We understand that you’re probably sick of reading about it - we’re certainly sick of writing about it - so unless something explosive happens, we’ll make this our final post about the Clayton Utz partnership defections to Allen & Overy.

This post clarifies further the Clayton Utz machinations giving rise to the defections. We have extracted some excellent info from the AFR 12/2, shedding light on how former Clutz Banking & Finance head partner Grant Fuzi was the protagonist in the Clutz partnership defections:

It is Mr Fuzi’s history with Clayton Utz, and his long-time association with Mr Trahair, a fellow Australian, that was instrumental in facilitating A&O’s bold and sudden arrival here. As one partner said about Mr Fuzi this week: “The mistake we made was taking him on again.”

Mr Fuzi and Mr Trahair were poached by A&O in 2001, with Fuzi stationed in Hong Kong where according to the AFR he:

learned the ins and outs of A&O’s Asia practice.

 Several years later, Fuzi returned to Australia and to his old firm Clayton Utz. In 2005, speaking of Clutz’s absence in Asia, Mr Fagan told AFR that the firm:

did not see the client demand nor the business case for opening an office in Asia.

The AFR considers that this is a view that may have sat at odds with those who had tasted the global law firm life in Asia.

The AFR went onto note last Friday that:

Mr Fuzi resigned in December, after the announcement of Mr Fagan’s retirement, after a nine-year stint, from the role of chief executive in November. Mr Fuzi was a strong contender to replace Fagan, but lacked the numbers in the partnership vote.

“…obviously if I had been made chief executive partner I would not have left.

Fuzi would not have left if made CEP and, apparently, some of the defecting partners may not have left if Clayton Utz had an bigger Asian presence. If you Fuz snooze on these global opportunities, evidently you lose…

So now we know who, what, when, how and why. That’s a wrap on certainly the biggest Australian legal story of 2010.

Let the Firm Spy - your Firm Spy - know first when the big stories break.

Send the Firm Spy your news and views!

We reported yesterday on the astute comments from an anonymous spy that the A&O foray into Australian soil might do no more than dilute its healthy equity pool. It is, of course, a huge risk. And while A&O risks the dilution of its equity, it appears that the defection may also soon result in a major additional strain on the remaining value of the equity points at Clayton Utz.

This incredible update from an anonymous Clutz spy last night:

I am told that a group of my colleagues, ranging from senior associates to senior lawyers, met privately yesterday to discuss the demands they would place on the Clayton Utz partnership to remain at the firm. I suspect, though I cannot be certain, that the senior associates/lawyers remaining in the affected (defective?) groups will be asking for considerable pay rises. I am not aware that any will immediately be asking to be made up to the partnership, though I imagine this is on the radar for some. I think these lawyers are wise enough to realise that this is a once in 20/30-year event and if they don’t hold the partnership to ransom, they may be “dodged” - as the Firm Spy so eloquently put it - on pay into the future.

This rumour was sent just hours after CEP David Fagan told Lawyers Weekly that Clayton Utz was rapidly regrouping and had announced a number of leadership replacements. He alse told LW that:

It also gives an opportunity to critically review different areas - it makes sense for us to restructure in those areas.

This announcement of a ‘rapid regrouping’ came, however, mere moments after Clayton Utz confirmed that another partner, accompanied by 3 Clayton Utz lawyers, was defecting from its Canberra office to rival Sparke Helmore.

Is CEP David Fagan regrouping or degrouping? Are you a Clayton Utz groupie?

Meanwhile, three of the other mysteries surrounding the defections becmae slightly clearer overnight. Firstly, how can A&O open its offices on March 1 with partners having announced their defection only last Monday? What about gardening leave? Lawyers Weekly very helpfully reported that the relevant defecting partners intended “to retire on May 8”. The 1 March A&O kick-off will therefore apparently involve very little legal work. Secondly, where will A&O be located? The Lawyer reported that A&O would occupy the recently vacated Sydney tenancy of merged Australian firm Deacons. Thirdly, did anyone know about the imminent defections? Lawyers Weekly reported that the Clayton Utz Chairman only became aware of the defection when he took a phone call from an A&O partner announcing that the relevant partners would be retiring. This accords with the information sent to us by an anonymous Clutz spy yesterday:

