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Published 01 February 2013 00:05, Updated 06 February 2013 17:29
Ashurst Australia’s managing partner John Carrington is working on a plan to radically reduce the firm’s partner numbers. Photo: Andrew Quilty
Major law firm Ashurst is secretly planning to cull up to 50 of its 189 partners in Australia in an attempt by local management to make profit margins more attractive ahead of an upcoming vote for a financial tie-up with the global operation.
Sources close to the firm say the cuts could be a “bloodbath” and are concerned it may have disastrous consequences for the future of the domestic practice.
Ashurst Australia managing partner John Carrington refused to discuss the matter yesterday. He was travelling back from Dubai with chairmanMary Padbury and deputy managing partner Helen McKenzie.
National firm Blake Dawson merged with UK giant Ashurst and took on its name in March last year amid a spate of tie-ups between local and foreign partnerships.
Since then, the local operation has been under financial pressure and management is reportedly struggling to meet fiscal targets imposed as a final condition of the full tie-up.
Partners had been due to vote in 2014 on whether to progress to the full financial merger but that has now been brought forward to around October this year. A possibility that the UK practice may actively seek a US merger partner is adding more pressure.
The Australian Financial Review spoke with several people close to the firm who declined to be named, given the highly sensitive nature of the plan. But all expressed concern about the possible extent and speed of the proposed cuts.
“It will be the day of the long knives. It will be a bloodbath,” one source said.
As the third-largest partnership in Australia, the firm has 132 equity partners and 57 salaried partners in six cities locally and in Asia through a joint venture with Ashurst in the region.
Those 189 partners take Ashurst’s global tally of partners to 422.
But the jobs of at least 20 and up to 50 local equity partners are in jeopardy. Some are expected to be sacked, while others may be moved to salaried partner level.
“Firm collapses historically are usually triggered by partner exits. So if you go and push out 50 partners yourself…well ... they’re already on a precipice, in my view,” a source said.
It is understood the practice groups that will be targeted include the Sydney and Melbourne corporate teams, the national energy and resources and insurance practices – and potentially some government and employment partners.
“There is a lot of uncertainty and nervousness among partners at the moment,” another source said.
Sources said the Australian management would probably avoid a partnership-wide announcement in favour of discreet visits to targeted individuals by Mr Carrington, which could begin next month.
“They have a habit of going off for Christmas and running lists of people and then coming back and chopping them. That’s how it’s been done several times,” a source said.
Tough market conditions have meant many large firms are not expecting significant revenue or profit growth over the course of this financial year. Ashurst Australia’s revenue rose 4.7 per cent to $398 million in 2011-12, when its top partners earned as much as $1.8 million with a bonus. Most equity partners received between $800,000 and $1 million.
The net profit for Ashurst’s non-Australian practice grew by just over 5 per cent in 2011-12 to £112 million ($170 million) derived from revenue of £322 million.
However, it is understood that current equity partner drawings for Australia are “through the floor”.
It means the profit gap between the Australian business and its international counterpart could be much bigger than forecast when merger talks began in late 2011. This is despite Ashurst Australia’s figures benefiting from a strong Australian dollar against the pound.
“The dollar has stayed high which is fortunate, because otherwise I think [the merger] would have been off. I’d be very worried about what happens when the dollar normalises,” an insider said.
In December the firm also offered redundancies to a number of staff, which it explained as an adjustment to a challenging market.
It is understood that when the Australian partners voted on the March 2012 merger, none were told of a plan to drastically cut the partnership. However, many viewed some future cuts as necessary.
“Australia accounts for almost half the partner count of the global firm so the notion that there could have to be cuts wasn’t unexpected,” a source said.
There was also an expectation that the firm, like others in Australia that conducted global mergers, would reduce its practice group focus and the number of partners in non-fee earning management positions.