Having enjoyed enormous success in the wake of its 2001 merger, over the last few years Berwin Leighton Paisner has been plagued by tumbling profits and a raft of high-profile partner exits. Pui-Guan Man finds out whether the firm's new strategic vision will be enough to turn its fortunes around

Thirteen years after it was formed through the merger of legacy firms Berwin Leighton and Paisner & Co, Berwin Leighton Paisner (BLP) has certainly hit the awkward teenage years.

For a long while, under the tight leadership of managing partner Neville Eisenberg, the firm could seemingly do no wrong. Revenues rose, international office count grew and the firm made hire after hire – even throughout the recession – in its bid to build its reputation in practices beyond its traditional property stronghold.

Of course there were questions; a strategy of paying top dollar to bring in big-name – but often older – partners from other firms inevitably prompted tales of divisions within the partnership. And with good reason – when tougher times hit why should long-serving BLP partners see their pay dip when other, newer partners brought in on well above-average packages fixed for several years were exempted, without even proving they could bring in business?

Nonetheless, the merger was deemed a success – as were Eisenberg's efforts to reposition the firm as a quality brand and cast off its real estate tag.

But since its tenth anniversary in 2011 the situation has changed markedly. The last few years have seen BLP mired in a cycle of partner exits and falling profits. Much now rides on the implementation of the firm's strategic plan for rebuilding its talent pool and profitability.

BLP opted to continue pouring investment into lateral partner hires and office launches during the recession at a time when many other firms took a step back to regroup. High-profile appointments included several former magic circle lawyers such as Linklaters ex-corporate chief David Barnes and Allen & Overy partner Alan Paul.

While its results held up during the downturn compared with its competition, in the 2012-13 financial year BLP's aggressive expansion started to catch up with it.

According to limited liability partnership (LLP) accounts filed with Companies House, that year saw operating profit tumble from £81m to £55.1m, while revenue fell by 5.7% to £231.9m. Meanwhile, Legal Week's top 50 rankings showed profits per equity partner plummeted by 39% from £660,000 to £401,000 – capping a sobering batch of results.

On the back of plummeting profits, last summer the firm confirmed that it was cutting 102 jobs, with 58 legal staff and 44 secretarial staff laid off following a redundancy consultation announced in May 2013. Commenting on financial performance, Eisenberg is open but unapologetic about the impact of its hiring strategy on the firm. "During the recession some firms hunkered down and tried to survive as well as they could," he says. "But we took a clear decision that we were going to try to accelerate our strategy and invest as part of an overall programme, in place since our 2001 merger, of driving the firm upmarket in a range of different ways.

"We invested heavily in building the international side by opening a series of offices abroad, by bringing in senior people at partner level through a very active hiring programme, and accelerating the quality transformation programme that we had been pursuing for several years.

"At some point you need to take a breather, consolidate and reset the objectives. In 2012-13 we had moved into new premium areas of the market that were not very active and the competition was intense. I also think some of the people who had joined us in the previous two to three years needed more time than usual to build up their books of business."

However, the firm appears to have learned from its aggressive lateral hiring spree, with Eisenberg stating that it is likely to exercise more restraint in future. "While I believe the lateral hire programme worked extremely well for us, it is probably going to be harder to rely only on lateral hires for future growth and development. Having said that, it has been a central plank of the transformation process at BLP – we would not have achieved what we have without those very talented people joining us in a variety of practice areas," he adds.

With performance waning, 2012-13 – described by one BLP partner as the firm's "annus horribilis" – saw the start of a string of high-profile exits: a combination of partners being managed out and others choosing to leave.

Prominent departures since the start of 2013 include former RBS restructuring head Matthew Kellett, who was head of finance at the time and has since joined EY; restructuring head Ben Larkin, who joined Jones Day in February this year; and a trio of real estate finance partners, led by then-head of real estate finance Laurence Rogers, who defected to DLA Piper in the same month.

The partnership is inevitably much leaner as a result. Average equity partner count fell by 10.1% year-on-year to 91.6 in 2013-14. Legal Week's analysis of LLP departures over the same year found 9% of the firm's total partnership had left.

Despite the headcount reductions, the firm seems to have re-found its feet to some degree, with 2013-14 results showing a 5.8% growth in revenue to £246.5m, while PEP rebounded by 35.2% to £542,000.

Eisenberg attributes the uptick to partners the firm hired during the downturn increasing their activity levels, as well as improved market conditions. "The investments we made in previous years began to pay off," he explains. "Growth in our international offices was very high, at more than 25%. Quite a few of the new partners we'd brought in since 2010 were much more successful last year in generating work from clients, and a number of our clients became more active because market conditions were improving."

Helping people out
While it is hard to know how many of BLP's partner-level exits were actively managed out, the firm has clearly learned some painful lessons from the process. Management is currently undertaking a consultation looking at improving the process of managing out partners by adjusting the partnership deed.

Partners told Legal Week that the motion, understood to have been circulated at the start of the year, contained several proposals, including the creation of a new committee to ratify and process decisions on underperformers, lowering the equity partnership vote threshold on exits and the introduction of an appeals process. The potential overhaul was the subject of heated debate at the firm's partnership meeting in early summer.

One partner says: "Restructuring partners the way we have been has been a lengthy process, and the longer we kept on underperformers, the costlier and more detrimental it was to the business."