…what I find most intriguing about this saga is that none of my colleagues here in the Sydney Clayton Utz office had any idea that the departures were about to happen. Many of the junior lawyers were mid-way through the completion of tasks/projects for the partners leaving…

Finally, ALB  reported yesterday that A&O has set a target of 50 lawyers and 20 partners for the Sydney & Perth offices for their first year, rising to 25 partners and more than 60 lawyers in three to five years. This adds considerable weight to the rumours, reported by us that some 25 Clayton Utz lawyers and senior associates will be accompanying their defecting partners.

Send the Firm Spy your news and views!

Following the major coup announced on Monday that over a dozen Clayton Utz partners would be defecting to international rival A&O to establish Australian offices of the firm, Allen & Overy yesterday added a new page on the careers section of its website featuring the following advertisement:

We are looking forward to building our practice in Australia. We expect to have vacancies for experienced lawyers shortly, so please submit your covering letter and CV if you are interested in working for Allen & Overy in Australia. You can do this via the job search function to the right of this page. We will keep your details and will contact you if any suitable opportunities arise.

Soon after this, Paul Quinn from Quintessential Marketing told Smart Company that after a tough year, the sector is booming again:

Anecdotally I know that for recruiters, some of them have had their best month ever in January and had a good result after an ordinary year last year. Recruitment activity is on the rise, which would also flow through into headhunting and poaching.

Meanwhile, Chandler Macleao, executive general manager David Reynolds, told Smart Company last month he had:

already heard of workers leaving for greener pastures… employees may have stayed in their current roles during the global financial crisis because of high unemployment, and have put up with actions they might not have otherwise such as pay freezes.

These comments are to be contrasted with the hallucinations remarks made by Susan Ferrier of AAR a couple of weeks ago that there are, in effect, no jobs out there.

But is there a new talent war? If so, what will this mean for your firm and your pay freeze? By our count, no less than four of the six top tier firms are still enforcing a pay freeze or something closely resembling it…

In relation to Clayton Utz’s loss of key personnel, Dwyer Heath’s director Ted Dwyer told the AFR:

[it must be a] shock to the system… one of the things the major firms pride themselves on is the quality of their people. Any dilution of that base represents a dilution of the strength of the firm, and not only that, but they will take a lot of people with them.

As we reported yesterday, indeed new A&O partners may take other Clutz fee-earners with them - 25 lawyers are rumoured to be leaving. But will they take clients? One astute, anonymous firm spy sent us the following comments yesterday:

I consider the dilution of A&O’s equity to be a major risk that could well come to nothing. Think about it - clients ‘belonging’ to the 14/15 partners leaving the firm may consider that it is currently ‘top heavy’ and that the depth of expertise is lacking. However they may also consider that Clayton Utz no longer has the partnership expertise that their business requires. All of this could mean that other top-tier firms will claim new clients and both Allen & Overy and Clayton Utz will suffer.

So what does all of this mean for Clayton Utz? Is it past its Utz-By Date? One anonymous Clayton Utz spy told us that remaining partners are already seeing the silver ining:

…I cant believe I overheard a Clutz partner joking about how we will make a great saving on tenancy costs. Already!

Send the Firm Spy your news and views!

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.

 Send the Firm Spy your news and views!

Wielding the axe in a fashion that makes our domestic redundancies look paltry, international heavyweight Allen & Overy has announced that it will slash an incredible ‘400 jobs from its workforce’. At this stage, we can report that Allen & Overy intends to sack 200 fee-earners and 200 support staff. Astoundingly, the firm has also confirmed that:

‘47 partners (9 percent of the firmwide total) are expected to leave the firm by the end of the financial year with a further 35 partners (7 percent) expected to see their allocations in the equity reviewed. It is expected that half of these 35 partners will be demoted to salaried partner status while the rest will see their equity reduced.’

It seems that Allen & Overy are also using the global financial crisis as a neat way to exterminate firm cancer.