still have higher average PPP figures.
“A&O seems to have stolen a march on the other international Magic Circle firms of late,” says former Linklaters emerging markets head Nick Eastwell, now a consultant at Central and Eastern European firm Kinstellar. “A lot of that comes down to David and his clear strategy of expansion.”
It hasn’t been easy. Steering the firm through the aftermaths of the 2000 and 2008 recessions has led to some unpopular decisions. Morley has restructured the business twice—cutting head count by up to 10 percent each time—and has faced criticism for damaging the firm’s culture in his pursuit of a more corporate ideal.
The smallest of the four international Magic Circle firms (a category that excludes London-centric Slaughter and May), and renowned for its strength in finance, the 80-year-old A&O traditionally took a more conservative approach to growth than its peers. As its more adventurous rivals began to globalize in earnest throughout the late nineties, A&O stuck slavishly to its core U.K. client base. The firm’s reputation, market share, and financial performance fell behind its chief competitors, and by 2005 it was widely regarded as being the group’s poor relation.
Viewed internally as a more ambitious and dynamic strategist than his predecessor as senior partner, Guy Beringer, Morley came into that role in 2008 fully intending to make up for lost time. When he first presented his global vision to the wider partnership in Barcelona at the firm’s annual conference, mere weeks after moving into his new position, however, many were unconvinced. According to several partners present at the time, serious questions were raised about whether it was sensible to grow at such an accelerated rate, whether the costs could be justified at a time when the firm’s finances were being squeezed, and whether the firm even needed to be in some of the jurisdictions Morley had identified at all. His plans to launch in Australia, which Morley saw as a key step in expanding its presence throughout the Asia-Pacific region, were strongly contested.
“A lot of partners weren’t sure about all these new offices, and Australia didn’t seem like a good idea at all,” says one London finance partner. “It really wasn’t an obvious move for us to be making—it’s a pretty remote market, and one that’s already well serviced by the Australian firms.”
Morley accepts that investing so heavily during a recession involves an element of risk (“but no more so than just doing nothing,” he says). But after what one current partner describes as some “skillful politicking,” Morley didn’t just get the Australian office he wanted—he got two.
In February 2010 A&O became only the second leading U.K. firm to establish operations in the country, opening bases in both Sydney and Perth following the capture of 17 partners from top-tier antipodean firms Clayton Utz and Freehills. (Norton Rose Group was the first—its merger with 530-lawyer Australian firm Deacons took effect the month before A&O’s announcement.)
However, Australian market-watchers say that A&O failed to attract any of the country’s best-known attorneys and that since opening the Australian offices, A&O has lowered its rates to below market norms in an attempt to win work. Morley denies this, saying that the firm has been careful to match market rates for local work. “We always have to be competitive on price,” he explains, “but undercutting the market is not a sustainable model for success.”
The general counsel of one major Australian company, who requested anonymity, says that A&O has done “better than a lot of people expected” since setting up in the country. “They’ve hit the ground running,” the GC says. “Their brand strength has helped them bring in work, and being the only Magic Circle firm with a meaningful presence [Clifford Chance merged with two smaller boutique firms in Sydney and Perth in February] does set them apart.”
In addition to cross-border M&A and finance work, A&O is specifically targeting the Australian energy and natural resources sectors. The firm has already won a number of new clients, including mining companies Fortescue Metals Group Ltd. and Lynas Corporation Limited. Since the two offices opened in May 2010, A&O has worked on transactions with an aggregate value exceeding $40 billion. It recently advised brewer SABMiller plc on its proposed $12.5 billion takeover of independent rival Foster’s Group Limited—at press time Australia’s largest hostile deal of 2011.
Morley says that there was a “start-up investment cost” with the Australia practice, but adds that both offices are now profitable. (“Virtually all” of the firm’s international network is accretive to its bottom line, he says.)
Thomson Reuters Corporation general counsel Deirdre Stanley says that A&O’s international expansion has put it in a “strong position” to receive more work from her media and research company. “We’ve already taken advantage of their expertise in the United States, China, and India, and currently see a lot of opportunities to grow further abroad,” she says. “They are as good as any firm in the market at building relationships across jurisdictions.”
Morley says that the firm “wasn’t firing on all cylinders” when he first took over as managing partner in 2003 from litigator John Rink. With the effects of the dot-com crash still lingering, A&O’s finances had faltered (average partner profits had fallen over 11 percent in just two years), and morale was low.
