Kirkland & Ellis is overhauling its equity partner exit terms – ushering in new policies to withhold compensation for departing partners, as well as slashing notice periods and speeding up the time it takes those leaving to be repaid their capital.

Partners are understood to have unanimously approved the changes earlier this week (16 July), with the move, first revealed by Financial News, meaning equity partners leaving the firm could potentially see millions in accrued compensation withheld by Kirkland, where average PEP stands at nearly $8m and stars are paid significantly more.

Until now, Kirkland has withheld 55% of equity partners’ annual compensation until the following year. The new policy grants Kirkland the option of withholding this accrued compensation from departing partners altogether. It will be at Kirkland’s discretion whether it chooses to withhold the distributions.

In addition, the firm has also approved a change that will reduce the notice period for exiting partners from 120 days to 60 days, effectively returning Kirkland to the notice period it had prior to 2016.

The firm has also slashed the time those leaving will have to wait for their capital to be repaid from 12 months to three months.

The changes to Kirkland’s exit terms on its partnership agreement come after the firm saw a string of high-profile departures to Paul Weiss in London last year.

Debt finance partner Neel Sachdev and buyout partner Roger Johnson left to launch an English law practice for Paul Weiss, going on to bring in equity partners including Timothy Lowe (tax) and Matthew Merkle (capital markets), as well as several non-equity partners.  For more on Kirkland and Paul Weiss, see LB’s feature ‘Market forces: Paul Weiss, Kirkland and the war for London talent’ . 

With new firms likely having to pick up the cost of any potential profit distributions withheld from new recruits, the overhaul will make it more costly to add lateral teams from Kirkland in future.

Danielle Crawford, a partnership counsel at Forsters, said that in practice departing partners would likely not lose out personally because of the change, with their new firms instead picking up the additional cost of matching the withheld distributions.

She told Legal Business: ‘Talking about the discretion to withhold distribution payments for departing partners is very common across the bigger firms especially Kirkland’s competitors. It makes it less attractive for partners to leave, if a firm wants to poach a partner, they might have to make good that loss to persuade the partner to leave.’

Meanwhile speeding up the time it takes to get departing partners out of the door and to receive their capital back will save Kirkland money and it will also be better for firm culture, according to partnership experts.

‘Prolonged departures are not good for team morale/key firm-client relationships,’ added Crawford. ‘There is also a higher risk that the departing partner can take more business from the firm if they continue with client work for a number of months after they have decided to leave.’

Another partnership lawyer said: ‘When someone is so disaffected it’s best to get them out sooner rather than later rather than having them hanging around for a longer period.’

Partners suggest reducing the notice period and time taken to repay capital could well have been sweeteners for partners to get the changes over the line and boost retention. They also bring the firm in line with other firms, which have increasingly been looking at exit terms. Linklaters for example discussed withholding profit from departing partners before deciding against it.

‘It is increasingly common, particularly for the large, high earning US firms,’ said Jon Haley, head of professional partnerships at Farrer & Co.

He added: ‘It has not historically been common in UK legal partnerships but you do not have to look hard to find similar Bad Leaver mechanisms – whereby retained value in some form or other is forfeited on exit – in other high earning sectors such as private equity and financial services, so in some ways the legal profession could be said to be lagging behind and I suspect others will follow soon.’

elisha.juttla@legalbusiness.co.uk

tom.cox@legalease.co.uk

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Linklaters has leapt to first place in Stonewall’s Top 100 Employers 2024 list, while last year’s number one Clifford Chance has dropped outside of the top ten for the first time since 2020 and is ranked 14^th.

The prominent LGBTQ+ charity assesses its rankings using its workplace equality index, a voluntary benchmarking tool designed to help UK-based organisations measure and improve their LGBTQ+ workplace inclusion. The index measures key areas of employment policy and practice such as staff engagement and the implementation of LGBTQ+-inclusive policies and benefits.

