High-performing but supportive, retrenching and investing – Ashurst's strategy in a tough market has tried to reconcile conflicting forces and has unsettled its partnership. Georgina Stanley and Jeremy Hodges report on a high-stakes plan of action

Earlier this month Ashurst partners sat down to a presentation from management. The message was clear – the firm had come a long way over the last two decades, a brutally tough two years was now behind it and the partnership is the right size and shape for the future – one that will see the firm positioned among a band of leading international law firms.

And, however you look at it, Ashurst has travelled a huge distance in the last 20 years. In 1990 turnover stood at just £29m, profits per equity partner (PEP) at £308,000 and the partnership itself at only 38, so its transformation – without the aid of a substantive merger – into a top 10 City practice is unquestionably impressive.

Until 2007 it appeared that little could stop the ascent of the firm, which had seen a dramatic revival after a difficult period between 2000-04 dominated by falling profits, abortive merger attempts and partner departures.

As managing partner Simon Bromwich puts it: "We've always been cautious in terms of how we grow, but that is significant growth and we've achieved it all organically."

Yet the mood of confidence that the firm had exuded at the top of the last deal boom now seems in short supply. Inevitably, the onset of the credit crunch in 2007 made the going considerably tougher for a practice heavily identified with private equity, deal finance and structured products.

Mark Vickers, managing partner for restructuring and a partner within the international finance practice, sums up the mood: "It felt as if one of our main markets had taken a direct hit from an MX missile."

Even given an environment in which Ashurst was always going to have to make some difficult decisions – and this is a firm that until relatively recently had avoided difficult decisions – the move to restructure its partnership sent reverberations through the firm. Ashurst has always prided itself on a supportive culture that sets it apart from major City rivals, but with the firm cutting partners over the last year and focusing heavily on boosting profits, many are now questioning the extent to which such aspirations can be reconciled with a robust performance culture.

As one former partner says: "Ashurst used to be unique in the City, but I do not see that as true anymore. It seems like a firm that does not know who it is or where it is going."

At the same time, Ashurst has embarked on a daring round of expansion – including a 12-partner launch in the US. Whatever the firm can be accused of, the indecision and half measures many believe previously blighted the firm seem to be behind it now. The question is whether the high-stakes decisions it is currently taking will secure its global ambitions or relegate the firm to the status of a quality regional player.

Restructuring the hard way

Since January 2009 some 30 partners have left Ashurst, excluding retirements, with the firm holding two rounds of partner exits – the first in December 2008 and the second in November 2009. For a firm that has always claimed to have a softer, more supportive culture than the stereotypical City practice, there is little doubt that all concerned in the restructuring have found the process tough and unsettling, including the firm's management.

Of the partners leaving over the last 18 months, senior partners within the firm concede that most were either asked to go directly by management or chose to leave after seeing their position within the firm's managed lockstep either lowered or frozen for at least one year.

While the number of partners affected by the restructuring is less than those at larger rivals such as Clifford Chance (CC) (where partner numbers are expected to be around 18% lower at the end of this financial year compared with April 2009, including voluntary departures, a drop of more than 100 partners), as a percentage of Ashurst's overall partnership the cuts are relatively deep. Taken as a percentage of the 230 partners the firm had at the end of April 2009 they equate to around 13% of the partnership.

Given the economic conditions of recent years, that the firm felt the need to act is not surprising. What has attracted criticism, however, both internally and externally, is what is viewed as a stealthy approach to the cuts. Partners were not consulted and nor were the names and numbers of those affected by the restructuring released within the partnership generally.

More seriously, some claim that the level of cuts or criteria of those being selected were not made clear to partners. Instead, management made the decisions assisted by practice heads, leaving the partnership at large panicking as rumours circled about the depth of the cuts, with many worrying that they could be next in line.

As one ex-partner says: "Even the people internally are not sure what is going on – and after the second round of layoffs at partner level, people are looking over their shoulders slightly."

The way Ashurst handled the process has drawn criticism on two fronts. First, that communication was simply under par, creating unnecessary concern and, second, that it is the most tangible example to date of how Ashurst is now as ruthless as any other big City player, with all claims of collegiate culture mere pretence.

