Last autumn, the traditionally conservative firm Rowe & Maw announced a spectacular coup.

When corporate rainmaker Peter Maher and two other star partners from the same department, Peter Dickinson and Andrew Copley, announced they were leaving to join Clifford Chance, Rowe & Maw's response was to change the equity system to reflect individual partner performance, restructure the corporate department putting Maher in charge, and install the three rebels on the corporate board.

All three were persuaded to stay.

The firm's actions illustrate two important trends – the importance of star players to the modern law firm and the challenges firms now face in retaining them.

The last decade has seen partner moves increase ten-fold and that trend looks certain to continue.

"The problem now is that there are head-hunters all over the place, dangling these huge carrots in front of partners' faces," says Michael Simmons, professional practice consultant at Finers.

The most talented players can name their price – the first £1m-plus legal job advertisement appeared this month.

he situation has been exacerbated by competition from accountants and, in particular, the influx of US law firms to London.

"They do tend to pay more," says Simon Janion of legal recruitment consultants Eagon Janion. "In exceptional cases, some offer double the salaries to attract staff."

Part of the problem is that the equity lockstep partnership system does not reflect the performance of top partners.

English firms have been slow to make moves towards merit-based equity and US firms are reaping the benefit. Moni Mannings left Simmons & Simmons two years ago for Dewey Ballantine.

"You have to remember that most lawyers are in it for themselves," she says. "The best way to value your partners is to give them more compensation."
Some English firms are coming around to the idea.

These include Stephenson Harwood, Denton Hall, Richards Butler, Wilde Sapte and Theodore Goddard.

Rowe & Maw has not scrapped its lockstep system entirely, but modified it to allow Maher, Dickinson and Copley to be paid by results. "We were driven by market forces," admits marketing director Chris Pullen.

"There is a dearth of good corporate lawyers at the moment."

But moving to a merit-based system can backfire if it is not handled carefully.

When Simmons & Simmons moved its salaried partners into merit-based equity, the move created as many problems as it solved.

Some partners were unhappy that their equity was being diluted, while others were said to resent the new performance appraisal system.

When William Charnley, Peter Nias and Graham Rowbotham departed to McDermott Will & Emery last autumn, the former was reported to be unhappy that the pace of change was too slow, while the other two complained it was rushed.

Many partners leave their firms because they cannot see scope for developing their practices within their firm, so they look for bigger firms or niche players in their practice area.

"There is often a divide between a firm's partners," Janion says.

"The senior ones may view the firm's capital as their retirement fund, while the juniors regard it as working capital that should be used to make the business grow."

The problem can often be attributed to strategy. "The management structures of many firms do not allow the partners to plan and grow their businesses effectively," says David Andrews of the David Andrews Partnership, the legal arm of management consultancy Grant Thornton.

This was an area Rowe & Maw had to address urgently when faced with Maher's defection.

He wanted a top-tier department and complained that it was not developing quickly enough. The firm recognised that the needs of the corporate department – which was responsible for 37% of the firm's income last year – came before all others and restructured itself accordingly.

Rowe & Mawe now has a clear direction: to be the first choice firm for FTSE-250 companies.

"Medium-sized firms need to concentrate on what they are good at – trying to keep up with the big five is a fruitless and counter-productive exercise," Pullen says.

"This is one of the attractions that US firms have for my clients," says Denis Reed of JCL Search and Selection.

"They have a clearer focus on where they want to be and the resources to get there.

Other than the top five, few English firms have a business plan."

This is because many British firms are simply inefficient, says Mannings. "With the lockstep system, a formal decision is not made each year as to each department's value.

By using purely financial criteria, rather than anecdotal evidence, you can plan more effectively," she says.

"The other advantage US firms have is they can take a fresh look at the market and identify the growth areas.

Many English firms have been in the market for 50 years or more and are resistant to change."
The business of management can be a vexatious one for partners.

"Many firms are not structured to manage and make decisions effectively," Andrews says. "They do not empower partners to make decisions that stick."

But too much management is not always a good thing. More firms are run by "grey-suited" managers who are over-concerned with day-to-day management, Michael Simmons says.

"You need to make exceptions for your stars. Strike a balance between the 'grey suits' and the mavericks – some tension within a partnership is no bad thing, but too much is dangerous."

Sometimes the solution can be even simpler. The final part of Rowe & Maw's deal with Maher was to lease a set of exclusive meeting rooms for his department. Says Simmons: "It is not always a money issue.

Many star performers just want the status and respect their fee-earning performance deserves. It may be a bigger desk or an extra assistant – silly things, but they matter."