Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
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1. Retaining star performers: Ashurst approves new remuneration structure
In a bid to steady a seemingly unsteady partnership, this week saw Ashurst vote in changes to its remuneration structure to better reward strong performers and encourage collaboration in a time of financial instability.
The changes add an extra 10 points (approx. £150,000) to the firm’s 25-65 point equity ladder and introduce a performance-based bonus pool to reward equity and non-equity partners. The firm will also award greater equity share to salaried partners, boosting the percentage of their pay that is linked to the firm’s profits (although the final ratio remains undisclosed).
This comes at a turbulent time for the firm, which in July announced a 19% plunge in PEP to reach an 11 year low to £603,000. The 2015-16 financial year also saw revenue drop for a second consecutive year following the firm’s merger with Blake Dawson, falling by £28m (10%) to £505m and the announcement that the firm is going to close its Rome and Stockholm offices.
It also follows a period of significant partner exits, with restructuring partner Diane Roberts leaving for Reed Smith, whilst Latham & Watkins hired financial regulation head Rob Moulton and restructuring partner Simon Baskerville. In April, financial regulatory partner James Perry left for Gibson Dunn & Crutcher (reuniting him with former Ashurst senior partner Charlie Geffen) with capital markets partner Jonathan Parry and London disputes head Mark Clarke moving to White & Case. Last week, CFO Brian Dunlop also resigned from his position following three years at the firm.
Changes to remuneration systems in order to better reward, retain and attract dealmakers has been utilised by many UK firms in recent years in order to compete with the aggressive growth strategies employed by US firms in London.
Last year saw Freshfields break its lockstep to bring Kirkland & Ellis high-yield star Ward McKimm to London, following tweaks passed in its remuneration in 2014 and 2012 to attract high performing partners in New York and Asia. Clifford Chance also voted through proposed changes to its lockstep, stretching the top of the ladder by 15-30 points in order to retain star performers.
Similar wars in pay have been seen more recently at the associate level in both London and New York following Cravath’s decision to increase first-year associate pay to $180,000 (£124,000) – a move adopted by many US firms for their UK associates also – with Allen & Overy, Clifford Chance, Freshfields and Linklaters raising associate salaries in New York whilst also increasing their associate compensation levels in London.
Questions remain as to whether these changes to remuneration will be effective in retaining and attracting the partners needed for Ashurst to recover its financial performance. Will increasing the equity ladder and introducing a bonus pool be enough to create the sufficient buy-in and collaboration from partners if the firm remains unprofitable compared to its US peers?
Whilst the tide of change in London’s legal market continues to rage with never-ending US raids on leading UK firms, and the added challenge of how Brexit will impact future business, the ability for firms such as Ashurst to recover their standing and reputation in London and adapt to the new European landscape will be vital if they are to continue to challenge at the highest level.
2. Och-Ziff face fourth largest ever FCPA settlement for bribery scandal
Och-Ziff are preparing for a hefty financial sanction by adding $214m to its reserve for a settlement with the Foreign Corrupt Practices Act (FCPA).
Och-Ziff, one of the world’s largest hedge funds, has been under investigation by the US Department of Justice (DoJ) and US Securities and Exchange Commission (SEC) since 2011 for possible violations of the FCPA, the most widely enforced anti-corruption law. The investigation is exploring alleged bribery of Libyan and other African government officials in exchange for investment in Libya’s sovereign wealth fund.
The $214m added reserves for a settlement brings the total to $414.3m which, if enforcement action was indeed taken, would make it the fourth largest penalty in history by the FCPA and the second largest imposed on a US company.
The hedge fund has incurred some serious consequences as a result of the scandal, posting a second-quarter loss this week of $184.3m and, once again, failing to pay out a dividend to investors. News that the investigation may be coming to a close has, however, caused Och-Ziff’s share price to rise by up to 15 per cent.
Goldman Sachs announced this week plans to liquidate their Och-Ziff run multi-strategy fund, which will amount to a $350m loss of investment for the hedge fund. Och-Ziff head Daniel Och spent a decade at Goldman Sachs, after which he retained a long-standing relationship with the bank, bringing them in as one of the hedge-funds biggest clients. Losing this investment is just further cause for concern for Och-Ziff, as clients have withdrawn $3.1bn worth of investment from their funds in the last 12 months.
During the investigation, the DoJ and SEC have been particularly focused on former London-based head of European investing Michael Cohen, who also managed Och-Ziff’s African investments. Cohen oversaw a fee paid to a London middleman, who had close ties with Gadhafi’s spy chief and subsequently passed on some of the fee to a Tunisian broker connected to Gadhafi’s son Seif al-Islam. Och-Ziff has commented that they were unaware of parts of the fee being passed on to anyone else.
Last year DoJ and SEC, along with the FBI, voiced their plans to increase enforcement in foreign corruption and bribery, with the Wall Street Journal reporting 10 new hires into the FCPA unit of the DoJ.
This could be one of the first of many cases within the funds space as we see the regulatory and financial crime microscope slowly shift from banks to funds. Investment banks have significantly bolstered their anti-bribery & corruption teams in recent years and continue to do so amid increased scrutiny and high fines. Moreover, when the FCA release their findings from the asset management review at the end of 2016, it will be interesting to see which areas are most exposed to future financial crime failures and how this will affect the need for extra resource.
Appointments
Freshfields appoints global head of finance
Real estate finance partner Simon Johnson will become the next global head of finance at Freshfields Bruckhaus Deringer as David Trott leaves this post in September
New London managing partner at Bakers
Baker & McKenzie has elected tax partner Alex Chadwick as the next managing partner for their London office, replacing Paul Rawlinson who will become global chairman of the firm
Moves
KWM makes real estate hire in Paris
White & Case senior associate Guilain Hippolyte joins King & Wood Mallesons’ Paris office to sit in their real estate practice as a partner
Lathams gains finance partner from Slaughters
Latham & Watkins has made a City hire with Sanjev Warna-kula-suriya, a structured finance partner from Slaughter and May.
Quinn Emanuel sets up London white collar practice
Robert Amaee exits Covington & Burling, moving to Quinn Emanuel Urquhart & Sullivan to head up their new white-collar and corporate investigations practice in London
A&O expands IP practice
Allen & Overy has brought in Simmons & Simmons head of intellectual property Marc Doering in London
Olswang loses telecoms head
Head of telecommunications at Olswang in London Purvi Parekh leaves the firm, with her next move unknown
Mergers & Alliances
Osborne Clarke launches Singapore offering through association with local firm Queen Street Legal