Clifford Chance's top-tier partners in jeopardy as firm approves lockstep overhaul
Under-performing partners and those in less profitable practices at risk of being nudged down the ladder
May 13, 2015 at 07:03 PM
4 minute read
Two weeks ago Clifford Chance's (CC) 581-strong global partnership gave its permission to the streamlined management team introduced by managing partner Matthew Layton to overhaul the firm's lockstep structure.
Though the details are sketchy, with the firm refusing to confirm anything relating to the shake-up, the end result appears to be that CC will find it easier to reward star performers and, at the same time, deal with those who are not pulling their weight, or who are simply sitting in less profitable practices or regions.
Former partners suggest that the firm's three-tier lockstep, effective from 2005, means CC has theoretically been able to reward top partners working in any office with 115 or 130 points ever since – significantly above the top of the core lockstep ladder of 100 points.
In practice though the firm has never gone above the top of the main lockstep. And, until the latest changes voted in by the partnership, even if it had wanted to do so it would only have been possible with the approval of the majority of partners on a case-by-case basis.
Given CC's partnership has been badly bruised by high-profile exits to US rivals in recent years, management has good reason to try and make it easier to reward partners based on merit, rather than simply experience.
Most recently, Frankfurt-based global co-head of private equity Oliver Felsenstein and Munich partner Burc Hesse quit for Latham & Watkins, which had already picked up a trio of CC private equity partners – Kem Ihenacho, David Walker and Tom Evans – in London over the last few years.
Only a handful of top names are likely to benefit from the extra points available, but even limited use will make it easier for the firm to retain key partners and relationships currently at risk of being lured away by the strength of the dollar. Or indeed, to recruit such star performers.
More controversial is the inevitable side-effect of the use of super-points – other partners being dropped down the lockstep to avoid diluting profit per equity partner.
It is understood that all current plateau partners on the core 40-100 point ladder are likely to find themselves under review. And, with a partnership that remains top-heavy even after a 2009 restructuring, the expectation is that many more partners will go down to 70 points than will go up above 100.
Certainly partners at rival firms already point to several CC CVs on the market from those concerned about the impact.
According to a source close to the firm, while individual partners could see their lockstep position – and therefore remuneration – reduced, there are no plans for any wholesale cuts to particular offices or practices.
The lowest tier of CC's existing lockstep structure is designed for weaker offices in less profitable jurisdictions such as Eastern Europe, and is believed to run from 30 to 70 points. While some former partners suggest that the firm has previously discussed moving other offices, such as Brussels, to the lower ladder, this is not thought to be on the cards now, despite the recent review of its German practice.
Much of the detail of CC's latest lockstep overhaul is still unclear and, significantly, it is not yet known how the firm will assess partners, who are already appraised annually.
However, some former partners believe the extra flexibility injected into the system is a good thing. But they point out that success will depend on the application, with one warning against applying, for example, a billings target "that is not so easy for those outside London to hit".
Another argues: "It's a brave move as the market perception might affect CC adversely. If you create a lockstep where year-on-year you could go up or down, it goes against the concept of partnership. It's a risk."
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