Having staved off the threat of mass defections from the corporate practice three years ago, Rowe & Maw posted record profits this year. But, says Saira Zaki, the firm is still a long way from securing its place in the City’s premier league
“Frustration at the firm’s lack of strategy and direction” was just one of the reasons given by sources close to Rowe & Maw when a group of corporate partners led by rainmaker Paul Maher nearly left for Clifford Chance in August 1998.
In the end only one of the five rebels, EU partner Simon Baxter, went ahead with the move. But Rowe & Maw was forced to bend over backwards to accommodate their demands to persuade them all to stay.
The reality of the changes that followed was the emergence of a new generation to take the firm forward. The equity was modified to reflect individual partner performance. Sources say that Maher, one of the firm’s biggest billers, nearly doubled his financial package, although he denies this.
Maher, a ferociously hardworker, was also put in charge of the corporate practice in recognition of his client-winning ability and ideas on how to take the practice forward. He was also installed on the board to recognise the contribution of corporate – then and now responsible for about 37% of the firm’s fee income.
The overhaul in the structure of the firm continued 18 months ago after partners voted to give the decision-making process to the practice groups. Managing partner Andrew Carruthers stepped down. The firm implemented changes to create a more business-focused identity with the setting up of a new board comprising the heads of department.
This replaced the much wider based board made up of random partners elected by the partnership. The point was to create unity between the practice areas and secure better representation for individual groups. The firm also focused on core areas. This included turning its back on private client work after the departure of Richard Powles, a former managing partner, who joined Farrer & Co 18 months ago.
As a further sign of its primary commitment to litigation, property, banking and corporate, the firm also effectively discarded its aviation and travel group by not replacing Mark Henrick when he left to join Baker & McKenzie.
At the same time the firm became increasingly sector focused, pushing its experience in the chemicals and materials industries as well as media, industrial products and telecoms.
Three years later, partners at Rowe & Maw admit that there is still a long way to go before the firm attains its goal of a full service international law firm. But it has created a much leaner business, which it hopes will help it move faster as it continues to play catch-up with its rivals such as Ashurst Morris Crisp and Macfarlanes.
Getting into shape has already led to a marked improvement in the firm’s financial performance. Like most firms its profitability has increased in successive years, culminating in 40% growth for the 2000/2001 financial year.
This year, average profits at the firm are about £400,000 compared to £320,000 the year before.
A better measure of the firm’s success is whether the fees per fee earner have increased beyond last year’s average of £220,000, a figure the firm will not release.
The reasons for the improvement in profits are twofold. The past 18 months has seen the firm undertake a cost-cutting exercise while, in a buoyant market, an increasing level of business has been brought in.
The corporate department, for example, used to rely heavily on the former Thorn EMI for work; now clients include Reuters, Astra Zeneca, ICI and Unilever. And in the last few months alone the firm has bagged instructions from engineering company Smiths Group and defence group Marconi.
Although the firm is not primary corporate adviser to either – both are clients of Allen & Overy – they are nevertheless important wins. The firm has made some headway in its bid to become the first choice to FTSE companies after the magic circle.
Litigation and property have also seen their own successes. The firm says fees from litigation have risen 25% per year since 1998, helped largely by clients including Bank of America and Monsanto. In property particularly active clients include Nationwide, Unilever and the Football Association.
Outside of fee earning the firm has also demonstrated entrepreneurial spirit. Last year on the IT side it announced it had become the first firm to sell its internal know-how over the internet to clients through its KnowMaw knowledge management system.
It is too early to tell whether the venture has turned a profit, but according to comments made
to Legal Week’s sister magazine Legal IT by general counsel, it has been warmly received.
The firm has grown through taking lateral hires, principally in property and banking. They include ICI deputy general counsel Bob Peters, who joined the firm last year. The number of partners at the firm is now 80 – a growth of 14% since August 1998.
This year, however, Rowe & Maw announced that it had implemented a promotions freeze and would not make up any new partners in the first round of this year.
At the time Maher told Legal Week the reason for this was to offset past rapid promotions. He vehemently dismisses one assertion that the move was a warning shot to under-performing partners that they would be the next targets of the cost-cutting campaign.
But insiders at the firm admit that it has carried out managed exits to free up the equity as part of its strategy to become a leaner business.
Although the domestic practice has improved since 1998 there is still a long way to go. A gulf still exists between the firm and the magic circle – the firms that still advise on a large share of work that Rowe & Maw feels it is capable of doing.
