Since the height of the financial crisis, management at large law firms have become notoriously more ruthless at putting underperforming partners on the chopping block to keep their firms competitive. At the same time, the war for talent has been steadily heating up: ambitious new entrants from the US are continuing to tempt partners away from their old UK firms some of which, in turn, are still embarking on their own lateral hiring sprees. In this competitive environment some older partners are also opting to retire to get out of the race.

UK law firms' 'termination of appointment' filings at Companies House give a good measure of the rate of partnership churn amongst the top limited liability partnerships (LLPs). Between 1 May 2013 and 1 May 2014, 533 partners resigned from their partnerships across the 20 largest firms by revenue.

While some of these partners will have relocated to offices in other territories or stayed on at their firms as consultants or non-equity partners, research by Legal Week reveals that 432 (81%) of these partners left their firms altogether.

This equates to 6% of partners within the LLP containing the UK part of the business leaving their firms across the group, with individual exit rates ranging widely from 11% at DLA Piper to 2% at Freshfields Bruckhaus Deringer. The research excludes Slaughter and May which is not an LLP and so is not required to file information at Companies House.

The exits reflect the growing financial pressure placed on law firm management as a result of the economic downturn, which has resulted in hard knocks for partners on a widespread scale, as firms have resorted to tougher measures to combat falling profits, either by asking partners to leave altogether or at the very least to leave the equity.

Giles Murphy, head of professional practices at business advisers Smith & Williamson, says: "After the recession, firms found that some of the many promotions they made during buoyant market conditions were not as good as they ought to have been. It came down to either de-equitising those partners or managing them out entirely; as the latter appeared to be a draconian step to take, de-equitising seemed like a nicer way of retaining an individual."

Such performance management methods are among several that have become embedded in modern law firm culture since the recession, and have seemingly played a part in kick-starting a 'new normal'.

CMS Cameron McKenna (CMS UK) managing partner Duncan Weston says: "Firms have got more aggressive at managing their lockstep and partnership performance, but that was because they faced harder economic times."

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Big hitters

DLA Piper's international LLP (which includes the majority of the firm outside the US) logged the highest rate of departures within the top 20, with 79 partners leaving the firm altogether – equating to 11% of the total partnership size at 1 January 2013. After allowing for lateral hires and promotions to partnership, the firm's partner headcount within this LLP fell by 38 from 735 at the end of 2012 to 697 a year later.

DLA Piper global co-CEO Nigel Knowles says: "We have had quite a few people who have retired. We have had quite a few people who have left the law because it wasn't for them.  Our firm is evolving and it may not be the firm that some people joined."

A partner at DLA observes that the firm has seen a "shedload of departures" across its UK and overseas offices in recent years and the number of departures as a percentage of total partner size was broadly similar when Legal Week conducted the same research in 2011 and 2012, when departures equated to roughly 10%.

Other firms to have seen almost 10% of their partners head for the exit in the latest research include Herbert Smith Freehills, Eversheds, DWF and Berwin Leighton Paisner (BLP), all of which saw 9% of their partnerships leave the firm during the last financial year.

DWF managing partner and CEO Andrew Leaitherland comments: "We are a firm that has transformed itself in the last 18 months and has plenty of ambition and drive to continue this transformation in pursuit of our strategy.

"We are very clear with our people in terms of level of expectation – the way we did things six months ago isn't good enough today and this environment allows some people to excel whereas others don't enjoy this type of performance culture. We are committed to retaining and developing our people to achieve their potential but, having gone through as many mergers as we have, inevitably there will be some people who won't be or can't be part of our business moving forward."

"Some firms have grown rapidly year on year by acquisitions, lateral hires and team moves," says Motive Legal Consultancy founder Mark Brandon. "When firms build critical mass like this, they inevitably increase the amount of volatility in the partnership and that can dislodge incumbent partners.

"There is obviously a lower churn rate if there is less of this type of pressure on the equity. But this is not necessarily negative: equally, it is bad for firms to become too static, with no new blood or energy coming through their doors, so it's a balancing act."

For BLP, the figures will not come as a surprise to many after a slew of high-profile partner departures from the firm during the past year. Departures listed during the timeframe include: private equity partner Raymond McKeeve, who left for Jones Day last August; fellow private equity partner Andrew Bamber, who resigned from the firm; contentious tax head Liesl Fichardt, who joined Clifford Chance (CC) in September; and commercial technology head Adam Rose, who was hired by Mishcon de Reya.

