Holding Redlich managing partner Chris Lovell thinks that equity partnerships which run on ‘eat what you kill’ models should learn some table manners. He shares his viewpoint with Renu Prasad

Australian law firms may be flirting with “eat what you kill” partnership models in increasing numbers, but Chris Lovell is standing his ground. “Maybe I’m just old-fashioned, but I really hate it,” says the managing partner. “If the sole test of the partner is how much work you bring into the firm, you’re building silos. What incentive is there to actually go out and work as a team? What incentive is there to do the work and do it well, to manage your junior staff? I know some of those ‘eat what you kill practices’ are very successful. Good luck to them, but that’s not the way I would want to operate; that’s not the way this firm operates.”

Lovell is one of those managing partners who adds that undefinable spark of energy and personality to a law firm; a visceral and quintessentially Australian quality. “We’re not too up ourselves,” he says cheerfully when asked to describe the firm culture. “We’re collaborative, pretty friendly, striving to be the best we possibly can. I’m firmly of the view that if you do  everything else right, the [financial success] will follow.”

Revenues
After over 10 years of double-digit revenue growth, Holding Redlich hit a lean patch during the GFC; in the most recent financial year it experienced a 6% decline in revenues to A$58m. However, Lovell points out that the firm was also four or five partners short of its FY2009 contingent, which meant that revenues per partner actually remained steady. Still, he acknowledges that the GFC was a time to refocus the firm’s efforts. “The GFC affected each firm very differently,” he says. “Some firms did well, some did less well.”

“I would say we were a firm that did less well, but we’ve used that opportunity to do a lot of housekeeping. We’ve shed some partners and then we’ve recruited more partners – brought on some terrific laterals and three or four young partners. In my view we’re much stronger than we were two years ago and we’re now seeing the benefits of that.”

In contrast to Holding Redlich, many rival firms of comparable size managed to grow their revenues in FY2010 – but Lovell notes that the difference comes down to the mix of practice areas. “20% of our fees come from commercial property, which effectively stopped,” he says. “Another 10 or 15% comes from construction, which went to sleep other than in Brisbane. We do a lot of corporate M&A work and that slowed down also.”

Lovell notes that there have been many significant acquisitions in the retail sector, with particularly interest from superannuation funds. The firm remains committed to its property and construction practices, which he says are now well and truly returning to form. “We expected those sectors to come good and there has been a significant turnaround,” he says. “Certainly that’s the case in Brisbane and Melbourne. Sydney is a little bit slower but there are good signs. The serious property groups have all come through and they’re all pretty active. It’s not back to 2007: there are less players and the players are a lot smarter. In 2007 they were throwing money around, which always happens at the top of the market.”

Holding Redlich has an acquisition history of its own in the property market – in the past, it was one of the few commercial law firms to own its premises. The firm owned a building in Melbourne for many years before eventually entering a sale/lease-back arrangement five years ago. It also owned a floor in a Brisbane tower before selling because of space constraints. “Owning property suited us at the time because you control your own destiny – you can do what you like with the building,” says Lovell. “It’s getting a bit hard to buy now because of our size – we need something pretty big and that would cost a lot of money.”

While Freehills will soon be vacating Sydney’s MLC Centre, Holding Redlich has no plans at present to follow suit. “We have a long-term lease and although it’s no longer a premium-grade building, from our point of view it’s terrific,” says Lovell. Much of the firm’s movement of premises has been related to an ever-increasing workforce, but Lovell says that there are no specific targets for growth. “People ask what size we are going to be in 16 years time – I’ve got no idea,” he says frankly.

“My guess would be to that to keep our collegial spirit, to keep a fairly democratic structure and to keep all partners involved and engaged in the firm rather than just their practice, you would probably be looking at around 75 to 80 partners. You need contact between people within the office and between offices and you probably start losing that around the 80-partner mark. The conundrum is that if you have ‘youngish’ partners, most of them aren’t going anywhere for a while and you have to make career paths for people coming through – so you necessarily have to grow.”

Partnership structure
The Holding Redlich partnership is currently comprised of equity and salaried partners in equal measure, but Lovell says that the firm has resolved to ‘equitise’ the entire partnership in the next two years. “I don’t know all the secrets of other firms, but it looks to us that those firms that are the most successful are those that have the vast majority of partners with equity,” he says. “There has to be a reason for that – we think it’s the feeling of involvement and engagement. Whereas if you’re a salaried partner, you simply get what you get.”

However, he acknowledges that some partners will not want the risks or uncertainties associated with equity and says that no partner will be forced into this model. Lovell is adamant that partner remuneration models should not be based on fee income alone, pointing out that there is more to the business of law than simply marketing and attracting work. “In any firm, you will have a certain number of work-getters and a certain number of work-doers – or finders and minders, if you will,” he says. “Not everybody in a firm is a natural marketer or is going to find you clients or work because marketing is not part of their DNA. That is common to all firms, but they’ll be good at other things – training, managing, contributing to culture or morale. Everyone has different skills.”

Partner remuneration at Holding Redlich is based on performance against five criteria ranging from financial performance to practice management. Revenue targets are assessed on a practice area/ office basis. “As far as I’m concerned, if a group gets its budget or preferably exceeds it, then how they have done that is entirely up to them,” he says.

Having been in the Sydney market for over 15 years and the Brisbane market for nearly 10 years, Holding Redlich has experienced the highs and lows of interstate expansion. Lovell warns that after the initial impetus, things get tougher for new entrants to a market. “It’s easygoing when you’re small but then it gets harder,” he says. “Then you start getting noticed, not just by clients but by your opposition. As the firm gets bigger, there are more mouths to feed and you start to plateau – you’ve got to keep pushing through it.”