After personally reviewing the size and shape of the business—Morley says he has never used external consultants for strategic or financial reviews—he concluded that overall lawyer head count needed to be significantly reduced. He spent months personally reviewing every lawyer’s personal utilization rates to see who wasn’t pulling their weight. Those who consistently under performed were asked to leave the firm. A 2005 article by Legal Business stated that six partners and more than 75 attorneys left the corporate group alone, but Morley says that no individual practice was targeted and that the process was “routine performance management.”
Somewhat ironically, the firm was also having trouble retaining associates during that time. Many junior lawyers were being wooed by the higher pay and more predictable working hours at the banks. The lockstep firm was also losing partners to U.S. rivals, who were starting to invest more heavily in the U.K. market. (A&O’s management board recently put together a special committee to review the firm’s reliance on lockstep. The overwhelming response from the 500 partners, who were each interviewed individually, was to uphold the status quo rather than switch to a more meritocratic partner remuneration system.)
Morley’s answer was to offer associates improved career prospects by making A&O the first of the major U.K. firms to introduce a new “counsel” role. He also broke convention to create a new bonus pool for nonpartners. (Such benefits came at a cost, however, in the form of a significant increase in annual billable-hour targets. A&O partners and associates are now expected to bill 1,750 hours a year—350 hours more than when Morley was first elected.)
Morley’s subsequent election to senior partner—the firm’s top management job—meanwhile, was almost immediately followed by another, even deeper recession. Like all firms, A&O dramatically cut costs. Morley once again trimmed the firm’s head count by almost 10 percent, with a total of 450 people—including around 50 partners and over 100 other attorneys—losing their jobs in 2009. The process saved the firm an estimated £44 million ($70 million), but attracted criticism from some partners who felt that they weren’t properly consulted. Others said that Morley’s crusade to make the firm a more corporate-style entity has eroded its culture.
“A&O used to be a great place to work, but all the character has been stripped away,” says one partner who says that he is looking to leave. “Now it’s like an investment bank.”
Morley admits that much of his influence on the firm’s structure and operations has involved trying to make it “run more like a business,” but he says he has worked hard to maintain its traditions and collegiality.
Morley also acknowledges that the wider partnership was not involved in the restructuring process. He says that it would have been impractical—and potentially dangerous—to do so. (He did consult a group of around 20 of the firm’s most senior lawyers, however, including the management board, practice group leaders, and heads of some of its larger international offices.)
“We decided early on that we didn’t want a lengthy process, as that would have led to introspection, competition, and anxiety among the partnership,” Morley explains. “We’ve seen other firms go through that, and without mentioning any names, it’s been disastrous. We knew it was high-stakes—get that sort of thing wrong, and it can be really damaging—and that some people would be unhappy, but as a manager you’ve got to be willing to make the tough calls.”
An A&O lifer, Morley rose quickly through the ranks of the firm he joined in 1980. He started as a trainee in A&O’s real estate group before moving to the general commercial department under banking partner Philip Wood. He embraced the new practice area. “It was like moving from watching a small black-and-white TV to 3-D technicolor surround sound,” Morley says.
Wood, one of the most academic banking attorneys in London (he has published no fewer than 18 books on international finance), said his protégé has a “lightning mind.” Morley “showed enormous talent and promise, right from the beginning,” Wood says. “When I gave him a deal, I didn’t need to supervise him—he just got on and did it.”
Arguably the most significant point in Morley’s career as a banking attorney came in 1998, when The Goldman Sachs Group, Inc., hired him to work on the $8.5 billion financing of British chemical company Imperial Chemical Industries plc’s acquisition of the specialty chemicals business of Unilever. The deal was the world’s first so-called jumbo syndicated loan.
“David was a class act—he just really understood how deals work,” says New Amsterdam Capital Management LLC founder Don Procter, who in a former role as head of banking at S.G. Warburg & Co. Ltd. (now UBS Investment Bank) worked with Morley on the deal. “It was one of the biggest and most difficult transactions anybody had ever attempted, but while everyone else was panicking, he was just coolly getting it done. I’m reluctant to say that he was the best lawyer I ever worked with, but we were in a privileged position where we could pick and choose who we used, and he got more of my deals than anyone else.”
