Friederike Heine assesses Linklaters' high stakes bid to reshape its practice to secure world-beater status

Given that it was the magic circle that collectively popularised 'mowing the lawn' – the idea that partnerships need regular pruning to get the best out of them – few doubt that restructurings can deliver results for law firms.

But what happens when substantive partner exits become semi-regular occurrences? The received wisdom has been that such upheaval would shatter the cultural bonds of a major law firm. But news revealed by Legal Week in December that Linklaters is embarking on its third major partnership restructuring in a decade proves, if nothing else, that the firm is not running itself to such a consensual worldview.

Certainly it is hard to overstate how far the 467-partner firm has placed itself from the crowd. No major law firm has attempted to restructure itself on such a regular basis – least of all its arch-rival Freshfields Bruckhaus Deringer, which has made a point of using such scorched-earth tactics very sparingly. As such, news of the latest restructuring has prompted disbelief among many peers and a number of Linklaters' own partners. It is fair to say that even for a firm rarely viewed as having the most relaxed and collegiate environment, morale among senior lawyers has suffered.

And while Linklaters has seen plenty of upheaval over the last decade, there has been a notable shift in the tactics that the City giant has deployed in comparison to the leadership of former managing partner Tony Angel.

Under Angel, Linklaters managed out dozens of partners and associates during the corporate gloom of the early 2000s. In contrast, Linklaters under current managing partner Simon Davies (pictured) has shown a willingness to engage in more regular and far-reaching initiatives, as illustrated by its 2009 restructuring, which saw more than 200 UK staff made redundant and around 40 partner exits.

And while the 2009 shake-up came as many of the firm's peers were embarking on comparable programmes in the wake of a deep recession, the latest cuts are, so far, out of line with the steps being taken by rivals.

"During Tony's tenure, Linklaters was transformed into a much more corporatised environment, and some argue that this enabled Simon [Davies] to run the firm in an authoritarian fashion," says one ex-partner. "Despite the changes Tony was hugely respected throughout the firm – he believed in the democratic process."

While some had expected the appointment last summer of personable banking veteran Robert Elliott as senior partner to herald a more consensual style than under his predecessor David Cheyne, a partnership retreat in the autumn provided a gloomy assessment of the challenges facing the firm.

"Robert's appointment felt like a new chapter for the firm in which partners would be encouraged to build business and the management team would start to loosen its grip," says one partner. "My impression now is that Simon wants to make up for lost time by getting rid of the partners he didn't get around to firing in 2009."

Internal critics also argue they have seen little communication surrounding the restructuring, which was abruptly announced to the wider partnership on 2 December. "This ambiguity surrounding the numbers would have been unimaginable at the Linklaters I used to know," says one former partner. "It was always a tightly-managed firm, but the fact that practice heads were only informed of the culls two weeks before the announcement was made to the general partnership is unusual."

Unsurprisingly, given the nature of the restructuring, the process has been subject to frenzied rumours. Ignoring the more extreme claims, it will certainly cut deep, with widespread expectations that at least 35 partners will be departing.

What have been rejected are claims that the restructuring could be a two-stage process that could stretch into the second half of 2012. Also dismissed are widespread claims that the partners have been divided into four camps – A, B, C and D – depending on their likely fate (though partners are being assessed on a number of defined criteria). Claims that as many as 70 partners could be affected by the shake-up have also been convincingly refuted.

The current exercise – which has purposely remained unnamed after the previous project titles like 'New World' were derided as tactless own goals – will also include a substantial number of de-equitisations. It appears one aim of the shake-up – and arguably why it was deemed necessary – will be reversing Linklaters' trend-bucking drive in recent years to reduce its salaried partnership ranks. (The firm had reduced its salaried partner ranks to just 31 at the end of its 2010-11 year.)

What there does not yet appear to be are any indications that the firm is contemplating sizeable associate or back-office job cuts, which both loomed so large in its 2009 restructuring. However, associates will be asked to be flexible about moving from badly affected transactional practices to busier groups and foreign offices in order to protect utilisation.

Given the extent that the firm is going out on a limb with its current shake-up, there remains some debate about what Linklaters is trying to achieve. Many unsurprisingly see raising profitability to more effectively compete with New York's leading law firms as a key goal.

But there are clearly also longer-term strategic aims at play. For one, the firm is intent on rebalancing its practice towards key foreign offices and getting its London head office in leaner shape for what will be several tough years ahead. In this context, the firm's London corporate, banking and capital markets groups are seen as prime candidates for partner cuts.

In addition, there is much talk of changing expectations among major clients – in particular the banking community. Under this reading such clients have become far more willing to send their mid-market work to lower-cost advisers or retain it in-house and expect to see leading City advisers find ways to cut their costs.

The firm is also intent on better targeting new bands of growth clients including FTSE 250 corporates, the institutions looking to take on riskier activities vacated by more heavily regulated banks and servicing key emerging economy bluechips in Europe.

What does not appear to be driving the process is immediate need. Linklaters saw solid trading in December and, by all accounts, is trying to position itself for the medium term rather than protect its short-term finances. While its once explosive growth has fallen back in recent years relative to its peers, the firm remains strongly positioned as one of the world's largest and most profitable law firms, with revenues of £1.2bn and average partner profits of £1.225m.

All of which leaves the question of whether Linklaters is right to so strikingly buck the market when it does not need to take such drastic steps. The firm has obviously gone very far on the back of taking robust and unsentimental decisions. Nevertheless, the firm is entering uncharted – and risky – territory.

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Restructuring Linklaters – a busy decade

As the most heavily managed of the magic circle, Linklaters has been no stranger to structural shake-ups over the last decade. Former managing partner Tony Angel embarked on an internationalisation programme in 2003 dubbed Clear Blue Water with the intention of drastically raising profitability and improving the firm's cross-border practice to put the firm ahead of its peers.

With the firm also wrestling with a relative lull in deal activity and the legacy of three large European mergers, several dozen partners across the firm were asked to leave while a number of associates were managed out in the UK.

The next major shake-up was confirmed in October 2007, when the firm unveiled a major overhaul of its German practice, the sometimes problematic legacy of the 2001 merger with Oppenhoff & Raedler. The move saw the closure of its 120-lawyer Cologne office, one of its largest foreign outposts, and a much-touted launch in Duesseldorf.

Linklaters also made other major changes to its practice in 2008, announcing a review of its six-office Central and Eastern European network. The move ultimately led to the closure of four offices – Bucharest, Bratislava, Budapest and Prague – which were relaunched as the independent practice Kinstellar.

Linklaters New World, which kicked off in 2009 under current managing partner Simon Davies, also ground its wheels through a partnership restructuring which led to the departure of around 40 partners. The process – which came amid similar moves at Allen & Overy and Clifford Chance – also saw widespread redundancies firm-wide, including job losses of over 200 associates and back office staff in the UK.

Despite peers taking similar steps in response to a deep recession and Linklaters offering relatively generous terms to redundant staff, New World was controversial for its depth and the firm was widely criticised for chaotic communication regarding the programme.