Who would be a manager of a law firm?
Unlike a corporate, where the chief executive engages with its shareholders just a few times a year, the managing partner of a law firm is constantly surrounded by its owners.
Bearing in mind too the conservative reputation of lawyers, and the glacial pace of change shown by the profession, the requirement for patience must be infinite.
Who, then, would choose to lead the world’s seventh-largest law firm by revenue with 570 shareholders – sorry, partners – across the globe?
Matthew Layton is more than halfway through his first term as managing partner of Clifford Chance – and it shows.
Charming but croaky, this self-confessed former deal junkie spends a huge amount of his time, up to 45 per cent, on the road talking to partners, associates and business services staff.
Since assuming the role in 2014, after winning the vote in 2013, the former head of corporate has improved the firm’s profitability by 10 per cent, scythed through time-consuming bureaucracy by getting rid of leadership elections and tackled that thorniest of issues, restructuring lockstep.
It is a taxing job but it really is evident that Layton genuinely cares and, refreshingly, people seem to actually like him, describing him as “genuine”, “caring” and “tough”.
One lawyer who worked on a deal opposite Layton described him as a “constructivist” and “not someone who waves his willy around” – rare indeed in a sea of appendage-waggling alpha dogs.
Having these characteristics is fortuitous at a time when the legal industry is at an inflection point. Law firms are modernising because clients have forced them to change.
“As a legal industry, I think in many ways that we’ve had golden decades… But we are still sort of insular”
Billable hours are giving way to different ways of paying, with some clients preferring to work on a monthly budget instead.
Deals are treated more like projects and with sectors such as banking – a staple of Clifford Chance – still paying major regulatory fines, every cost is scrutinised. If an element of work on a transaction can be outsourced to somewhere cheaper, all the better.
Firms have to squeeze value out of their practices and, frankly, start acting like corporates.
Taking over as managing partner from David Childs, Layton had a clear list of objectives. “Although we were well placed, I think there was a lot of opportunity to realise the potential of the investments we have made over the three-plus decades I’ve been with the firm,” he says.
“That was what was really driving me to say, ‘OK, what can we do to the firm now to realise the full potential of that investment and recognise what is happening in the legal market and the changing demands of the clients and the changing environment the clients have been operating in?’”
One partner says: “We are quite a simple industry, really. We just need to keep the clients happy.
“Matthew has always been really, really good with clients and has always understood what you need to do to pull off a major mandate.”
However, lawyers are infuriatingly slow to change.
It is entirely understandable why someone like Peter Martyr, global chief executive of Norton Rose Fulbright, was positively euphoric recently when he talked about investing at least £75m in a new global management system. This will take lawyers away from administrative tasks and free them to do what they are supposed to do, which is fee-earn.
Layton says: “As a legal industry, I think in many ways that we’ve had golden decades. You go back, see the growth in London and in Europe and then globally.
“But because of that, I don’t think the legal market has necessarily thought about or adapted as quickly to the changes that are happening in our clients’ industries and the pressures in those industries. So we are still slightly, I would say as an industry, and to a certain extent we still are, sort of insular in terms of how we look and think about the skills we have within the firm.”
Does he think that Clifford Chance stagnated under eight years of Childs?
“No, I don’t think so,” he says. “I was fortunate because I was part of the leadership under David, so I had the benefit of working on the leadership group with David.”
It gave him the chance to ask Childs what had frustrated him when he had been managing partner and what he had wanted to change.
Layton then went out to talk to the partners. “The good thing about the election is that it really allows you to consult and communicate with the whole of the partnership,” he says.
Presumably there was a degree of complaining? On the contrary, he says. “There is a lot of consensus – you do get the odd moan – but there is a lot of consensus, a lot of passion about what people want to see the firm achieve and also the potential of the firm.
“That gave me a very strong mandate because I was able to say, ‘Look, I do think these are the changes we are going to make, we need to make, and these are the changes I want to implement quickly and why I think we need to implement them quickly.’”
A benevolent dictatorship?
One of the more radical decisions was getting rid of regional and practice leader elections and giving Layton the power to appoint management. Doesn’t this leave him open to accusations of running some kind of benevolent dictatorship?
“You can’t run a firm like this, I believe, with a predominantly top-down approach,” he says. “We’ve got 570 partners. I need them to feel empowered. I need them to feel responsible. I need them to have a sense of accountability in contributing to the success of the firm.”
The way he sees it, achieving that is impossible without the right people in management.
“That doesn’t mean I just want people who are going to want to say yes to me,” he says. “I actually want people who are prepared to challenge and actually bring out the very best of all of us in round the leadership group table.
“But I also want to make it clear there is a sense of accountability and I have the ultimate responsibility and the partnership can remove me at any time by saying it’s time to go.”