The successful deal saw Morley’s reputation soar—he was promoted to head A&O’s banking group shortly after—and he soon became the first port of call for almost all of the major banks on U.K. investment-grade debt work. And thanks to a sustained boom in European M&A, syndicated loan activity was at an all-time high. (“I wasn’t going home much,” Morley, who is married with four children, recalls.)
Morley went on to advise engineering conglomerate Marconi Electronic Systems (now Marconi plc) on the first ever euro-denominated syndicated loan, and won bank-side work on a series of multibillion-dollar deals—including the £18.75 billion ($29.6 billion) financing of Vodafone AirTouch plc’s acquisition of German telecoms company Man­nesmann, which at the time was the largest syndicated loan in history.
By this stage, Morley was well established as one of the top banking partners in London. According to one well-placed A&O insider, he was also the firm’s single biggest biller, regularly generating more than £4 million ($6.3 million) in revenue each year.
Morley was responsible for practically all of A&O’s biggest banking relationships, managing its ties with Citigroup Inc., HSBC Holdings plc, Barclays PLC, The Royal Bank of Scotland Group plc, and Goldman Sachs. He had even developed an active borrower-side practice—a difficult balance for any finance partner—winning corporate clients such as Marconi and advertising giant WPP plc, which remains a key client of A&O to this day.
With banking the firm’s biggest revenue generator—it remains A&O’s core practice globally—those relationships made Morley an extremely powerful figure internally.
It’s a gray morning in early September, and Morley is once again heading to the airport. As someone who takes around 70 flights a year, Morley is no stranger to international travel. But this time is different.
After being whisked through a special diplomatic check-in and security process at London City Airport, situated just outside the financial district on the northern bank of the Thames, he boards a private charter flight. Also on board is U.K. prime minister David Cameron, the minister of state for trade and investment, Lord Green, and 23 corporate leaders, including the CEOs and chairmen of BP p.l.c., the London Stock Exchange plc, Rolls-Royce Group plc, and Royal Dutch Shell plc.
The select group has assembled for a two-day government visit to Russia, during which time they will hold meetings with Russian prime minister Vladimir Putin and president Dimitry Medvedev to discuss trade and business opportunities between the two countries.
Because of security reasons, Morley had only received the call from 10 Downing Street eight days earlier. It required some frantic rescheduling of his typically crowded calendar. “It took some work to make that happen at such short notice,” he says. “But it’s not the sort of invitation you turn down.”
Indeed, while A&O has had an office in Moscow since 1993, for a law firm partner to be invited on an official trade delegation remains a rare occurrence. (A notable exception are the trips that Clifford Chance’s former senior partner Stuart Popham made to China and India with Cameron and then–prime minister Gordon Brown.)
Morley seems comfortable with the almost diplomatic demands of his role as senior partner, but says that he still misses the buzz of dealmaking. “When you’re a transactional lawyer, your self-esteem is constantly boosted,” he says. “You do a deal. You send a bill—so there’s a very tangible recognition of the value you’ve added. You’re praised by your clients and, in turn, by your partners. Then you get another deal, and the whole process is repeated. It’s like a drug—lots of people get hooked on that. Management is almost the reverse—you have a lot of people telling you what you’re not doing right. That took some getting used to.”
Morley’s current term as senior partner is drawing to a close. He plans to stand in early 2012 for what would be his final term as senior partner, as set out by the firm’s bylaws, which he helped rewrite in 1999.
His time at the top hasn’t been an unmitigated success, but of the 14 current A&O partners interviewed for this feature, all but two said they would vote for him again. “David has taken us from being an international firm to one that’s truly global,” says A&O managing partner Wim Dejonghe, who previously lost to Morley in the firm’s 2003 management elections.
Morley outlined his future plans for the firm to A&O’s eight-partner board and management team during a strategy meeting in September. When quizzed, he would only say that there was “unanimous support for continuing down the road we’re on,” but his current tour of Asia does provide some insight as to where any future growth is likely to be focused.
Morley’s previous trips to New York and Germany were followed by aggressive expansion in both markets—he describes the visits as “a signal for the partners of where our priorities are”—so it’s safe to assume that A&O will be among the many firms looking to ramp up their presence in Asia in the coming years. The firm would even be open to the prospect of a U.S. merger—”if the right prospect was to come along,” he says.
“We’re breaking a lot of new ground, but it’s a fine balance between moving forward decisively and making rash decisions,” he says. And with that, Morley’s gone. With over a month of his grand Asian tour still to go, and after just two days in Japan, he’s got another plane to catch.