Last week it was reported that a Freehills executive counsel, Teresa Torcasio, and a partner, Steven Kerr, had defected
With all these lateral partner movements afoot, it should be little surprise that Freehills is currently undertaking a strategic view of its business and is rumoured to be closely considering changes to the way its equity points are allocated amongst its partners. However, we were surprised the hear that as part of this strategic review, the severing of the firms Employment practice was apparently mooted. An anonymous Freehills spy sent us the following email:
Freehills ER Group separation talks collapse after public announcements to press and staff. In an embarrassing turn around, ’outgoing’ CEO Gavin Bell and joint CEO ’boomerang’ Mark Rigotti have advised the Freehills partners that the separation of the highly profitable ER Group will now not take place after the management team and the ER partners failed to agree financial terms. This has left behind anger in the Partnership, with many Partners asking why $100’s of thousands of dollars have been spent on consultants and external legal advice during the process? After the initial public announcements there are no similar plans to announce the U-turn. What’s next guys?
We asked Freehills whether the firm is considering splitting its employment group from the remainder of the firm (similar to its tax group) at the behest of a group of partners within the employment group. We pointed out that the relevant partners allegedly feel that the group currently shoulders an unfair proportion of firm’s annual budget and the (highly profitable) partners responsible don’t consider that they are remunerated commensurately with that burden. We also asked for confirmation that external advisors had been called in to consult and generally advise on the split. A spokesperson for Freehills said:
It is normal practice for an organisation to regularly review its operations and Freehills is doing this. However there is no current plan to split off the Freehills ER Group.
Note the very lawyerly use of “current” in the response. There might have been plans last week, but if they have now been abandoned (consistent with what our tipster says), then they are no longer “current”.
The corollary of being a non tightwadded firm like Freehills is that profit margins are invariably lower than those of competitor firms. We regularly applaud Freehills for taking a more “human” approach with its junior staff – we thought this was especially the case during the GFC (it managed to retain most staff) and it led to its victory in the 2009 Firm Spy Corporate Firm of the Year – but it seems clear that at least some members of its partnership are bent on dehumanising the firm for the sake of a few extra dollars. We urge incoming Chief Executive Partner Mark Rigotti to keep the working-lives of junior staffers in his thoughts when considering any structural changes to the firm.
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There is just no way that Freehills’ I&R group is more profitable than the firms’ corporate and banking divisions.
Big firms who thought they were practising next to the Brooklyn Bridge and not the Harbour Bridge are and will be looking at ways to manage out underperformers and keep over performers in a far more focused way than before. GT’s cannibalistic model (apparently being aped by incoming Magic Circle firms and mid-tiers with an ill-defined concept of how to improve “brand”) has re-defined the rules, as unhappy stars can now head there with long tail guarantees of high incomes. Collegiality, loyalty and culture will remain the clarion calls for the others, but those rubber bands are stretched a long way and are breaking. Good luck if you are trying to break in.
Defection of Neil Pathak is going to sting Freehills’ Melbourne office. But at least they still have Rodd Levy.
Appears that T+G also managed to poach Tony Bancroft from Mallesons’ Sydney office.
Stop the civil war when English firms have already sailing to / arriving on Aussie soil!
I believe John Tuck left Freehills years ago. His move to Corrs was from DLA, a quick look at his profile on the Corrs website states as much.
Not a central point in the article but pretty sloppy reporting Firm Spy.
All correct except the bit about the Employment Group being highly profitable. If it was, there is no way on earth how Freehills would agree to a spin off. The Employment Group there is highly successful in terms of its client list, but as an advisory practice it struggles to meet the revenue targets required by the firm – just like tax which is also mainly advisory. The partners of the employment group want to be in a separate firm to alleviate all the pressures on them to make ever increasing revenue. They also want to make up more partners but cannot get approval for it under the current Freehills model. Freehills is driving a review which will require each partner to speak for at least 3 million in revenue per year. Partners in the employment group would be no where near that target hence all the strategic reviews and options being looked including a spin out.
@ Anonymous (17/3/2011 1:39pm)
Thanks – post updated. This raises an even bigger issue – did John Tuck defect from DLA Phillips Fox because of the impending merger with DLA Piper? If so, that’s 11 defections by our count.