Linklaters has now been ranked in the top 100 for six consecutive years. Its surge to first follows a leap from 53^rd to ninth last year, and marks a notable improvement after the firm hovered around the 50s and the 60s between 2019 and 2022.

In explaining its decision to award first place to Linklaters, Stonewall praised the ‘plethora of opportunities [for employees] to get involved in diversity, equity and inclusion initiatives’ at the firm, and highlighted that ‘events like bi visibility day and non-binary people’s day are celebrated as part of the annual LGBTQ+ calendar’.

Twelve law firms in total are included in the top 100 ranking – up from 11 in last year’s list but down from 15 in 2022. Among those, Charles Russell Speechlys, has climbed significantly higher in the rankings, while   Slaughter and May  and Shepherd and Wedderburn are notable reentries, having not featured in 2023.

In contrast, Irwin Mitchell, RPC and Womble Bond Dickinson have all moved down the rankings. Meanwhile, TLT, which placed 96^th last year; Mills & Reeve, which placed 38^th in 2023 and Leigh Day which placed 25^th last year, have not made the 2024 rankings.

The Stonewall list has shown the legal profession in a good light in recent years. 2024 marks the third time in the last six years that a law firm has ranked first, with Pinsent Masons taking the top spot in 2019 and Clifford Chance in 2023.

tom.cox@legalease.co.uk

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A clutch of major law firms have continued the trend for strong 2023-24 results, with Brodies, Shoosmiths, Clyde & Co and Watson Farley & Williams among the latest to reveal healthy financial figures.

Brodies has today (15 July) posted a 7.5% revenue increase to hit £114.3m, marking 14 consecutive years of growth for the firm after it hit a key milestone last year when it became the first Scottish firm to pass the £100m mark.

After a 6% bump last year, profit held steady with a 1.2% increase from £48.6m to £49.2m. Profit per equity partner (PEP) also stayed flat at £846,000.

Managing partner Stephen Goldie, who replaced Nick Scott in May following Scott’s retirement, said that the firm has made progress across all core practice areas – banking and finance, corporate and commercial, dispute resolution and risk, personal and family, and real estate. ‘Our strategic plans for the next three-year cycle are now underway and we look to the future with confidence, in ourselves and in the resilience and ambitions of the clients that we work with,’ he said in a statement.

Clydes has also posted a strong set of results, with revenue up 10% to £845m, and PEP up by more than 4% to £739,000, with profit up 3% to £174.4m.

The headline turnover increase comes after the 22% increase the firm notched last year, though only 6% of that was ‘organic growth’, with the rest of the bump accounted for by the completion of Clydes’ merger with BLM.

Clydes continued to expand this year, opening new offices in Warsaw and Jeddah in December and May respectively. The UK accounted for 47% of the firm’s total revenue, with the proportion of revenue generated outside the UK a percentage point down on last year’s 54%.

Europe was the fastest growing region with a 17% increase in turnover. The shares accounted for by the US and Asia-Pacific were each down by half a percentage point on last year, to 21.5% and 11.5% respectively. The Middle East and Africa accounted for 12% of the firm’s turnover and Latin America for 2% – the same proportions as last year, while the UK saw 9% growth.

Watson Farley & Williams has also posted double-digit growth of 11%, with revenue at £238.4m, up from £214.7m last year.

Overall profit also rose by 7.2% to £66.8m from £62.3m, with PEP remaining steady at £593,000, a slight increase of 1.5% from last year’s £584,000. Equity partner numbers, meanwhile, went up nearly 6% from 107 to an estimated total of 113.

Commenting on these results in a statement, managing partner Lindsey Keeble said: ‘We continue to build on the successes of previous years with double digit global income growth. With a majority equity partnership, we continue to invest in the firm to build a sustainable business with strength and depth at all levels.’

Revenue was also up at Charles Russell Speechlys, where a 13% bump took turnover to £218.3m after a 9% increase last year.