There has also been surprise at some of the partners who have left the firm, a feeling that has fuelled claims that there was a political dimension to the process. Management, though, is unrepentant about how the situation was handled and denies claims that the firm's culture has suffered.

Senior partner Charlie Geffen (pictured) says: "Of course we have been in a tough period and we've had choices to make in terms of how we react that haven't been pleasant. However, I believe the cuts were the right thing to do. Yes, it was painful and difficult, but I would rather we navigate ourselves through in this way than have partners ask us down the line why we didn't.

"Having a supportive culture and growing PEP can absolutely go hand in hand. It is hard, but we were faced with a choice and putting being nice to people above letting the business develop would have been fatal."

As Bromwich says: "Profits are really important as a scorecard. When you're flying, people want to join you and it's how firms are judged. We were disappointed with the PEP level last year but there were a number of good reasons for it. We'd just come off two years where business was unbelievably good and it isn't surprising we were affected badly because of the strength of our private equity and finance practices."

Nevertheless, it would seem in hindsight that uncertain communication regarding the restructuring and the decision not to build the process around a single event was questionable.

Still ready to grow

Despite heavy cuts and the expected fall in profitability – PEP fell by 35% to £673,000 while revenue dropped by 6.8% to £301m in 2008-09 – Ashurst has done far more than hunker down during the recession. In particular, the firm has shown admirable nerve, maintaining investment at the expense of profitability as it focuses on the future.

In addition to a Hong Kong launch spearheaded by former senior partner Geoffrey Green in 2008, the firm also made a bold move into the US structured finance market with the hire of 12 partners from legacy firm McKee Nelson. And its expansion was not purely outside Europe, with Ashurst also making a number of hires in London and continental Europe (see box, page 11).

The investment means that, despite the departures, Ashurst as it stands today has some 220 partners, of which 68 are in corporate, 56 in finance and 24 in energy, transport and infrastructure (ETI) – its three largest practice groups.

According to Geffen, the firm is entirely clear about where it goes now. Aside from a strong focus on profitability, the firm is intent on expanding its international footprint outside Europe, leading to heavy investment in Asia.

Ashurst currently has around 80 lawyers in Asia and this year expects to generate around 10% of its revenues outside Europe – several years ago this figure amounted to just 3%. This year the firm expects to generate around 38% of its revenue outside the UK. Geffen explains: "You've got the global firms like CC, and the international boutiques like Slaughter and May and Wachtell Lipton Rosen & Katz, and then there's a group of leading international firms including us and Herbert Smith."

Though not everyone would agree with this analysis, it represents a more realistic view than several years back when Ashurst was prone to argue that there were seven firms pulling away in the City – of which it was one.

And in practice terms the firm has much to be proud of. Within finance, which last year contributed some 21% to firmwide revenues, the practice's achievements are impressive. The group works with banks including Royal Bank of Scotland (RBS), which is one of its biggest clients, Lloyds Banking Group, Goldman Sachs and Credit Suisse.

While Ashurst has always been known for its leveraged finance work, the practice has managed to diversify – covering a broader range of work including corporate lending, project finance and restructuring mandates with the same clients. Significantly, it has found huge success where others have failed and expanded a number of its bank relationships outside the finance practice into other teams – such as corporate, where the firm has advised the banks on numerous initial public offerings (IPOs).

The firm has also brought in former RBS lawyer Lee Doyle as a partner with the prime aim of improving relationships with banks rather than focusing on fee-earning work. It is a strategy that, by common consent, seems to be working. Vickers comments: "Revenues across our core client business are now in excess of where they were at the height of 2007 because of the diversification of our business. Three years ago we had about 20 partners working with RBS and now there are at least 80 partners working on aspects of the relationship – and we've had a similar increase with Lloyds."

The firm's ETI group has also been a sustained success story, with practice head Mark Elsey saying revenue for the group doubled between 2006 and 2009, thanks to relationships with clients including Balfour Beatty, Carillion, Skanska and Matsui. The practice has also added a number of key partners including ex-Centrica Energy lawyer Peter Roberts. A lean and focused real estate team has also been successful, with Westfield now one of the firm's largest clients and the practice also working closely with Tesco.

Internationally, the firm's European network remains a work in progress, aside from its robust Spanish practice, but even the harshest critics of the firm concede it has made huge progress with the network compared to seven or eight years ago.

