February 27, 2012 6:00 AM

Continental Breakfast: Linklaters Chief Loses One-Horse Race

Posted by Chris Johnson

Reed Smith's long-standing chairman Greg Jordan once told me that a universally popular law firm leader can't be doing his job properly. There's no doubt it can be a lonely and thankless role.

But those words will be of little comfort to Linklaters managing partner Simon Davies, who this month was dealt a humiliating blow after his partners refused to grant him a second term in charge despite the fact that he was the only candidate for the job.

Davies failed to secure the required 75 percent majority after more than 120 of the firm's 480 partners abstained from voting, despite an internal memo from senior partner Robert Elliott in January encouraging everyone to take part. A recent article by U.K. publication Legal Week reports that Davies did muster 60 percent approval from partners. He will have another chance to keep his office when partners vote again at an April retreat.

A firm spokesman declined to comment and said that Davies was unavailable for an interview.

In a recent poll of more than 120 partners throughout the United Kingdom, Linklaters was voted the second-best run firm in London, after Slaughter and May. But several Linklaters partners told The Am Law Daily in confidence that the lack of votes was a sign of growing discontent over the continued pruning of the partnership and Davies's detached leadership style.

"It's a pretty clear message that many of us are dissatisfied with the way the firm is being run," says one London-based corporate partner, who spoke on the basis of anonymity and acknowledged abstaining from the vote. "Partners are becoming disenfranchised, as we just don’t feel like we have a voice anymore. There's no consultation and some of these decisions [on which areas of the business are being cut] have been taken very hastily."

During a meeting in London last December, partners were told that the firm would be engaging in its second restructuring exercise within three years. Details were sparse, but about 35 partners—mostly from the London office—are set to leave by the end of the fiscal year on April 30. Three current partners with knowledge of the situation say the departures will include a number of top-of-equity partners, including several marquee names from the firm's renowned public M&A practice and relationship partners for some of its "platinum" clients—an internal grouping of companies that generate the most business for Linklaters worldwide. (Platinum clients include BP p.l.c., Glencore International plc, National Grid plc., and Vodafone Group plc, among others.) As many as 50 or 60 additional partners will be asked to leave during the next fiscal year, according to the three partners.

One legal recruiter, who says he has held discussions with several "major names" who are set to leave Linklaters, feels there will be no shortage of suitors—particularly among U.S. firms looking to bolster their U.K. law offerings. (Davis Polk & Wardwell, for instance, launched a U.K. law practice in London this January with the hire of capital markets partner Simon Witty from Freshfields Bruckhaus Deringer.)

"Linklaters's management is banking on the fact that those premium client relationships are institutionalized to the point where they're unshiftable," the recruiter says. "In such a dynamic market, we think that’s a bit naïve."

Described by colleagues as a highly intelligent, detail-focused individual who is fascinated by the science of business and management, Davies rose quickly through the ranks at Linklaters. Openly declaring his managerial ambitions while still at a relatively junior stage in his career, he made partner in 1999 and within three years had been appointed as head of the firm's Asia practice. In 2007, Davies was the surprise winner in a contested election for managing partner, beating out highly regarded capital markets head Nick Eastwell and banking chief John Tucker.

Davies's predecessor, Tony Angel, was a hard act to follow. Generally considered one of the most successful law firm managers of his generation, Angel transformed Linklaters into a more profitable, businesslike entity. He pioneered a more rigorous and quantitative approach to performance management; narrowed the firm's practice to focus on doing more profitable work for fewer, larger clients; and established a new executive committee to help him implement his strategy—an operational template that was copied by firms throughout the city. When Angel took control of Linklaters in 1998, the firm was already one of the top practices in London. When he left ten years later, to take up a senior position at credit ratings agency Standard & Poor's, Linklaters was well established as a world leader. (My next column, to be published in early March, will cover Angel’s recent precedent-setting move to DLA Piper.)

In fairness to Davies, he took office under far less favorable economic climes. In steering the firm through the recession, he has been forced to make some difficult and unpopular decisions. And he is not alone in having done so: Linklaters is far from the only U.K. firm to have made redundancies over the past four years.

In person, Davies is measured, considered, and softly spoken. He may lack the verve and dynamism of Angel, but it is hard to reconcile his persona with that of a ruthless cost-cutter. There can be little doubt, however, that Davies has been more aggressive in swinging the axe than any other managing partner in Linklaters's 174-year history.

Since taking over in January 2008, Davies has carried out several significant partnership restructurings. His "New World" review in 2009, which partners say was also criticized internally for a lack of communication or transparency, resulted in 40 partners and some 200 U.K.–based staff losing their jobs. Davies also oversaw radical revisions of the firm's practices in Germany and Central and Eastern Europe, prompting the closure of the 120-lawyer Cologne office and the spin-off of four of the firm's six bases across the CEE. (Those offices now operate as a stand-alone firm, Kinstellar—its name derived from reshuffling the letters in "Linklaters.")

Linklaters has increasingly struggled within the rigid confines of its traditional lockstep compensation system. With many of its core practices seeing revenues stagnate under challenging market conditions, the firm is less able to promote new partners and faces growing cost pressure as existing members move up the lockstep.

Last summer, the management team started investigating ways in which it might modify its partner remuneration scheme in order to reduce the number of highly paid partners sitting at the top of this 25-point lockstep. It's an issue that clearly needs to be resolved swiftly.

Davies's reappointment will now be subject to a physical vote at the firm's global partner conference in the picturesque lakeside town of Montreux, Switzerland, this April. All of the partners interviewed by The Am Law Daily expect Davies to ultimately triumph, if only for a lack of alternative candidates. Capital markets partner Michael Voisin has his supporters internally, while Tucker—who lost to Davies in the 2007 election—was rumored to have fresh interest in the role. However, the six current and former partners interviewed for this column speak of a "culture of fear" in which opposing Davies and the status quo is seen as a fast-track to the exit door.

And while it is easy to abstain from participating in an anonymous electronic vote, lodging a formal protest in person during a firmwide partner conference requires a much stronger resolve.

"Simon gets portrayed to be worse than he really is, but I suppose that's true of many management figures," says one former Linklaters partner, who was made redundant by Davies in an earlier restructuring. "He may not show it, but he will take this quite personally. It will affect him."

Davies has succeeded at Linklaters through a combination of determination, consistency, and a seemingly unshakable belief in his singular strategic vision. After this unmistakable wake-up call, his future at the firm may now depend on whether he can add a new string to his managerial bow: The ability to change.

Chris Johnson is The American Lawyer's chief European correspondent. Continental Breakfast is his new, early-morning column covering the tastiest events on the European legal menu. Reach him at [email protected] Follow him on Twitter at @chris_t_johnson.

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