Profit was up by more than 20% to £45.9m, while PEP went up more than 30% to hit £661,000, comfortably offsetting last year’s 3% dip.

The firm’s UK offices generated £174.4m (a little under 80%), with £43.9m from overseas. International revenue growth was faster than the firmwide average, at 15%, with the Luxembourg, Paris, and Switzerland offices singled out as strong performers. The firm also reported 30% revenue growth in Asia, boosted by lateral hires and the July launch of its Singapore office.

‘Our results this year paint a picture of sustained growth’, said managing partner Simon Ridpath in a statement. ‘The fact we continue to see strong revenue and profit numbers and investments back into the firm bodes well for the future, and we remain fully confident in our strategy.’

The firm’s strategy still has private capital as a ‘core focus’ according to Ridpath who also mentioned the ‘raft of senior lateral hires across the firm’, referencing the 22 partners the firm has taken on since the last financial year.

At Shoosmiths, meanwhile, revenue ticked up 5% to push the firm over the £200m mark for the first time to hit £206.7m. Profit was up 5% to £66m, while PEP jumped 16% to £781,000.

Though the increase in turnover was slightly below both the 7% the firm posted last year and the previous year’s 8%, the firm exceeded last year’s performance on profit, which increased 3% last year, and PEP, which went up by just £1,000. The corporate and litigation departments both outperformed the wider firm at 15% and 12% growth respectively, while real estate stayed flat.

elisha.juttla@legalbusiness.co.uk

alexander.ryan@legalbusiness.co.uk

tom.cox@legalease.co.uk

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For law firms, tech credentials are perhaps more important than ever before. The AI revolution has captured the imagination of all forward-thinking advisers, with its potential to improve process, save costs, and impress clients.

And when it comes to tech clients, it isn’t just about the Apples or Alphabets of this world – with the UK ranking third globally for venture capital investment and home to more than 150 unicorn companies worth more than $1bn, firms are also chasing the next big thing.

The proliferation of law firm tech incubators such as A&O Shearman’s Fuse and Slaughter and May’s Fast Forward underlines how recent years have seen firms truly catch on to the importance of first-mover advantage in the startup world, positioning themselves to work with tomorrow’s tech giants today.

The rise of the machines

David Cran, head of IP and tech at RPC, recalls how the shift to Covid lockdowns in 2020 acted as a catalyst for the tech sector. ‘Suddenly every part of our lives was reliant on tech – from virtual working to how we engaged and communicated with people – and this expectation that technology will influence and permeate everything remains.’

But while the prevalence of tech in all of our lives has only continued to grow, the sector itself has seen waves of layoffs over the past two years. According to data from industry tracker Layoffs.fyi, more than 350,000 tech workers have been laid off across 2023 and 2024 to date.

However, this may have been more a correction than a sign of significant problems. Ben Allgrove, partner and chief innovation officer at Baker McKenzie, outlines the most commonly cited factors behind this.

‘It is widely reported that the layoffs are partly a correction to overhiring in the pandemic,’ he says. ‘The boom was wrongly assumed to be a straight line. Growth in the sector is still remarkable, but not as remarkable [as during the pandemic].’

The second factor he references is that tech companies are ‘growing up’. ‘Speed to market used to be the only objective, whereas now they are also focused on efficiencies,’ he argues.

The third related factor is that tech companies are becoming more targeted in their spending: ‘There was a lot of throwing stuff at the wall to see what stuck,’ he says, ‘whereas now they are becoming more focused.’

This last point is echoed by Cran, who emphasises that recent layoffs were a sign of a new, more mature approach from companies, as opposed to a simplistic reaction to a market slowdown. ‘The market is not saying to cut the cost to the bone – it’s just that costs are being redirected. So, if you look at many of the major tech companies, they will have laid off headcount. And of course, that is incredibly tough for all those people, but what they’ve typically done is take that money and apply it into research and development, particularly into artificial intelligence, which is what the market wants to see.’

