The awkward question of succession at Bird & Bird

Over the past decade, few top-end UK law firms have boosted their turnover as much as Bird & Bird.

Since 2009 firmwide revenue has risen by 111 per cent, from £186.3m to £303.2m. The total number of lawyers at a firm that has become ever-more international has nearly doubled, from 661 to 1,068, while the total number of partners is up by 51 per cent, from 192 to 291.

But that is where the good news ends, at least in terms of the headline metrics. Average revenue per lawyer (RPL) has barely budged since 2009 (last year it was £284,000 compared with £282,000 in 2009) while average revenue per partner has only inched up, from £970,000 to £1.04m.

Since 2009 firmwide revenue has risen by 111 per cent, from £186.3m to £303.2m

The firm’s profitability has also failed to keep pace with its flag-planting-driven turnover expansion. Atypically among top UK firms, Bird & Bird’s profit margin has stayed resolutely below the 20 per cent mark for the past decade. In the 2016/17 financial year, the most recent for which data is available, it stood at 17.4 per cent, or £52.8m, on a total turnover of £303.2m.

Neither has the dial shifted much for partner profit, at least for those at the bottom of the equity. In 2009 average take-home for this group was £296,000. Last year it was £313,000, a rise of just under 6 per cent.

In contrast, the increase at top of the equity, while not exactly rocketing through the roof, is more than double that at the bottom, going up by 13.5 per cent, from £796,000 to £905,000, according to data supplied to The Lawyer for the annual UK 200 report. According to the firm’s most recent LLP accounts, however, Bird & Bird’s highest-paid member benefited from a 13 per cent pay rise last year, to a record €1.08m (£953,000), while the management committee received a 20 per cent increase in remuneration in 2016/17, up from €4.6m to €5.5m.

The man at the top of the equity is thought to be CEO David Kerr, the lawyer who has run Bird & Bird for longer than some of its people have been alive. Kerr has been in the top job since 1996.

This epic stint easily makes Kerr one of the longest-serving major international law firm leaders in the UK market. Which means that when the topic turns to succ­ession among top UK law firms it is inevitable his name crops up. And not always in the most glowing terms.

It’s ridiculous to ask about succession planning at Bird & Bird. There is no succession planning, it’s not mentioned” 

“The word ‘succession’ has been deleted from Bird & Bird’s spellchecker,” jokes one lawyer familiar with the firm.

Another says that answering any questions about the firm’s succession planning is easy “because there isn’t any”, while another is yet more forthright: “It’s ridiculous to ask about succession planning at Bird & Bird. There is no succession planning at all, it’s not mentioned. Nothing. The gag is that it’s a sole proprietorship with an interesting profit share.”

‘The sole arbiter of fact, truth and drawings’

Of course Kerr’s length of tenure alone is likely to make him a target for criticism, but numerous lawyers say it is his management style that really counts. In a sentence, the issue (they claim) is that “all roads lead to David”, and that most notably he is a powerful factor in the remuneration of the firm’s senior lawyers. Numerous sources also suggest there is frustration with what one describes as a “certain lack of transparency in the process”.

“David is known as Kim Jong-Un internally, and not affectionately,” claims one former Bird & Bird lawyer. “A lot of people there are incredibly pissed off, they think he runs it like North Korea and is the sole arbiter of fact, truth and drawings.”

Another ex-insider echoes this theme: “It’s a governance model to die for, if you’re Kim Jong-Un. If anyone challenges him they’re not long for this world.”

If Kerr is indeed seen by many, fairly or unfairly, as the sole arbiter of a partner’s profit share, this is a view that is guaranteed to breed discontent. The most obvious personification of this is Dominic Cook, a former Bird & Bird corporate partner and first CEO of the firm’s consulting arm Baseline, who remains the only lawyer to challenge the incumbent for the leadership.

Cook’s challenge came in 2016. His manifesto included a series of charts tracking metrics including a graph highlighting Bird & Bird’s relatively poor financial
performance in terms of overall profit vs Kerr’s year-on-year rise in remuneration. It is understood to have not gone down well with the CEO. Cook exited the firm later the same year and is now a partner at Deloitte.

Cook is understood to have seen his profit share reduce towards the end of his time at 2Birds, despite Baseline being a profitable business generating, it is understood, in excess of £2m (according to sources).

Other partners who apparently fell out of favour and saw their remuneration cut are thought to include Alexander Schröder-Frerkes, the former head of Germany who was in charge in 2014 when Hamburg-based Bird & Bird lawyers were involved in a corruption trial involving a clients. He remains at the firm, but in a purely fee-earning role.

“Inevitably, much of the reason for people being pissed off comes down to remuneration,” claims a former partner. “The remuneration committee takes a range of factors into account during the allocations process [which runs from November each year to the end of January, when the first draft of partner remuneration is drawn up]. The master list is reviewed by various groups and heads of department and so on, who put in representations. David sees the final list and decides what the final numbers will be.”

Another former insider says Kerr makes initial recommendations, making reference to input from country or group heads, and after that his involvement is “limited”.

“Ultimately, recommendations are put to the allocations committee which reviews them and makes adjustments, or not,” says the source. “The proposed allocations are published and then voted on.”

Partner are put into tiers, each with a number of equity points.

“No one puts their head above the parapet because, if they do, David says we’ll drop them a tier or two,” insists another former partner. “That’s the way the firm is managed. If he has a beef with someone he can dress it up in performance metrics so people get managed out by virtue of the draw. There’s no confrontation, you just fall down the tiers very quickly.”

The Lawyer asked Bird & Bird about the extent of Kerr’s involvement in equity points allocation and partner remuneration, but the firm did not comment.