Ironically, it remains debatable whether the firm has made enough progress in the area in which its brand would have been strongest years ago: mainstream corporate. Despite its ambitions, the corporate client base has not grown significantly in recent years and big name clients, leaving aside the likes of National Express and Imperial Tobacco, are relatively few and far between – as are high-profile partner names.

Research from Hemscott shows the firm had two fewer FTSE 100 clients in February 2010 than in August 2004. Likewise, despite Geffen's huge personal profile in private equity, Ashurst has struggled to maintain its position in the buyout market as more competitors poured into the practice area during the credit boom.

While corporate has built strong lines into sponsor clients, a frequent criticism is that Ashurst has lost the patience to build up FTSE 250 clients, an area that once drove the practice.

'Charlie and Simon have our best interests at heart'

While the communication and handling of the restructuring continues to cause simmering resentment, the good news for the firm is that the broad strategy outlined by management still enjoys widespread support inside the firm.

In addition, long-term managing partner Bromwich and Geffen, who took over from Green as senior partner at the end of 2008, still have considerable support even as the firm emerges from a painful period. While Geffen is viewed in some circles as ushering in a tougher culture than Green, there is recognition among more realistic partners that Ashurst's culture had already become more robust and profit-focused during the boom (and almost certainly had to, if it hoped to retain its position as a leading transactional shop).

The difference is that Geffen took over just as the practice faced real challenges, but the changes to Ashurst's DNA were already in place to a considerable extent. Even those who are positive about where the firm is going admit there have been changes, such as ETI head Mark Elsey, who says people can no longer think of law firms as offering jobs for life.

He adds, however: "We have done fantastically well. People forget where we were six or seven years ago. We were arguably not as focused on revenue as we should have been and were embroiled in merger talks, which meant that we probably took our eyes off the direction of the firm for a bit. The situation could not be more different now."

Ashurst management insists that the firm's supportive culture is still one of its most important and defining characteristics – something that sets it apart for laterals. The firm did differentiate itself from its peers in the way it handled associates during the downturn – becoming one of only a handful not to carry out any lawyer redundancies or introduce flexible working.

The challenge for the firm going forward will be to heal its current wounds and prove that it can manage one of toughest balancing acts in law: that of the high-performing but collegiate partnership. Judged in isolation over the last two years, that balance has not yet been achieved. However, partners seem willing to give management time to flesh out its vision. Likewise, with the clear sense of direction the firm has mapped out, there seems little prospect of large numbers of partners frustrated by inertia quitting for City or US rivals.

In addition, the mood regarding the firm's financial performance has also brightened considerably compared to the end of 2009, with Ashurst now hopeful of avoiding further major falls in profitability.

Bromwich adds: "The message is that we've had a tough time, but it's behind us. We need to support each other and make sure we don't let go of the culture here, which remains very special. Fundamentally the business is fantastically strong."

The bottom line is that most of the partners currently agree with Bromwich. Though it has come at a cost, Ashurst has stepped closer to securing its ambitious goals over the last two years. If it can finish the job – no mean feat considering the work that remains on its international network – such tribulations will be quickly forgotten.

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Swimming against the tide – Ashurst's US launch

Ashurst's search for a US suitor through the years has been nothing if not eventful. After merger talks with Clifford Chance and Latham & Watkins collapsed a decade ago amid fears that the firm would lose identity within a larger practice, a tie-up with New York's Fried Frank Harris Shriver & Jacobson looked set to go ahead after protracted negotiations began in 2002. Yet the discussions ultimately collapsed in May 2003 after more than a year of talks as the two firms disagreed over culture and remuneration, leading to the departure of the senior partner, Justin Spendlove, to the US firm. This was a difficult time for Ashurst, when the firm's profitability dropped, its international network was struggling to gain credibility and the firm lost a number of partners in London to US rivals. Understandably for many partners, the whole notion of a major US adventure had become a hard sell, which made the firm's daring move into the US market last February with a 12-partner team from New York and DC practice McKee Nelson all the more striking.

Managing partner Simon Bromwich (pictured) explains: "In the toughest year we've ever had, we had to go to partners with our US proposal, and that was a big thing when we were about to report the results we did last year. People were quite nervous, but it was fine – it hasn't blown us away but I wouldn't have expected it to yet. The market has remained tough but the strategy is right and we are confident the move will prove to be a clear success."

