Mannheimer Swartling: the power of lockstep for an independent firm

TeliaSonera’s 2012 decision to turn to longstanding adviser Mannheimer Swartling to investigate the company’s investments in Uzbekistan was a first for the Swedish legal market. For the firm, it was the launching point to a brand new service line.

On the back of the instruction and a wave of other enquiries from clients Mannheimer turned to the Swedish Ministry of Finance for its first head of sustainability, Emma Ihre, in 2014. Last year Ihre’s hire was followed up with the launch of a dedicated corporate sustainability and risk management practice.

The group now has four full-time partners and another 10 associates and is one of the fastest-growing teams in the firm, says managing partner Jan Dernestam.

“It’s opened the eyes of clients,” Dernestam says of the initiative and also the TeliaSonera investigation that sparked it. “It showed the business community the importance of acting in a compliant and sustainable way.”

The firm is providing clients with advice on issues such as due diligence, risk analysis, investigations and crisis management – with the aim of providing a holistic view of everything connected to ethics, compliance and sustainability. Along with clients TeliaSonera and Volvo, Mannheimer organised a Nordic-wide summit for ethics and compliance officers last year to help push the offering.

The initiative is an example of the way the firm is aiming to position itself in the face of competition from international players.

Sweden is the most international of the four Nordic markets. Firms including Baker & McKenzie, Eversheds, Linklaters and White & Case as well as Finnish-headquartered Hannes Snellman and Roschier all have offices in Stockholm. But by and large global firms have chosen not to set up in the Nordic region, instead choosing to fly in and out to serve the large corporates headquartered there.

Like most of its major local rivals Mannheimer has chosen to stick to its knitting, remaining independent and focused on Sweden.

“We’ll not merge,” says Dernestam with certainty. He adds that while some mid-tier Nordic firms may explore the notion of tying up with other regional players or an international outfit, this is definitely not on Mannheimer’s agenda.

“We’ve analysed it, as if things start to happen we’d like to have made our decision not to merge on an informed basis,” he says.

Instead, Mannheimer has been focused on improving its best friends relationships with like-minded independent firms in other jurisdictions. According to Dernestam these relationships have become more targeted in recent years.

“If you go back 10 years, we’d probably entertain 10 firms in every jurisdiction,” he says, explaining that now Mannheimer has narrowed those relationships to two or three per country. Its referral partners include the likes of Freshfields Bruckhaus Deringer and Macfarlanes, US firms Cleary Gottlieb Steen & Hamilton and Cravath Swaine & Moore, Ireland’s Arthur Cox and Switzerland’s Homburger, as well as Slaughter and May and its European best friends.

Mannheimer also has seven representative offices in Belgium, China, Germany, Russia and the US. Together these generate 15 per cent of firmwide revenue with the remaining 85 per cent generated from Sweden. Dernestam estimates that around 50 per cent of the firm’s client base is Swedish and the balance are foreign companies investing in Sweden.

In absolute number terms, 2011 was Mannheimer’s best-ever year when the firm brought in SEK 1.234bn (£118.5m). The record was followed by a sharp 9 per cent slump in 2012, caused by a stagnant M&A market. There was a lesser drop in turnover the following year.

But after a pick-up in activity in 2014 and 2015, Dernestam says the firm is on course to exceed its record both in absolute number terms and when historical figures are adjusted for inflation. With the final billings coming in, he is confident Mannheimer is on track to hit SEK 1.25bn for 2015 – although a weaker exchange rate means revenue will have dropped in both euro and sterling terms compared to 2011.

He attributes the growth to “extraordinarily strong activity” in corporate, both in terms of IPOs and in private M&A. Listings have taken off in Sweden in the last couple of years and Mannheimer’s mandates included the SEK 6.9bn IPO of Scandic Hotels in December last year.

“We thought that the [IPO] window was going to close in 2015 but it just continued,” Dernestam remarks.

While of lesser importance in terms of revenue contribution, Dernestam is also pleased with a shift in the firm’s more specialist practice groups such as tax and IP.

“If you look back before the financial crisis our specialist groups and smaller practice groups spent most of their time supporting the M&A group, but ever since the financial crisis they’re doing more work on their own,” he says. “Now all partners understand the importance of being full-service.”

The concept of pulling together is critical for Dernestam. Although turnover is rising this is largely to do with increased volumes of work. After falling between 2012 and 2013 when the firm made cost cuts, headcount has remained steady at around 400 fee-earners for the last three years and is likely to stay that way in 2016.

“The only goal we have is quality,” he adds, expanding on this. At Mannheimer there are no individual billable hours targets – just a collective target, which, if exceeded, generates a firmwide bonus. After a solid 2015 that bonus will be paid out.

Mannheimer is also a pure lockstep firm and Dernestam is committed to keeping things that way – even as the structure comes under attack in several UK firms.

“I’ve been in the firm for 20 years and we haven’t even discussed abolishing lockstep,” he reveals. “What’s driven it for the international firms is international expansion. Since our international strategy is only to do Swedish-related work, we don’t have to over-compensate to get in the star performers – US or UK partners based in Shanghai or Hong Kong.”

Dernestam’s commitment to lockstep extends to preferring fellow lockstep firms as referral partners. While admitting that clients rarely ask about remuneration structures, Dernestam is convinced that having a shared culture is a selling point for Mannheimer and its ilk.

“It matters to the clients because they know that they’ll always get the best-suited person in the firm,” he contends, arguing that ‘eat-what-you-kill’ encourages unhealthy competition within a practice.

Like other firms which remain committed to independence, Dernestam is bullish about Mannheimer’s market position.

“I feel pretty confident all independent firms have a bright future,” he says. “I have to believe in that; if you look around Europe irrespective of enormous competition from UK and US firms, there are one or two leading independent firms doing really well in each country.”

For the moment, Mannheimer seems to be one of those firms.