Hello and welcome to the Fides Weekly Update. Here we provide you with a breakdown of this week’s key moves, news and developments in the legal market.
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1) Magic Circle overhaul lockstep
Freshfields Bruckhaus Deringer and Clifford Chance featured in the news this week in relation to their partnership remuneration models. In Tokyo, Freshfields saw the introduction of an alternative lockstep ladder that will run parallel to their existing lockstep. This serves as a means to recalibrate less productive partners or those who are in markets that are not as profitable, and will prevent partners from reaching historically high levels of remuneration. The new lockstep runs from 15 to 30 points, and is likely to affect a quarter of partners globally. Clifford Chance has also announced that it has launched a review to assess a possible move to a full equity partnership. This has again sparked speculation in the news of an overhaul in remuneration, especially the models operated by Magic Circle firms and the trickle-down effect this will have on the rest of the industry.
Other modifications to remuneration include creating additional bonus facilities to compensate top performing partners. This has become increasingly common amongst the top UK firms, with Clifford Chance introducing superpoints to their remuneration system whilst Linklaters plan to introduce gates within their equity structure. Although all these firms consider themselves to be true lockstep firms, these tweaks to their models imply a gradual move towards a merit-based pay system may be underway.
The level of competition amongst firms has intensified due to the growing globalisation of the legal industry, which signals that lockstep may no longer be sufficient for international firms to both retain and attract star performers in the market. Arguably, for firms with a greater UK presence (e.g. Macfarlanes, Slaughter and May, Travers Smith) traditional lockstep remuneration systems may be sufficient. Despite this, with the aggressive expansion of US firms in London, as shown with recent lateral hires by Baker & McKenzie, Morrison & Forrester and Cooley’s amongst others, a number of top UK firms are sacrificing the rigidity of their structures in order to remain competitive.
2) Probe into Legal Services announced
Thursday saw the announcement that the Competition and Markets Authority (CMA) are launching an investigation into UK legal services. The study will examine the affordability of civil legal services, and consider whether the £30bn industry is providing adequate service to consumers and small businesses.
More specifically, the study plans to investigate if there is effective competition and if consumers are protected from potential harm and whether they are capable of gaining redress when necessary. The study will also consider how regulation affects the competition and supply of legal services. After an initial six-month investigation, the CMA will decide whether to refer the market for a more in-depth tier 2 investigation.
This comes in the wake of recent research conducted by the Legal Services Board, which revealed that one in 10 users of legal services in England and Wales thought they received poor value for money. On the other hand, only 13% of small businesses viewed lawyers as cost effective, with half admitting that they only used legal service providers as a last resort to solve business problems.
It has been 15 years since competition in the legal profession was reviewed by the CMA’s predecessor the Office of Fair Trading, in a report that eventually led to the Legal Services Act 2007. It comes before a government-led consultation, expected to be launched in spring, on removing barriers to entry for alternative business models, and on making legal service regulators independent from their representative bodies.
3) Busy week for DLA
DLA Piper are well on track in their plans to expand their banking and financial services offering after making a slurry of hires over recent weeks. On Wednesday, the firm appointed Andy Kolacki as a partner in their Debt Finance team in London. He joins from Latham & Watkins, having previously worked at Freshfields Bruckhaus Deringer. This hire comes shortly after the announcement that Mark Dwyer, ex-head of Derivatives at Slaughter and May, and Vincent Keaveny, ex-head of Structured Capital Markets at Baker & McKenzie have also joined the firm. The firm have also made an additional hire this week, taking on Simmons & Simmons’ international commercial practice head Mark Dewar.
These hires support the firm’s sector-driven growth strategy, which was introduced in September. Based on factors such as cost-effectiveness, existing client base and potential for growth, increased responsibility has been placed on sector heads to meet KPI’s and drive further profitability within the firm. This has included the announcement of a new co-head of banking & finance Philip Butler, who will sit alongside Frankfurt-based partner Frank Schwem. Spearheaded by co-chief executive Simon Levine, the firm is also looking to expand in Africa having split from its alliance firm relationship with Cliffe Dekker late last year to launch its own office in Johannesburg.
Movers and Shakers of the week:
Barclays appoints new UK/EME GC
Victoria Hardy has been appointed Barclays’ general counsel for the UK, Europe and Middle East region
KWM’s Europe and ME managing partner steps down
William Boss is resigning after one year in his role as managing partner of Europe and Middle East for King & Wood Mallesons, leaving his position in April.
Winckworth Sherwood hire three partners in London
The firm has hired corporate partners Catherine Moss and John Burnand as well as disputes partner Robert Paydon, all from Fasken Martineau.
De Pardieu Brocas Maffei makes capital markets hire
Former Linklaters counsel Jeremy Grant joins De Pardieu as a partner in their Paris office.
Pinsent Masons hire new head of flexible resourcing
Matthew Kay has replaced Pinsents’ Vario founders Alison Bond and Katherine Thomas as the head of Vario.
Ashurst restructuring partner joins Weil Gotshal in Frankfurt
Ingo Scholz has left Ashurst’s German finance practice to join Weil Gotshal & Manges in their global Business Finance & Restructuring department.
Pinsent Masons financial services chief to join Hogan Lovells
John Salmon will join Hogan Lovells as a partner in their corporate practice.
BLP litigation partner to join Squire Patton Boggs
Squire Patton Boggs has hired litigation partner Chris Webber, who has joined the firm from Berwin Leighton Paisner.
Jones Day boost competition capability in Brussels
Mario Todino joins Jones day as a partner in their Antitrust & Competition Law practice in Brussels from Gianni, Origoni, Grippo Cappelli & Partners.
Reed Smith axes 45 lawyer roles across US, UK and Europe
Reed Smith has laid off 45 lawyers across its offices in the United States, Europe and the Middle East, as well as a number of non-legal employees.
See you all for the next Fides Weekly Update!