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Is Addleshaws’ partnership review good news for partners?

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Addleshaw Goddard is currently in the process of reviewing its partnership deeds for the first time in around 15 years.

The amount of time the firm has left since its last review is enough to raise a few eyebrows, but the proposed changes themselves have also been marked as somewhat unusual.

The crucial change Addleshaws is considering is the introduction of a much more strict lock-in period.

It is understood the firm’s current lock-in period kicks in when seven equity partners resign during the same financial year. The proposed changes suggest extending this to cover fixed-share partners as well.

Fox Williams chair and partnership specialist Tina Williams says that this type of clause is unusual in the UK market.

“It isn’t by any means normal,” says Williams. “It’s not unknown but in my experience very few firms have what’s known as a departure-lounge clause.

“It’s often where there’s been a team move and they’re concerned about more people leaving. When people leave a firm it tends to have a knock-on effect on others.”

Protecting against large-scale partner exits is also important from a financial viewpoint as it stops multiple partners removing their capital from the business.

“When you have a very large number of people leaving at the same time,” adds Williams, “not only is the firm losing the business that relates to those partners but it’s also having a bit of a financial hit all in one go. That can put financial strain on a firm.”

The proposed changes would make leaving Addleshaws much harder, which might explain why rumours were circulating that the partnership was annoyed by the proposals.

The rumours themselves revolved around a letter sent to some of the firm’s UK partners by Leeds office head Tim Wheldon. The letter was initially sent to the Leeds team but was then forwarded to partners in Manchester and London. However Wheldon denies that it was a list of complaints and maintains it was designed to outline the proposals to the partnership.

“As head of the Leeds office I thought it would be useful to circulate amongst all of the partners in Leeds a note, which set out some of the questions that may want to be raised in connection with the proposals,” says Wheldon. “That’s looking at it from many different points of view rather than having any particular axe to grind. There was no element of complaint in the letter at all, it was simply observational.”

Lock-ins often happen when a firm loses a large number of partners in a short space of time, but this is not a problem currently facing Addleshaws. Litigator Sonia Campbell left for Mishcon de Reya in February, but appears to be the only partner to have quit for another firm in the last six months.

The firm’s focus in the last couple of years – since 2014, when it made a number of fee-earners in Manchester redundant in the latest in several redundancy consultations – has been on improving morale. Managing partner John Joyce has introduced a number of schemes including reforming the firm’s bonus system. The changes meant that funds are now ring-fenced each year for a bonus regardless of the firm’s performance and are then distributed on an individual basis.

Joyce is currently leading the consultation process with assistance from the firm’s general counsel Simon Callander. As the consultation is still ongoing none of the proposed changes are set in stone. But the fact that they are being considered shows that Addleshaws is looking to future-proof itself, especially when another of the proposals is taken into account.

Addleshaws is also considering introducing a clause that could see partners lose 30 per cent of their equity points if they are seen as a “bad leaver”. It is unclear how the firm defines a bad leaver but it could include actions such as a partner leaving to join a competitor, taking clients to another firm or taking associates with them when they go.

Clauses like this are points any partner looking to leave a firm should be aware of but they should also be considered when joining in the first place.

“If a partner is looking at leaving the first thing they should look at is the notice period, the restrictive covenants, and the financial consequences of doing so,” says Williams.

The first of these is particularly important as Williams says an increased number of firms are altering their notice periods.

“Firms are looking at the length of notice periods,” she adds. “They’re tending to be longer. The norm for an equity partner is either six months or 12 months and sometimes the notice period has to expire at the end of a financial year.

“If a provision was that a partner needs to give a 12-month notice period expiring on a year-end date then if the partner gives notice today he’ll retire on the 30 April 2017, but if he gives it next week he’ll not be able to retire until 30 April 2018.”

These sorts of technical points vary across different firms and mean that understanding any changes to the deed is important.

Although Addleshaws’ own partnership deed has not been changed for 15 years the firm’s head of professional practices group William Wastie is one of the leading experts in partnership law. With the consultation continuing to progress the rest of the firm’s partnership may be knocking at his door to seek advice.


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