The relationship with McKee dates back to 2004 after the US firm hired Fried Frank's former head of structured finance, Larry Isaacson. From that point, the McKee team began regularly handling US structured finance work for Erica Handling's team in London. With the US law firm severely hit by the global collapse in the asset-backed securities market since 2007, the McKee team, headed up by partner Bill Gray, initially approached Ashurst to formalise the relationship in the late spring of 2008.

Managing partner of the New York and Washington DC offices Michael Smith comments: "Our view was that at the end of the recession there would be a significant consolidation in our client base and we thought that in this sort of market it would be more beneficial to attain critical mass than to retreat from the market. Counter-intuitively, the move became more attractive as the recession took hold, rather than less."

Ashurst also had the incentive of distinctively expanding its very successful structured finance practice and having the chance to hook up with a team that it already knew well, a rarity for international launches. Talks carried on through to the end of the year and by late February the Ashurst partnership had agreed in principle to the deal, which eventually saw a 32-lawyer team make the move. (Bingham McCutchen went on to take the remaining bulk of the firm, sealing a deal in July, taking a team more focused on tax planning and related litigation.)

The deal has been questioned by some lawyers citing the team's heavy dependence on the decimated mortgage-backed securities market and the lack of adaptability of US finance lawyers. And while the deal has been welcomed by Ashurst's finance practice, it has not been generally popular among the rest of the firm, with some arguing the firm overpaid even if it is a sound long-term investment.

While it is conceded that it has been tough going in the first year of business for the practice – though management denies claims that the team is significantly under budget – the firm says it remains bullish in the medium term.

Ashurst also argues that the practice, which has a low leverage, is the best performer within the firm in terms of fees per earner. The practice is expected to bring in around 4% of Ashurst's revenue in 2009-10, a projection that suggests the practice is generating in the region of £10m annually. The firm is also expecting to keep investing in the practice, with Ashurst currently hunting for a senior regulatory lawyer in the US. The practice remains the biggest bet that Ashurst has taken in recent years and its success or failure will be a major factor in determining Ashurst's hopes of securing a position as a credible global practice. Though the venture hasn't been a runaway success, the long-term omens for the US practice, supported as it is by Ashurst's upwardly mobile European finance practice, still look better than some have contended.

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Investing, but cutting too

The well-documented departures of upwards of 30 from Ashurst's partner ranks since January 2009 have, perhaps inevitably, taken their toll on the internal mood at Ashurst, a firm that has not traditionally been as adept as some rivals at actively managing its partnership.

However, while Ashurst's stance has echoed many other major firms that have cut back their partnerships, the firm has been one of the few to simultaneously invest at a senior level with a series of lateral hires. Ashurst has brought in no fewer than 26 partners since January 2009, significantly bolstering its energy, projects and banking practices along the way. The firm has also concentrated on bringing lawyers in from industry to the partnership, giving them a broader expertise across the sectors.

That strategy has secured a number of notable lawyers, including hiring Royal Bank of Scotland's UK head of corporate and restructuring, Lee Doyle (pictured), in November to build on its banking relationships and Centrica Energy & Europe's general counsel Peter Roberts into the energy practice.

Other highly-touted names in the City include the well-connected construction specialist Ann Minogue, who joined from Linklaters, while Dan Hamilton, one of the City's most strongly-tipped restructuring talents, moved across from White & Case, bringing strong lines into Deutsche Bank.

Where does Ashurst go to bolster its ranks? The target firms tend to be in Ashurst's weight class or above, with the magic circle well represented in addition to Dewey & LeBoeuf, Berwin Leighton Paisner and Lovells. Internationally, 12 partners came with the firm's acquisition of McKee Nelson while Hong Kong, where the firm hopes to have 24 fee earners by the end of April, has seen four laterals added and Singapore added corporate partner Keith McGuire from Allen & Overy. For many City firms, terms like 'restructuring' and 'size and shape' have been euphemisms for cutting back the partnership. Ashurst is one of the few that can genuinely claim to have reshaped its business in the space of two years. As with its US launch, the wisdom of these investments will shape the firm's future for years to come.

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