A key issue

Nevertheless, this apparent direct link between Kerr’s power base and partner pay highlights a key issue for the future of Bird & Bird, and one directly linked to the firm’s governance and succession.

“The most telling stat in the [contested] election was the number of people who didn’t vote,” insists another former partner. “Cook almost won, there was a big vote for change but a lot of people, maybe a third of partners, abstained. They wanted to make it clear they didn’t want to vote for David.”

Several individuals interviewed for this article also suggested that the reason there were so many abstentions in the firm’s only contested election was because there was a lack of belief the vote was genuinely anonymous.

“Partners feared it would get back to David,” claims one.

This itself highlights another issue, that there are insufficient checks and balances on the extent of Kerr’s power.

“The real problem is – who is the person who says ‘no David’?” claims a source.

If correct, this makes identifying a clear successor to Kerr even more difficult.

The apparent lack of transparency over remuneration has been blamed by some for defections in parts of Bird & Bird’s overseas network. Notably, in 2014 four partners from its Swedish practice, including Jim Runsten and Johan Tydén, upped sticks to form tech boutique Synch, at least in part, it is thought, because partners there believed their profit share was not in line with performance.

But at the same time Bird & Bird’s international reach has continued to grow. One of its most recent major extensions of the platform came earlier this year with hires from Weil Gotshal & Manges in Budapest, while in the same period it opened its second office in the Netherlands after The Hague, launching a ‘hub’ office in Amsterdam in January.

Bird & Bird is aiming to be the number one law firm for organisations being changed by the digital world

And in potentially the most significant development in November last year China’s AllBright sealed a co-operation agreement with Bird & Bird that will see the Shanghai-headquartered firm set up a representative office in the UK firm’s City premises. Asia Pacific chairman Justin Walkey said at the time of the deal that a merger at some point was a possibility, while Kerr underlined his firm’s undoubted sector credentials by claiming Bird & Bird was aiming to be “the number one law firm in the world for organisations being changed by technology and the digital world”.

The firm also stretched out to the US for the first time last year, with Milan-based co-head of international corporate Stefano Silvestri and London IP partner Nick Aries relocating to San Francisco to launch the new office.

Moves such as these suggest that Kerr retains the trust of a significant group of senior partners and influencers, for now at least. Indeed, in 2016 Kerr was re-elected for another three years, with Italian managing partner Massimiliano Mostardini (an IP specialist who founded the firm’s practice in Italy) taking over from Michael Frie as the new chairman.

There are no indications that Kerr has any intention other than to stand again when management elections return in 2019.

“It’s mad, bonkers,” says another former insider asked for his thoughts on Kerr having run the firm since 1996. “David is an extremely clever guy, a nice guy if a bit difficult socially, and he’s been able to preside over a period of unprecedented growth. We were constantly trying to get him to talk about succession but he wouldn’t address it. He’d just talk about other topics on the agenda. I was never sure if it was because he was uncomfortable discussing it or simply wouldn’t countenance it. But I’d be amazed if he stands again.”

When asked directly if Kerr intended to stand again, the firm did not comment.

Neither did it comment on reports from some quarters that it had made amendments to the partnership agreement over the past 12 months, with some suggesting it had extended the upper age limits for partners. A move such as this could clearly be aimed at allowing senior partners, including Kerr, to stay on longer.

One person familiar with the firm suggests another reason why the change might have been made.

“The people at 2Birds enjoy their law and love nothing better than grappling with a problem,” says this source. “They’re some of the best exponents of IP and tech but a few of them are getting on a bit. A lot of expertise could leave the organisation over the next few years but they’d be quite happy to do nothing else but carry on practising.”

Another former Bird & Bird lawyer comments: “They’ve changed it specifically because that echelon is getting older and they want to stay on longer.”

A Bird & Bird spokesperson would not comment on specifics but did say: “Within our partnership we regularly consult with partners in updating our partnership agreement and governance structure, and key leadership roles are regularly elected by partners, including our CEO, chairman and board members, all of whom have clearly defined roles in the leadership, management and administration of the firm.”

Sources close to the firm admit that the issue of ‘what will happen after David’ is a key discussion point among the partnership, although one adds that it might not be an issue for several years yet.

“My guess is he’ll remain CEO until he retires,” says a former partner.

What does Bird & Bird need? For a group of mid-tier younger partners to grow a pair”

There have at least been recent indications of some change at the top of Bird & Bird. Last May the firm took an axe to its partner-heavy management, cutting its board to just six partners: Kerr, Mostardini, Stockholm employment head Katarina Ahlberg, financial services sector co-head Christian Bartsch, technology and communications partner Roger Bickerstaff and Milan-based Italy corporate group head Alberto Salvadè. So the firm is prepared to make changes to its governance and leadership, but the top man remains tight-lipped about his plans. Clearly, this will not stop speculation.

“It seems there’s nobody to replace him,” says a lawyer no longer with the firm. “He’s been a very good and strong driver of international expansion, but the discussions about succession when I was there were very limited, at least formally. The question was whether this was a topic that should even be discussed openly. In my time, it wasn’t.”

Is it in the best interests of the firm Kerr built that his time at the top continues apparently open-ended? If nothing else it risks creating the impression that there is a dearth of younger partners coming through either because they are being blocked or, potentially worse for the prospects of the firm, because of apathy. Certainly, most lack experience of leadership at the top level, for obvious reasons.

“What does Bird & Bird need?” asks another former partner. “For a group of mid-tier younger partners to grow a pair. The firm needs a wake-up call.”

But perhaps their reluctance to heed this advice is because they are all too aware of the, only half-joking, words of warning from another former partner: “If you challenge David, you’ll be off to a salt mine.”

Or Deloitte.