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End in Sight for King & Wood Mallesons Restructuring

Aug. 2, 2016, 8:46 PM

They say it’s good to be the king. And if name and footprint is any indication, one would expect that to be the case at the global law firm King & Wood Mallesons. But is it?

An amalgamation of China’s King & Wood, London’s SJ Berwin and Mallesons of Australia, the 2,000+ lawyer firm grossed $1 billion in calendar year 2015 and has its hands in marquee deal work: In March, it advised Asciano, the Australian port and rail operator, through a $9 billion takeover . The firm advised on $46.95 billion worth of M&A year-to-date, making it the 29th most active deal advisor in the world during that time, according to Bloomberg data. Its other corporate clients include Alibaba, Expedia and the Shanghai Stock Exchange.

Yet the view for Stuart Fuller, its global managing partner in Hong Kong, is far from serene: His firm has been slammed in the legal press after a string of departures, delayed payments to partners in Europe, and layoffs in its administrative staff that took 37 positions in an effort to streamline operations. The firm announced last week that partners in Europe and Middle East approved coughing up $18.4 million to feed the firm’s business.

[caption id="attachment_24094" align="alignleft” width="303"][Image “Commercial and residential buildings stand in Hong Kong, China, on Thursday, July 21, 2016. Photographer: SeongJoon Cho/Bloomberg” (src=https://bol.bna.com/wp-content/uploads/2016/08/300635893_1-15-e1470169540915.jpg)]Commercial and residential buildings stand in Hong Kong, China, on Thursday, July 21, 2016. Photographer: SeongJoon Cho/Bloomberg[/caption]

Many of these machinations relate back to the firm’s efforts to bring its European business — belonging to the legacy SJ Berwin firm — in line with other parts of King & Wood Mallesons. For instance, partners in Europe were not contributing as much capital as partners in other locations, and the region’s transactional-focused work meant clients weren’t always paying on an hourly basis, causing cash flow issues, Fuller told Big Law Business in January .

Seven months later, Fuller said he’s eyeing the finish line of his plan to restructure the firm’s partnership, and he is currently in “the second stage of interviews” to appoint a European Chief Operating Officer. That will cap off an overhaul of the firm’s leadership in the EUME (Europe and Middle East), which consolidated 17 different practice teams into what is now three big units: corporate finance and funds, led by Tim Bednall ; dispute resolution and regulation, led by Tom Usher ; and real estate, led by William Naunton .

“By the Autumn, we will appoint a new managing partner for Europe, and that is the last step of this whole modernization,” said Fuller.

Fuller, however, was silent on details about the firm’s recent capital call to raise $18.4 million from partners, including how the money would now be spent. “It’s the confidential business of the firm,” he said. Brad Hildebrandt, a longtime consultant to law firms, put the move in some context, though: He declined to comment on King & Wood specifically, but generally said that firms require partners to contribute between 35 and 45 percent of their salary as capital, and that in the years since the recession, firms have increasingly relied on partner capital to fund their operations over bank debt.

In one instance, Greenberg Traurig issued a capital call in 2012, asking $24 million from its partners . Other firms have raised capital from their partners behind the scenes, Hildebrandt said. “Many firms do it, and it doesn’t go public.”

King & Wood Mallesons, however, was not given the luxury of discretion. Its “modernization,” as Fuller put it, has resulted in winners and losers, filling the legal market with departing lawyers and staff: In March, King & Wood announced that after reviewing its Europe and Middle East headcount, it would ask 15 percent of the partnership to leave. In subsequent months, the firm saw a string of partners head for the exits , including a six-partner corporate group that opened Goodwin Procter’s Paris office in April. Later, in June the firm said it would lay off 37 London business services staff.

[caption id="attachment_24099" align="alignright” width="351"][Image “A British Union flag, also known as a Union Jack, flies from the Houses of Parliament in London, U.K., on Wednesday, July 20, 2016. Photographer: Chris Ratcliffe/Bloomberg” (src=https://bol.bna.com/wp-content/uploads/2016/08/300535542_1-5-e1470169782502.jpg)]A British Union flag, also known as a Union Jack, flies from the Houses of Parliament in London, U.K., on Wednesday, July 20, 2016. Photographer: Chris Ratcliffe/Bloomberg[/caption]

While Fuller acknowledged that the firm has seen some regrettable departures in the mix, he said that 70 percent of lawyers who departed over the past three months have left as a result of the firm’s restructuring.

“The firm asked them to leave, or it’s a consequence of the review the firm did, (which concluded) it did not see a strategic need for those partners to practice,” said Fuller.

Areas where the firm does see a need are in private equity, M&A, capital markets and finance, the firm has said.

In all the comings and goings, some former firm partners have spoken ill of the firm’s endeavors to the press, saying under the condition of anonymity that the firm is undergoing financial strain.

“I’m glad I’ve left,” one former firm partner told Legal Business last month .

Of the capital call, this partner told the publication: “It’s just like putting more money into a company to keep it solvent and keep it trading.”

Fuller addressed the comments when Big Law Business read the quote to him over the phone.

“It’s not surprising that a partner who was asked to leave the firm would talk,” said Fuller, “but these partners who are no longer in the business have no idea what they’re talking about.”

Of the 135 partners who remain with the firm in the EUME (the firm has 600 partners globally), Fuller said 98 percent voted to approve the latest $18.4 million round of capital raising. He said that he heard of the news at his Intercontinental hotel room in Sydney last week, when he fielded a call from senior management including EUME general counsel David Wilman.

“I was sitting in the early morning hours and I did give a little clap,” said Fuller.

“If you look at after the global financial crisis, you saw firms around the world take strategic steps to improve their practice and get their business into the right size and shape,” said Fuller. “If some firms acted before us, we chose to wait a little longer. In the last six months, we dealt with those legacy issues once and for all. Now, we are confidently looking to the future.”

Write to us at BigLawBusiness@bna.com.

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