The Genesis

In November last year, the Firm Spy reported that Clayton Utz had appointed Darryl McDonough as the new CEO of the firm. At the time, we reported that McDonough’s appointment very much came to the chagrin of some Clutz partners. An excellent Clutz spy told us the following:

“one of the senior lawyers has heard that [Clutz board member] Linda Evans told the partners at the AGM a week ago that she wanted the firm to change its size and shape. Apparently some partners think this is code for dumping 30 to 40 partners”.

The Firm Spy understands that Evans was instrumental at board level in securing McDonough’s appointment. Very soon after this appointment, the Firm Spy understands that a number of Clutz partners began looking for employment opportunities with competitors.
In a major scoop, The Australian yesterday reported that some 14 Clayton Utz partners from the Sydney office have defected to Allen & Overy, heralding the arrival of the first Magic Circle firm in Australia. Initially, the 14 Clutz partners will be joined by a Freehills partner, a former Freehills (joining from JP Morgan) and a former Clayton Utz partner.

One partner making the move told AMLaw that:

 ’the plan grew out of unique circumstances - the dissatisfaction key players felt with management succession at Clayton Utz - and was unlikely to be replicated by other Magic Circle firms any time soon.’

The Comments

Among a number of insightful remarks received by the Firm Spy last night were the following comments from an anonymous Clutz spy:

“I notice that the major legal publications have failed to report on the number of other fee earners and support staff who are set to accompany the departing Clayton Utz partners. I know of at least 10 Clayton Utz senior associates who also be heading to Allen & Overy, in addition to more than 15 lawyers. Initially, it is rumoured that the new offices will be run ‘lean’, so we won’t lose a proportionate number of non-fee earners.”

And then this, from another anonymous Clayton Utz spy in response to Clutz Chief Executive Partner David Fagan’s comment that “Clayton Utz is [still] in excellent shape”:

“I would characterise CEP Fagan’s comment that the firm is still in good shape as delusional. We have lost a major portion of our corporate practice. Partners, senior associates, lawyers and, no doubt, support staff are gone. The engine of the most prestigious group in by far our most prestigious office is now, sadly, a hollow shell.”

The New Numbers & Losses

Among the departing Clayton Utz partners are the following heavyweights:

• Corporate Group Managing Partner Michael Reede;
• Banking & Finance Head Grant Fuzi;
• Real Estate Practice Leader David Wilke; and
• Perth Office Head Geoff Simpson

Supposing the rumoured number of total lawyer departures foreshadowed by our anonymous spy above is correct, Clayton Utz will soon have about 40 less fee earners. Putting aside the comments of the anonymous Clutz spies above, the impact of the departures is clear when considering several statistics reported by the Firm Spy last year:

• Estimated revenue per lawyer = $560,000.00 x 26 = $14,560,000
• Estimated revenue per partner = $2,260,000 x 14 = 31,640,000
• Clutz revenue grew by 4.9% in 2008/2009 to $491,000,000
• $491,000,000.00 - $46,200,000 = $444,800.00. This equates to a revenue loss of about 9.3%.

Is this a firm in “excellent shape”, or is CEP David Fagan afraid to speak his mind?

Compelling Reasons to Leave Clutz

The catalogue of reasons to leave Clayton Utz is probably too large to mention here. However, some major reasons are listed below:

• the firm is embroiled in an ugly spat with a former employee, presently making its way through the courts, in which it is alleged he was the subject of sexual harassment whilst working for the firm;
• the Firm Spy obtained photos rumoured to by of the Clayton Utz Christmas Party depicting lawyers cross-dressing with sex dolls;
• Clayton Utz apparently has an inordinate number of disillusioned junior staff; and
• a new, shocking rumour received yesterday by the Firm Spy (about which we will report more when we know more - at this stage it is unsubstantiated) that the ATO’s Operation Wickenby has a very keen focus on the firm with charges rumoured to be in the offing.

The Newcomer

Speaking of the major expansion, A&O senior partner David Morley said:

“The Australian market has become much more linked to the Asian and global economy. We see much more inbound and outbound work and that creates an opportunity for a global firm like us that can provide advice seamlessly. We are not envisaging a huge presence in Australia. We think this is the right strategy for us because we are targeting the high-end work and especially the cross-border work.”

It is understood that A&O intends to open offices initially in Sydney and Perth. The move comes after the January 1 Norton Rose merger with Deacons, and reports that US firm Jones Day intends to double its partnership from 25 to 50 in its Sydney office. The arrival in Australia will take A&O’s number of Asia-Pacific lawyers to 360 across 8 offices. Allen & Overy has more than 450 partners and about 5000 staff globally, populating its 31 offices in 22 countries. A&O is the fourth largest UK firm by revenue. Last year it cut 450 jobs worldwide - including 47 partners - in response to the GFC.

Stay tuned for more details, the details you want to hear, as they come to light.

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