Many observers still believe Rowe & Maw continues to lag behind City rivals such as Macfarlanes and Ashurst Morris Crisp – the two firms Rowe & Maw most aspires to be like.
The biggest issue is the firm’s lack of an international network – the main casualty of it focusing limited resources and time into building up London over the last few years.
After adopting a Slaughter and May-style ‘best friends’ policy, Rowe & Maw has a one-partner office in Brussels.
Only recently has the firm made any significant moves towards committing itself to a much wider scale internationally.
Last Week Legal Week revealed that the firm was holding talks with 12-partner Paris firm Armand Boedels et Associes and Milan firm Traverso e Associati about a potential alliance.
Corporate partner Peter Dickinson says it was not that the firm was disinterested in expansion but more that it has been a victim of losing out in what can only be described as a frenzied market. “For a firm of this size, what
we have been able to do has been limited,” he says. “It was difficult to persuade some overseas firms that we were better than our rivals.” Dickinson also admits the firm did not pursue its overseas policy aggressively enough.
The biggest casualty of this was when its German alliance firm Luther merged with Andersen Legal. The firm also lost the special relationship it had with its other alliance firms, including Swedish firm Cederquist, Danish firm Plesna & Lunoe and Dutch firm Buruma Maris – now part of Houthoff.
Even if talks in France and Italy succeed the firm will still not have any presence in Germany, although the firm is talking to partners over there. There is even talk within the firm about opening a greenfield office.
Nevertheless, about 17% of the firm’s turnover came from overseas last year – mainly from the US. Rowe & Maw has connections with firms including Davis Polk & Wardwell and Chadbourne & Parke.
It hired US consulting firm Levick Strategic Communications last year to raise its profile in the US legal market to gain valuable referral work in sectors such as telecoms and media.
Other initiatives include the firm joining the pan-European employment alliance, Ius Laboris, comprising six other firms including Spanish firm Sagardoy & Abogados and French firm Barthelemy & Associes.
Meanwhile, Maher claims the firm’s worldwide relationships have served them well. “We have relationships with firms all over Europe and the US should we need to call on them,” he says. But there is no doubt the likes of Ashursts are well ahead in building a network.
Ashursts’ investment has led the firm to build offices in Frankfurt, Madrid and Milan. While Macfarlanes remains more aloof it
also proclaimed Germany’s Noerr Steifenhofer Lutz as its best friend.
Rowe & Maw has tried to achieve a best friends policy. But one source says: “They have ended up sleeping with everybody and now no-one is interested.”
Adopting and executing a clear international strategy is only one challenge the firm faces. Issues back home remain equally pressing. Among these is the need for the firm to build its banking and projects practice.
Although the firm recently took Eversheds banking partner Simon Pullen in April more top-level hires are the only way to build a more credible practice.
One of Rowe & Maw’s leading clients sums up the reality of the firm’s banking practice: “I use the magic circle for debt work. I am nervous about using Rowe & Maw for this kind of work. I do not know if it has the strength and depth in banking.”
This view is shared by another client, who says: “The ability for the magic circle to produce carbon copies of their best partners has always been their strongest point.”
Rowe & Maw’s Dickinson agrees that banking and finance as one area where the firm has yet to achieve critical mass. But, he adds, the firm is on track to build on these crucial areas now that London is a better-run and more profitable business.
He does not refute the suggestion that all of this strategy has been built around priming the firm up for a merger.
“There will always be a need for quality independent firms,” he says “but we would not rule out a US or European merger.” The firm has also talked to domestic firms over the years including Eversheds, Stephenson Harwood and Taylor Joynson Garrett. Even Olswang expressed interest in taking a part of the firm about two years ago.
But as well as giving the firm flexibility, it is this openness to ideas – or put another way, the inability of the partners to present a clear strategy – that represents the greatest threat to Rowe & Maw.
As a result, the firm has lost some key partners including Arundel McDougall, the firm’s former head of litigation who is now at Ashursts. While Mayer denies there are any tensions within the firm, one source says there used to be a saying at Rowe & Maw that the firm was “held together not by its partnership deeds but by leases on its
buildings.”
What really binds a partnership together is a common purpose and a clear sense of direction. Rowe & Maw was rightly confident enough of its quality to tout its wares in the most public way at the World Cup qualifying match between England and Greece, under the slogan “lawyers for business”.
But like the England team until recently, it still comes across as a firm with no clear idea of where it is heading.
