Poor leadership and a reluctance to deal with longstanding issues were the key factors behind the collapse of King & Wood Mallesons’ European arm (KWME), according to a survey of London partners by sibling publication Legal Week.
Following KWME’s long-expected move into administration on Jan. 17 last week, Legal Week canvassed partners for their views on what went wrong at the legacy SJ Berwin business.
The survey, which received more than 100 responses, found 50 percent of respondents cited poor leadership, with 50 percent citing a reluctance to deal with longstanding issues and 45 percent citing partner self-interest. Respondents were able to choose up to three options from a list of possible factors.
Other factors mentioned by respondents included poor post-merger integration of legacy SJ Berwin into KWM (32 percent). Poor communication from management to partners about the extent of the firm’s problems was cited by just 14 percent of respondents, suggesting a view that partners were well aware of the issues before they became unresolvable.
Sixty percent of those taking part said that if these issues had been dealt with, KWME could have been saved, with only 3 percent saying that the administration was inevitable.
Longstanding issues for London-based SJ Berwin included chronic undercapitalisation, a lack of integration with the wider firm following the 2013 merger with KWM, and an aggressive, sharp elbows culture long-prevalent among partners at SJ Berwin.
Former Clifford Chance managing partner Tony Williams, now principal of legal consultancy Jomati, said: “The issues at the firm in terms of practice areas, culture and finances predated the KWM combination, and the verein structure did not address them. A lack of decisive leadership enabling the firm to address these long-term issues was the underlying cause.”
“The business failed because it was undercapitalised. When management sought to persuade partners to put money in and put the business on a proper capital footing, nearly 80 percent said no,” said Ronnie Fox, principal at specialist employment and partnership firm Fox. “What they were actually saying is: ‘We don’t have faith in management, that’s why we are not going to invest.’”
Referencing the level of partner self-interest at the firm, one anonymous respondent commented: “SJ Berwin was a one-generational law firm—the old boys always looked after themselves and only [former senior partner] David Harrel managed to keep the greed in check.”
Another said: “The problem is that SJ Berwin was the opposite of a ‘one firm’ firm—no shared values, the absence of a collaborative approach; just a collection of individuals batting for themselves and not others. There was no ‘glue’ of the type found in most truly successful firms.”
When asked who was most responsible for the demise of the SJ Berwin business, participants provided mixed responses. Thirty-one per cent blamed KWM’s firmwide leadership, with 30 percent suggesting SJ Berwin management prior to the KWM merger was most responsible and 25 percent blaming SJ Berwin management after the 2013 merger. Only 12 percent said KWME partners were the most responsible.
The results come after KWM’s China management recently attributed the failure of the business to poor leadership and a lack of consensus among European partners, in a statement to clients shared widely on social media.
Fieldfisher managing partner Michael Chissick said: “I think that the partners could have saved the firm – they had various chances to, and it’s a shame that they couldn’t find a solution. As a professional services firm, you are duty bound to put clients and staff interest first. That doesn’t seem to have happened.”
One survey respondent said: “SJ Berwin was over-reliant on a collection of big name partners who: (i) happened to be active in areas where other UK and US firms were aggressively looking for laterals; and (ii) were a bit maverick and hadn’t institutionalised their clients. Once those exoduses started to happen, there was a snowball effect, following which the firm was a fatally impaired asset.”
Turning to more recent events, 41 percent said the administration process has been handled “badly” by the firm, with a further 31 percent saying it had been handled ‘very badly’. One sole respondent said it had been handled well, with 13 percent saying it had been handled ‘as well as possible’ and 15 percent “adequately.”
Looking ahead, more than half of respondents said the prospects for KWM China’s new European business are “poor” (55 percent), with a further 14 percent saying “very poor,” while 23 percent said “OK.” Just 6 percent described the outlook for the new business as “good.”
In terms of any wider reputational issues, 45 percent thought the collapse of KWME would have ‘a moderate impact’ on the brand in Asia and Australia, while 32 percent thought it would have “little impact,” 17 percent thought ‘a major impact’ and 6 percent thought ‘none at all’. In addition, 79 percent thought KWM can no longer be viewed as one firm in light of the events in Europe.
The survey also found that 73 percent of respondents think there will be more major UK law firm administrations in the next one to two years.
As one survey respondent observes: “We are in the early stages of what I believe will be a massive restructuring of the high-end legal market. Inside counsel is attempting to commoditise legal work. If that happens on a major scale, what will be left is a small group of elite firms providing services for which clients will be willing to pay a premium.”
In numbers: key survey findings
- 72% – percentage of respondents saying the administration has been handed badly or very badly
- 6% – percentage believing prospects are good for KWM China’s new European business
- 73% – percentage believing there will be another major law firm administration within two years
- 79% – percentage who believe KWM can no longer be viewed as a single firm
- 55% – percentage holding the legacy SJ Berwin leadership pre and post KWM merger most responsible
- 45% – percentage citing partner self-interest as one of the top three reasons for the collapse
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