Like its magic circle colleagues Allen & Overy and Freshfields, Clifford Chance has restructured its lockstep, stretching it at the top to reward and keep star partners. This had been discussed during the election, says Layton.
“I think the firm as a whole and the partnership as a whole recognises that you need to adapt and look and ensure that your compensation structure is fit for purpose.
“Everybody is very committed to a global profit pool, which we think is absolutely critical to the culture within the firm and to a lockstep.
“But recognising that market conditions, when you’re operating across 35 offices, brings in some variations and you need to have a model that supports your strategic operations.”
It is a thorny subject. Shearman & Sterling, for example, is implementing a major change to its pay structure, allowing partners to be moved out of the equity to become ‘fixed interest’ partners.
What advice would Layton give to other firms about changing their remuneration system?
“Simply I would say, look at the culture you want to promote and the behaviours you want to promote and celebrate within the firm. Look at your strategic challenges and consider whether there are adjustments you can make to your compensation model that will best support both of those objectives.
“I would caution that you need to look at them very carefully because everything you change probably has an unintended consequence.
“So if you’re going through a process of change, think very, very carefully, because you will have lots of ideas floated across the table and you need to consider them very carefully against those two critical benchmarks, particularly in terms of behaviours you’re wanting to promote.
“And it’s not just the compensation structure but it is also how its applied and managed and implemented that must remain true to the culture and behaviours that you’re wanting to promote and celebrate within the organisation.”
Inevitably, a managing partner is going to experience resistance from partners on particular issues. “I’m a great believer in communication at a personal level in a partnership,” says Layton. “At the end of the day, what we’ve got is partners who are owners and generators and managers within the business, so I don’t think I can over-communicate with the partnership in order to make sure we have strong consensus and strong buy-in and to make sure people understand the strategic imperatives and priorities that we’re driving forward.”
Acting for the Chinese
Earlier this year, The Lawyer reported that Clifford Chance had been in talks with a number of firms in China about a merger, including holding discussions with Zhong Lun, the country’s third-highest earning practice. Layton emphatically denies this, adding: “We don’t see any particular driver at the moment to change the model that we’ve got.”
Nonetheless, China is hugely important for the firm. At the time of our interview, Clifford Chance’s senior partner Malcolm Sweeting had just returned from a trip there as part of a delegation with the then newly appointed chancellor of the exchequer, Philip Hammond.
However, there are questions about just how much prime minister Theresa May wants to tie Britain’s infrastructure to China, in contrast to her predecessor David Cameron and former chancellor George Osborne.
“We think there is a lot of value in supporting intergovernment contact and dialogue and industry dialogue, particularly given the expertise we’ve got on international regulatory issues,” Layton says.
Clifford Chance is also involved in the £18bn project to build a nuclear reactor at Hinkley Point in Somerset, providing financial advice to developer EDF Energy. The scheme has proved controversial, in part because of a multi-billion pound investment by the Chinese state.
“Because we’ve been in Beijing and Shanghai for as long as we have, the contacts and relationships we’ve built certainly have paid dividends for us in terms of the roles we’ve got acting for a lot of the outbound investment,” confirms Layton. “The policies that are going to continue to drive that activity are an important part of our business, whether we’re acting for the Chinese or the parties in a joint venture.”
The unknown unknown
For Layton, it is critical that Clifford Chance learn from other industries “and see how we should be adapting our own business models to those pressures and changes. Because I think as an industry, we’re in for at least a decade of fairly rapid change, certainly in comparison to what we’ve seen over the last 20 years.”
He believes technology and automation will liberate younger lawyers from doing volume work that may have stopped them from spending time with partners.
“I benefited in the early years of my career from the master-apprentice type of training, in that I got to work with senior partners hand-in-hand – carrying their bags, mind you”
“I benefited in the early years of my career very much from the master-apprentice type of training, in that I got to work with senior partners hand-in-hand – mind you, carrying their bags – but actually going to the meetings, seeing all the things happen,” he says. “In some ways, I think that technology can be liberalising and empower the development of the skills.
“It may mean you don’t need as many people or the same type of people, but I think the experience of young lawyers coming into firms like ours is going to be, if anything, a lot richer and is going to be more like that master-apprentice training that we saw in the past.”
It seems that not much rattles Layton. So what keeps him up at night? Cue the theme to The Twilight Zone. “The unknown.” More specifically, he says, in a Donald Rumsfeld-esque way: “The unknown unknown.”
He elaborates: “I think we’re in a position where we are ready and able to cope with the unknown but it is the true unknown that’s out there.
“You can try and predict and you can go through all the issues and have your risk matrix, but are you ready to deal with the thing that you didn’t expect to happen and is the business resilient and strong to test that?
“That’s what we’re focused on.”
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