The boom was wrongly assumed to be a straight line. Growth in the sector is still remarkable, but not as remarkable [as during the pandemic].
Ben Allgrove, Baker McKenzie

As for when the spate of layoffs might end, Bristows tech sector head Mark Watts says recent green shoots in the market could lead to a shift in policy from tech companies, with rehiring now more likely given recent share price recoveries. Linklaters global co-head of fintech Julian Cunningham-Day strikes a more circumspect note, however: ‘While 2024 is likely to be less severe than 2023, I would say recalibrate for 2025 in terms of optimism.’

The Davids taking on the tech Goliaths

Another significant development impacting the market of late has been the significant uptick in collective actions brought against tech companies. As Cunningham-Day observes: ‘After years of build-up in digital regulation, enforcement is increasing, leading to class actions off the back of high-profile breaches of privacy, consumer protection and competition law. Also, claimant firms are getting more imaginative in the ways that they are putting together class action style claims in new markets.’

Cran highlights that the ‘one-to-many’ business model of tech giants increases the likelihood of their becoming targets. ‘The amounts of money involved on a per capita or per individual basis can be low, but when you aggregate it up, it can be very significant,’ he notes. Prime examples of this include the high-profile Gormsen v Meta case, which encompasses as many as 45 million Facebook users, and is reportedly worth up to £3bn, as well as the collective claim brought by campaigner Nikki Stopford against Google, alleging abuse of dominance and seeking £7.3bn in damages. Both claims are being funded by global commercial litigation funders who see the UK as an increasingly attractive destination.

Another issue for tech giants is that the breakneck pace of change can mean that by the time new regulations are passed, they are no longer fully relevant, while there can also sometimes be a disconnect between regulators and big tech companies. As Linklaters TMT partner Georgina Kon puts it: ‘When I advise big tech clients, I don’t hear anyone say: “I want to break the law”, or “I don’t care” – but what I do hear people say is: “this will be really hard to operationalise”, or “I don’t understand what the regulators intended.”’

As an example of regulation that is hard to operationalise, Kon references recent guidance from the UK’s communications regulator. ‘Ofcom has promulgated about 1,700 pages of guidance, and it expects it to be ingested in a short amount of time. Now, I don’t criticise Ofcom necessarily for that – it is genuinely trying to be helpful, but equally that doesn’t mean the companies can ingest it so fast. Operations can be quite complex.’

And even if tech giants are able to effectively ingest such guidance and regulations, there are follow-on concerns. With the influence of tech now so pervasive in so many areas of life, companies face scrutiny from numerous regulators, all of which have competing priorities that can come into conflict with each other.

Kon uses an example which highlights such conflicts – age verification. ‘If we suspect we can see, for example, an adult account that we think is accessing or communicating with lots of children’s accounts – from an online safety perspective, should we be doing something about it? But from a privacy perspective – is that something that we should validly be tracking?’

Age verification becomes even more complicated when counselling on global product rollouts. Allgrove points out that it is necessary to be aware of cultural differences and tendencies.

‘If you take a US mindset: responsibility for protecting kids lies with parents, whereas in France, they say that the child has a right to privacy which may trump that.’

When I advise big tech clients, what I hear people say is: “this will be really hard to operationalise” or “I don’t understand what the regulators intended”.
Georgina Kon, Linklaters

As if all of this wasn’t enough to keep tech companies busy, Kon highlights another issue – information requests. ‘At the same time that companies are dealing with all of this compliance, they’re getting requests for information, not only from UK regulators but from the EU Commission and various other regulators as well. It sucks up an enormous amount of time [for tech firms] to keep the wheels moving in the right direction, including time from the people whose day job it is to keep us safe online’.

Artificial intelligence, genuine expertise

One common feature of tech giants’ approach to the legal sector is to spread work around various law firms. There are numerous reasons for this, including that, as Kon puts it, ‘they like getting different viewpoints.’

