Editors' Blog

A week is a long time in Lovells

Posted 9/02/2007 by Deal Comment

It has certainly been an eventful week for Lovells. On Monday legalweek.com broke the news of the firm’s long-awaited Dubai launch before two days later revealing that two partners were quitting its expansive US arm. Today, we report that its long-running and unpopular partnership review has decided to ditch proposals for major reform of its lockstep model.

Three note-worthy events, all of which illustrate key challenges and opportunities for Lovells. What is less clear is whether Lovells  finishes the week better or worse off than it began.

Start with the most contentious issue, that much-derided lockstep review. It is true that management has been criticised for putting the firm through two reviews only to come up with so little change. It is also true that the firm’s partnership council was considerably more enthusiastic regarding a substantive move away from lockstep’s comfort zone than the partnership in general.

Still, the logic of the most controversial proposal – the creation of a band of super-pointers to aid US expansion – was always shaky. Not only was there no way that the London partners were going to allow it, but the notion of handing out above-plateau deals to the US practice on the basis of a couple of good years is bizarre. The firm had to invest for a long time to build up the practice so there’s no reason why it should have to offer an equity cut to local partners the minute it comes right.

And though one of the departing partners – US restructuring head Gary Lee – was among Lovells’ biggest billers – the example of Clifford Chance (CC) shows there’s little point trying to retain such American lawyers who aren’t on board.

The other good news is that the pedigree of Lovells’ new Dubai team, led by respected Denton Wilde Sapte partner Rahail Ali, is very promising.

None of which changes the fact that it looks pretty mis-judged for Lovells to have got itself boxed into a second partnership review so soon after it completed the previous one in November 2005.

Even stranger was the failure to learn the all-too-obvious lessons of CC’s ill-fated attempt to push through US super-pointers several years back rather than focus the debate on the obvious issue of whether Lovells should be a lockstep firm at all.

With last year’s bout of strategic debate basically re-affirming a commitment to Lovells attempting to compete with the magic circle across a range of targeted sectors, there’s a strong case for an aggressive move towards merit-driven pay. That case will get even stronger if the firm’s core London corporate finance team cannot get demonstrably back on the growth track sharpish.

A cynic might also wonder why it took so long to move through a review only to recommend a bit of minor fiddling (laterals getting one-off equity reviews), which is clearly borrowed from Allen & Overy.

Giving the benefit of the doubt, you could argue that Lovells may now be able to make a virtue out of necessity with the disruption of this review behind it. But it has also reduced its room to manoeuvre should its 2006-07 results come in at anything less than sparkling.

alex.novarese@legalweek.com