@ Rob B
Thanks for the insight. This clearly makes more sense. Our info was that a group of Freehills partners was/is militating for a change to equity distributions based on upwardly revised partner revenue budgets. Given that we had also heard that the ER group was/is seeking to be excised from the broader Freehills, we assumed its (industry-leading) practice was also home to the same partners seeking upward budget revisions. Good thing we’re not journos who get paid for this crap!
@anonymous – ‘Defection of Neil Pathak is going to sting Freehills’ Melbourne office. But at least they still have Rodd Levy.’
One day Rodd Levy will leave Freehills. So will Tony Damien. And Phillipa Stone. And Rebecca Maslen-Stannage. And Robert Nicholson. And Baden Furphy. And all the other star M&A partners. Not possible? Think Braddon Jolley circa 2008.
The article fails to mention the defections of McGushin & Harding-Farrenberg.
@stallone . Think Braddon Jolly circa 2008? If you dig a little deeper you will find the firm was pretty delighted when Braddon moved on. Together with John O’Sullivan (who left to go to CBA some years ago) they certainly billed a lot but at the same time, due to ego issues they created a lot of unhapppiness in the business. Both gone and people a lot happier. Did Freehills implode without their 2 biggest billers? No – profits went up; the sun rose the next day and the world didn’t end. They have a deep of bench of talented M&A partners and they are well rewarded. Speaking of de- merging ER – they would really like to de-merge half the firm!
On the comment above that “one day”, the star corporate partners of Freehills will leave, I don’t think it’s that simple.
These partners must already be well remunerated (and must expect that to continue) otherwise they would have left years ago.
This leaves the following as being key drivers for these stars (some day) leaving:
* inability to make up new partners / keep a loyal team around you because there is no more room at the top (or so says management)
* increasing frustration with law firm bureaucracy and “corporate” reviews like the one that Rigotti is charged with completing (i.e. frustration with bringing in all of the dough and having an “executive partner” decide how it is best spent)
* conflicts preventing the star partners from doing the work they want to or are renowned for
Where would these stars walk to?
Mallesons / Allens? For what reason? The situation there would be no doubt the same and egos on both sides could make such a move impossible.
Gilbert + Tobin? For more money? Only if they could take their team with them and not lose the deal flow because of conflicts, panels lists or G+T not having the infrastructure to support the work that they do. (Also heard through the grapevine that G+T is concerned about it’s “culture” given the number of lateral hires and the recruitment of senior lawyers stemming the progression of G+T lifers)
In the short term, I think we’re more likely to see the next breed of stars leave Freehills – these are the senior senior senior associates who have been waiting loyally in the wings, performing at a partner level for years without the pay or the recognition, desperate for that tap on the shoulder.
It’s my understanding that Rigotti’s restructure is focused on making sure there is room for these people rather than ensuring the current stars can afford another extension to the beach house. Part of that involves slicing out the less profitable sectors of the firm which are important in terms of providing the “full service” that clients demand, but really impact on games of marco polo in the equity pool.
All the firms are on the same rollercoaster, just in different carriages. I’m at a mid tier firm which is struggling to maintain its commitment to the work/life balance mantra while ensuring partner profit continues to grow.
Cash is beating culture – shock / horror.
Jim82 has hit the nail on the head. Everything here is about keeping the M&A ‘stars’ happy right now
Agree with most of the posts above….. I think that the high billing partners are very frustrated by those not pulling their weight, but I also think there is less tolerance for bad behaviour too…. some of those partners (and everyone who works there knows who they are) are starting to be held accountable for the turnover in their teams which can only be a good thing.
The focus of the restructure is not really about retaining the senior SA’s. Freehills have a history of pushing their top SA’s through to the partnership and removing partners in order to create space for them (cf Mallesons). Rigotti’s restructure is all about one thing – increasing profits to get closer to $1.5million per partner rather the current circa $1million. The firm’s profits are flat lining and have done so for about the last 4 years. At a cost to income ratio of around 50%, that why they want 3 million per partner revenue, which means anyone in an advisory area (superannuation, employment, tax etc) or a “commercial’ area (aka Steve Kerr who already left) is in danger, as well as several corporate partners promoted in the boom times and who are now struggling. As in any era where a firm stops growing the revenue line, the larger billers start crying about how they contribute a disproportionate amount to profits. This exercise is in direct response to that bleating.
Like the picture – very suggestive! But the story is flimsy, not much substance except for one anon spy who may just be stirring without some corroboration which FS does not have.