What went wrong with the firm that morphed into KWM?

Sex, drugs and staff “treated like dirt” — a former partner shares his first-hand account

Philip Goldenberg joined King & Wood Mallesons legacy firm SJ Berwin at its inception, and was a corporate finance partner from 1983 to 2004. He is writing a book based on his experiences in various organisations. Here, published exclusively on Legal Cheek, is his chapter on SJ Berwin.

Having not become a partner at Linklaters, I applied to join a new firm being established by Stanley Berwin, by taking over a small West End firm specialising in commercial property. I was duly interviewed by Stanley, as ever — as I was to learn — surrounded by empty cups of coffee and wreathed in cigarette smoke. He looked at my hands:

Hm. Small hands but long fingers — just like your father.

I was impressed by this power of observation, but also by the deliberate ingratiation attempt, which I was also to come to recognise as one of his hallmarks.

So, as the year turned from 1980 to 1981, I moved jobs from the Rolls-Royce of Linklaters at the heart of the City to the Mini of SJB just behind London Bridge Station in Southwark (“Adjacent to Price Waterhouse’s back passage” was my favoured description of the location). But the geographical move paled into insignificance compared with the cultural one.

Diametric opposite

Linklaters — which I understand has since changed significantly — had been WASPish, complacent and conformist. SJB was its diametric opposite.

Firstly, there was Stanley himself. He was a larger-than-life character, which meant that both his good and bad qualities (not that he would have acknowledged the latter) were similarly magnified. On the plus side, he was highly entrepreneurial; insisted on technical excellence; and was committed to client service. But he was also greedy, vain and a control freak. He endowed his new firm with all six features. He played a fierce game of “divide and rule”. When he extended the equity in the partnership beyond himself, the Partnership Deed gave him sole powers of management, but made no provision whatsoever for what would happen after his death!

Stanley’s career progression had been unusual, leaving his first firm because he was refused a second secretary to cope with his workaholic habits, then setting up a new firm which became Berwin Leighton Paisner, then leaving to become a director of N M Rothschild. When his position there became untenable because he backed Jacob Rothschild in the disagreement which led to Jacob leaving NMR to set up on his own, he had a discussion about returning to Berwin Leighton.

His version of this was simply that an agreement was not reached. Theirs was that he wanted an unacceptably high proportion of the equity. This greed was matched by his vanity: he had the legal power to withdraw the name “Berwin” from Berwin Leighton, and indeed this would have been commercially sensible when setting up a new firm with that as the partnership name; but his vanity could not resist the delight of having two firms of solicitors bearing his name!

SJB had the very real merit of providing a challenge to the complacency of established City law firms by its commitment to speedy and excellent client service. Stanley’s core corporate client base was two-fold: Jacob Rothschild, whose corporate deals were the core of my 1980s workload, and John Ritblat of British Land (where Stanley was Deputy Chair). And, to demonstrate his talent at ingratiation, he informed no fewer than a dozen early clients that each was the first client of his new law firm!

Rapid growth

The firm grew rapidly in the 1980s, in terms of both people and activity. I became an equity partner in 1984, and my income doubled in a year, rising persistently thereafter until the dotcom bubble broke at the end of the decade. My workload was high and of good mainstream corporate quality. Stanley was very good at passing on his clients while adding new ones.

However, the culture of the firm had many unsatisfactory elements. Its competitive ethos was too often internal rather than external, and some partners seemed never happier than when undermining their colleagues with the motive of self-promotion. Stanley relished all this, as it reinforced his dominating personal power. In addition, staff were paid top whack but too often treated like dirt, so there was no reserve of loyalty in a downturn; as a result, redundancies were more, and more frequently, needed than would have been the case with a more sensible business model.

And there were people who appeared to believe that normal societal rules did not apply to them. To give one example: in a discussion about the role of trainees someone who should have known better observed that one of them provided him with sex and another with drugs. There followed hearty laughter and lip-smacking from some of the chaps, in which the chappesses who were present felt obliged to join.

More fundamental problem

But there was a more fundamental problem: the firm was outgrowing Stanley’s management style, which was best described as benevolent autocracy without the benevolence.

He commissioned a report on the future of the firm; when it came back entitled ‘A tale of two transitions’ (one of them being the necessity of a change in his leadership style), the writer was summoned to his office and despatched into outer darkness, the report was never mentioned again and he did not visit the office for a fortnight, by when his bruised ego had at least partially recovered.

This burgeoning problem was solved by his well-timed death in 1988; if it had occurred much earlier the firm would have been too immature to survive, and if much later it would have probably exploded in conflict.

This was the classic case of what I later discovered was a ‘Founder culture’, where the skills needed to establish a business were radically different from those required for its sustainable maintenance. Managing the mutation into an institutional culture is genuinely difficult. On Stanley’s death, SJB was to mutate instead into the dysfunctionality of warring satrapies.

Chris Haan assumed the role of senior partner, but the Haan dynasty was to be short-lived; he had little talent for leadership, and in any event such talent would have had to have been prodigious to manage the over-competitive ethos.

New profit sharing system

His successor was the head of litigation, David Harrel. He was a capable man and a smooth operator, but the firm’s ethos was to change in the wake of a marked downturn in profits after the dotcom bubble burst, with the adoption of a new profit sharing system. From then on, I felt that seniority, experience and technical excellence took second place, and the differentials slowly and inexorably widened; effectively, the firm had ceased to be a partnership, and had become instead a collection of sole traders using common services.

At the same time I believe there had been a parallel cultural shift. It struck me that in common with much of the financial services industry following ‘Big Bang’, the firm had replaced a commitment to genuine client service with the aim of making as much money as possible.

Looking back on it, it’s my view that the ‘means’ and ‘ends’ had fundamentally altered; instead of a principal end of providing an excellent client service with profitability flowing in its wake, the principal aim became profitability with the clients as the means of achieving it.

Why did I stay?

Some partners, whom I respected, left at this juncture. But I stayed. It’s fair to ask ‘Why’, given that I felt the whole operation was fundamentally offensive to my personal values.

The answer was severely practical — money. Although my profit share was reduced over the years, it was much more than I was likely to earn elsewhere at my age, as I had been a ‘grinder, minder and binder’ rather than a ‘finder’, so did not have the client ‘following’ sought by all law firms looking at lateral hires in their late forties. And SJB was also a useful base from which to undertake a whole raft of activities that also interested me: not only politics, but also public policy work and engagement.

That my non-executive directorship of the CBI, and my role as legal adviser to the RSA’s Tomorrow’s Company Enquiry, and then my work on company law reform, were each labelled “Yet another Goldenberg non-chargeable” spoke volumes for the firm’s short-termism and exclusive focus on money-making.

In the end, I made the fatal mistake in 2002 of taking the three-month sabbatical break that had just been instituted for long-serving partners. On my return in autumn 2002, I was invited to accept a managed retirement, with a year to sort out my direction of future travel. Declining this kind invitation was not an available option! I reflected that, as with the father who had been asked by his son what he had done in the French Revolution and received the reply “Je suis véḉu”, I had quite remarkably survived 23 years.

Philip Goldenberg was a corporate finance partner from 1983 to 2004 at King & Wood Mallesons legacy firm SJ Berwin.

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