Walkers rocked by law firm departures following sale of its trust company

The politics of law firms owning subsidiary businesses have always been complex, as partnerships are far from ideal structures within which to hold valuable capital assets.  It came as no great surprise, therefore, to see Walkers selling its trust company business to Intertrust. 

What has come as something of a bigger surprise is the fall-out for the remaining firm.  7 partners and 3 associates from Walkers’ legal practice have this week jumped ship and joined fierce rival, Maples and Calder.  

Walkers partners Julian Ashworth, Heidi De Vries, Sheryl Dean, David Marshall, Philip Millward and Gwyneth Rees, and senior associates Philip Dickinson, Patrick Head and Lucy Nicklas will all be joining Maples' Cayman Islands office as soon as their existing contracts allow them to do so and the necessary immigration approvals have been obtained. Partner Tim Clipstone will be joining the firm's BVI office. In a relatively small jurisdiction, a move of 9 lawyers in one go will have a significant impact, particularly given that they are all funds lawyers.  It will leave the Walkers fund team very badly depleted.

Reading between the lines of the carefully worded statements put out by both firms involved, it seems that the partners who have left are all salaried rather than equity partners.  As such, they are unlikely to have benefited materially, if at all, from the sale proceeds and will doubtless be unhappy that any expectation of income in the future from trust company business will have disappeared (at least until any restrictive covenants have expired and the firm is free to set up a new fiduciary business).  It does not take a rocket scientist to work out that there will always be winners and losers when a partnership asset is sold, and the most likely ones to feel aggrieved are those who failed to make it to equity partnership in time.  However, other firms have managed the transition in the past without such significant protest and Walkers might have expected to be able to weather any period of unhappiness without such a major loss of manpower.  Walkers must now be reflecting on why their experience has been so different.

The whole situation does demonstrate the need for very careful handling of these situations.  Walkers is not the first offshore law firm to sell its fiduciary business and nor will it be the last.  There are many reasons why law firms do tend to arrive at a point where strategically it makes sense to sell a subsidiary business and it is a tricky balancing act to achieve this without destabilising the parent law firm.  In some cases this may involve sharing sale proceeds outside of the equity partner group, so that there is not such a stark contrast between the winners and losers. In others it may involve a restructuring of the remaining law partnership, as some firms take the view that it is easier to relax the rules on equity participation or other forms of profit sharing if that does not entail giving away an interest in a large capital asset.  And in other cases it is simply a question of excellent communication to explain why, strategically, a sale is the right thing to do, and why the future still looks exciting for those working in the legal practice.  It can be achieved, and has on many occasions.  But it is far from easy, as Walkers’ experience this week has so ably demonstrated.