Commenting on the general flux in partnerships Irwin Mitchell HR director Andy Chalmers says: "In a growing partnership… there is inevitably some movement in partners, including retirements, people leaving for other roles and others leaving involuntarily. This is a healthy position to be in, particularly as we continue to grow the capability of our firm." Irwin Mitchell itself saw roughly 8% of its partners leave the firm entirely, though partnership headcount rose more than 10% to 190.

Magic numbers

Of the magic circle firms, CC saw the highest number of departures with 60 total terminations. Of these, 42 partners left the firm altogether – 7% of its total partnership.

Among the departing cohort is former global managing partner David Childs, who retired and subsequently took up a role chairing the Financial Reporting Council's conduct committee. Others include private equity chief David Walker, who left for Latham & Watkins, and corporate partner Daniela Weber-Ray, who joined Deustche Bank as chief governance officer and deputy global head of compliance.

CC declined to comment for this article. However, a senior partner at the magic circle firm observed: "Apart from [Child's retirement], we haven't seen any particularly critical departures in that timeframe. I do not think last year has been out of the ordinary for us – people continually look to move on to a range of different jobs and seek opportunities for more challenging careers. It is part of life's pattern."

Freshfields saw the lowest departure rate in the top 20, with just 2% of its LLP partnership leaving the firm. Out of 16 LLP exits in the year, 10 left the firm. Its overall partner headcount remained broadly static at 428. Linklaters and Allen & Overy also posted below-average exit rates of around 3%.

Staying put

Elsewhere, CMS UK saw 14 terminations, of which seven partners departed while the other seven stayed on – three of whom are now consultants.

Meanwhile, Norton Rose Fulbright was the only firm where more than half the partners retired from the UK LLP but remained at the firm, with 19 of the 32 people who resigned staying on board in some capacity, including four who remain as consultants.

Several former Norton Rose partners attribute this to the firm's revamped partner remuneration model, which was put in place at the start of 2012-13 and put greater weight on individual performance, though the firm insists that performance management had only a "negligible impact" on the numbers.

Norton Rose deputy managing partner for Europe, Middle East and Asia Tim Marsden comments: "A number of factors contribute to such numbers. For example, we work increasingly with retired partners as consultants, to keep their knowledge within the business. Overall, we have grown our partnership across EMEA in the last year."

Norton Rose global vice chair Stephen Parish says: "There is much more fluidity among partnerships nowadays. In the old days people never moved at all, but there is a busier market now. US firms are looking to ramp up their numbers and waving large chequebooks, so people are looking at their options to a greater extent than before."

Across the top 20, partnership exits came alongside a 4.6% increase in total partner numbers between 1 May 2013 and the same date this year. The growth, however, is slightly skewed by significant increases in partner count at both Ashurst and CMS UK as a result of the former firm's Australia merger, and the latter's union with Scotland's Dundas & Wilson.

Harsh reality

The level of forced retirements, de-equitisations or partners being managed out rather than leaving of their own volition is impossible to tell from the numbers alone. But there is little doubt however that some firms are more actively managing their partnerships than ever before.

Norton Rose's Parish says of the trend: "Firms moving away from a rigid lockstep model have the ability to reward their partners in a more flexible way. They can ensure that valued people can be retained on the basis of a different level of remuneration.

"The concept of de-equitisation might appear harsh but the reality is that if a partner is at a stage in their career where the option to stay at the firm on a non-equity basis is there, it is much better to have that as an option than not."

Mark Brandon adds: "I would say that the trend of de-equitisations is gradually increasing. It's an ongoing situation – firms need to manage their equity more proactively to make competitive profits per equity (PEP) figures in a market that is relatively flat.

"I just don't believe that certain firms are making all the gains [in profitability] by cutting such great swathes of operational costs without managing underperformance in this way. Firms do appear to be shuffling partners off quietly and it looks set to continue. The danger of this, however, is creating a 'fortress mentality'. Firms want to be sending away partners who have had a great experience in order to build a strong alumni network."

As firms rebuild their profit levels in a recovering market, they need to make a call on whether improved conditions are here to stay and the extent to which they need to invest in new partners. In light of this, Smith & Williamson's Murphy urges firms not to forget the hard lessons of the financial crisis.

"The question is whether firms will still have the stomach to do what's right for the firm or if they will start to duck the issues again. My feeling is that they might just end up avoiding them," says Murphy. "As profitability across the board improves, it is crucial that management do not forget the lessons of the recession and continue to actively manage their partnerships, otherwise they risk falling behind the competition."