Internal issues aside, Eisenberg says the firm is now focusing on developing its existing international offices and its strongest practice areas: real estate and litigation. "We have a very strong real estate and built environment practice, which is expanding internationally, particularly in Germany and Moscow," he says. "And our litigation practice has grown dramatically over the last five years and has been very successful; we plan to develop that further, both in London and in other offices."

Mergers are not high on the agenda, however. "Our strategy is about driving up quality, being focused on the areas where we think we can add value and internationalising the business more," Eisenberg adds. "Over the longer term, I certainly wouldn't exclude us from developing on a much larger scale, but we don't see this as something we need to achieve in the short term."

Shuffling the deck
In addition to looking at partnership issues, BLP has carried out several structural reviews in recent months. Executive chairman Robert MacGregor presented his findings from an internal review to partners late last year, while Jomati consultant Tony Williams carried out a separate consultation of the finance practice called in response to the flood of exits.

Meanwhile, a governance review conducted last year by partnership secretary Stephen Walker and partner Michael Goldmeier, who oversees BLP's risk and compliance, recommended that the board take on a more active strategy oversight role, as well as building greater non-manager equity partner representation on the board. The review was approved by the partnership and the board has since added two elected equity partner positions in addition to those already sitting on the board.

In addition to further administrative changes in practices such as corporate and EU and competition, the firm has also scaled back its Paris representative office.
These shake-ups are in line with BLP's strategic decision to put more emphasis on its sector focus. "The idea was that we would recognise where we had strengths and try to develop some where we thought we had opportunities, rather than spread ourselves too thinly by doing too many things for too many people," one partner explains. "It's been useful in terms of concentrating people's minds and getting us through and into a profitable year last year after a flat year the year before."

Head of real estate Chris de Pury says the renewed sector focus means "instead of having 10 partners each taking on one client, [the plan is to have] fewer, more focused clients billing three times more with 10 partners working with them. This makes them the firm's clients rather than a person's clients. And by institutionalising the clients, the client base and quality of it has improved dramatically."

Real estate remains one of the firm's biggest successes. While the finance group contributed around 13.5% of firmwide revenues during 2013-14, amounting to roughly £30m, according to de Pury the real estate sector last year accounted for around £100-120m of the business, while the practice itself contributed around £50-60m.

Head of finance Adam Dann says of his practice: "At the end of 2012-13 performance was down a little but [considering] the background, for instance the depth of the recession and the revenues we continued to generate throughout that period, I think a small adjustment was always coming. Many of the traditional areas of the market had disappeared. There wasn't a lot of standard banking lending, or normal types of project finance work – banks simply weren't doing those types of business."

Meanwhile, litigation is estimated to bring in around 20-25% of firmwide revenue. Head of commercial disputes Nathan Willmott says the firm plans to grow its energy disputes offering as well as the investigations team.

Jonathan Sacher, head of litigation, adds: "We expect to turn over a chunky number this year, partly by organic growth but also through lateral hires and internal acquisitions of businesses like competition and regulatory this year, as well as contentious construction, which moved to litigation a few years ago. Litigation will continue to be highly profitable and it will have another year of significant growth."

Additional developments this year saw the firm announce the launch of a new low-cost legal services centre in Manchester – comprising a mix of lawyers, paralegals, business services staff and secretaries – in addition to three other initiatives intended to boost client service: virtual transaction teams – an extension of its much-copied temp lawyer service Lawyers on Demand (LoD); the use of third-party suppliers; and a service intended to analyse and improve processes and workflows for clients.

The firm has followed this up with a planned onsite launch of LoD in its new Manchester outpost. LoD, which provides freelance lawyers to in-house teams and law firms on a temporary basis, has won a number of clients since it first launched, including Google, the BBC and Barclays. LoD posted turnover of £9m in 2012-13. It employs 200 lawyers and has so far completed more than 400 assignments for blue-chip clients.

Earlier this year it renewed its most notable contract – a £5m a year contract with Thames Water for another four years, after the water company retendered the contract.

Follow the leader
While the firm's governance review is far from over and exits are continuing to mount, BLP already appears to be in a stronger position than it has been in recent years, which can only be a good thing given how many distractions it still faces. In addition to its ongoing partnership consultation it is also potentially gearing up for its first significant change in management in 15 years. Eisenberg's term as managing partner is due to draw to a close next May, and, while there have been no announcements internally about whether he will stand again, many within the firm expect that he will not stay in the role but are keen for him to take on another management position at the firm.

Early tips for Eisenberg's potential successor include head of corporate David Collins. In the meantime, MacGregor's term as executive chairman and Harold Paisner's term as senior partner are also due to end next year.

"People are staying cautious on speaking out about going for the managing partner role. Neville's been in the job for such a long time and they don't want to be perceived as disloyal, but the whispers have started," says one partner.

One thing is clear: whoever ends up in the driving seat is going to have their work cut out. Having emerged under Eisenberg as a challenger firm that defied all expectations with years of market-leading performance in the wake of its merger and as recently as 2011-12, the firm now has much to prove again. History suggests it will rise to the challenge.

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Revenue and PEP: five-year overview

2009-10
Revenue – £191m
PEP – £455,000

2010-11
Revenue – £229m (+19.9%)
PEP – £712,000 (+57.5%)

2011-12
Revenue – £246m (+7.4%)
PEP – £660,000 (-7.3%)

2012-13
Revenue – £233m (-5%)
PEP – £401,000 (-39%)

2013-14
Revenue – £246.5m (+5.8%)
PEP – £542,000 (+35.2%)

Source: Legal Week top 50

• For more, see BLP's blip – after a few troubled years, the firm needs strong leadership to get back on track