And there is a clear difference in the way different firms approach the sector. Bristows’ Watts highlights the firm’s ‘strong sector focus on life sciences and tech,’ as giving the firm an edge in terms of expertise. This sector focus is underpinned by a non-traditional approach to recruitment, with non-law grads making up more than half of the lawyers at Bristows. ‘We hire a lot of people with tech and science backgrounds, including PhDs – people who really get the tech,’ Watts explains.

As a smaller, primarily UK-based firm operating in a global tech market, Bristows has dedicated much effort to establishing an informal network of what Watts describes as ‘uber-pragmatic firms with the same focus on tech that we do.’ The advantage of this approach, according to Watts, is that the firm is free to choose who to work with and not tied into working with anyone.

He says that the arrangement works for the vast majority of clients who ‘don’t tend to look behind the curtain. They trust us to work with the right firms.’ However, he does acknowledge that that ‘there can be a complexity to the story for some deals’ and that some clients prefer the ‘simplicity of a global brand firm.’

Linklaters’ Cunningham-Day is unsurprisingly a proponent of the global brand firm model, arguing that the Magic Circle firm offers tech companies ‘an effective global approach to managing risk and compliance issues’, adding that the firm’s wide reach allows it to assist companies ‘to respond effectively and comprehensively to challenging regulatory issues, litigation, cyber breaches, with local specialists across our 31 offices making sure that clients cover all the angles.’

Kon adds that Linklaters combines the reach and breadth of practice with ‘a hugely deep tech specialism’ – she claims other firms may be ‘great at finance, great at litigation’ but do not have ‘experienced tech practitioners’ of the calibre of those at her firm. Some even trumpet their lack of tech specialisation as a selling point. ‘Clients tell us that one major firm describes itself as proudly non-specialist – they like to think of themselves as generalists that can do a bit of everything.’

The idea, however, that a generalist approach to tech can be an advantage in the tech space is given short shrift by Allgrove: ‘My view is that there isn’t an advantage to being a sector generalist – it’s a specific set of firms advising on product counselling and regulatory. Only a few firms are able to do it.’

Cran comes at the issue from another perspective – the idea that tech companies will seek out individuals rather than firms – ‘The phrase you often hear is “we just want the best people in the room”,’ he says. ‘In the tech industry you are frequently on calls with lots of people from other firms, and the traditional way to look at them is as competitors. But they’re not – they are just people that you work with.’ Cran believes tech companies value lawyers’ ability to work collaboratively – ‘As soon as you stop playing nicely, start trying to make the work smaller, put your arms around it and say “I just want to hold on to what I’ve got”, you won’t be involved for very long.’

A future not so far, far away

So what next for the tech industry, from the legal perspective? The short answer is that nobody knows, but everyone is excited.

‘Goodness knows what tech will be capable of in five years time,’ Watts states, adding that he believes that AI has the possibility to create completely new, not-yet-conceptualised industries and sectors.

As soon as you stop playing nicely, start trying to make the work smaller, put your arms around it and say “I just want to hold on to what I’ve got”, you won’t be involved for very long.
David Cran, RPC

Allgrove, meanwhile, predicts that another hot area will be robotic personal assistants. ‘Once you have the independent ability to be an agent in the physical world; that’s going to freak people out. Do we end up in a world like Star Wars with little robots roaming beneath our feet?’

As technology continues to develop and expand at breakneck speed, the question is whether it will still be possible for tech lawyers to advise across the industry, or will they have to become hyperspecialised?

ChatGPT’s response to that question? ‘A hybrid model is likely, where lawyers develop deep knowledge in niche areas while maintaining a broad understanding to address interdisciplinary and multifaceted tech law issues. This balance allows for specialised advice while catering to the diverse needs of the tech industry.’ Whether that does in fact turns out to be accurate will perhaps demonstrate how far tech and AI have come. LB

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