Ties that bind - the unsung success of restrictive covenants
"You know there's a change in the mood when a firm as conservative as Freshfields gets around to shifting its policy. So recent news that the firm has doubled its partner notice period reflects a growing unease among City firms..."
June 14, 2012 at 07:03 PM
3 minute read
You know there's a change in the mood when a firm as conservatively and leanly managed as Freshfields Bruckhaus Deringer gets around to shifting its policy. So recent news that the firm has doubled its partner notice period from three to six months after a spate of senior departures surely reflects a growing unease among City firms at the continued encroachment of US rivals.
And while the move has largely brought Freshfields into line with its peers, there was further evidence of such tensions with the recent ill-tempered jostling over the exit terms of two high-profile arbitrators from Allen & Overy who are set to join Quinn Emanuel Urquhart & Sullivan, a US law firm that appears to be rapidly rewriting the rulebook for cracking London.
Because as we all know, even the most loyal of partners can find themselves tempted by the lure of the dollar (and perhaps soon the renminbi); Legal Week's international law firms in London survey this week shows that the group increased its London partner count by 7% during the last year.
Yet while there is no denying the long-foretold threat of US law firms – the best of which have already leapfrogged the City's mid-tier – what was certainly not predicted was the roaring success of restrictive covenants in defending City firms' flanks. Whether it is long notice periods, gardening leave or the latest vogue for delaying the return of capital to encourage departing partners to behave, the war on mobile labour has often looked more logical and financially effective in the legal game than its more famous cousin, the war for talent.
Remember, a decade ago the received wisdom was that such tactics were on the way out as the City inevitably followed the American free-agent model of chasing rainmakers. What actually happened is that such methods proved both effective and resilient, while the excesses of the recruitment merry-go-round bred institutional instability in a chunk of US firms.
This is not code for 'Don't be Dewey & LeBoeuf' – a firm extreme in all its acts – but the string of failures of large and more conservatively run US firms that preceded Dewey's collapse says something about the failure of the free-labour model in law. Imagine if UK firms had started to follow the lead of their US counterparts by abandoning restrictions on partner movement. The list of UK law firm casualties would be far larger.
Of course, such tools have to be used maturely if a firm is to avoid looking petty and stoking bad feeling among its existing partners, but the tools themselves undeniably have a place. The question now is whether, rather than being behind the curve, it is US firms that learn from UK rivals and change their own policies accordingly. How many law firm collapses will that take?
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