Jonathan Watmough: Why RPC's partners earn more for teamwork than billable hours

"Life is not formulaic. Human beings do not operate on a formulaic basis. Business is emotional.”

That’s the view of Jonathan Watmough, managing partner at international law firm RPC, which sits just outside the UK’s top-40 rankings.

When entering the firm’s headquarters in Tower Bridge, London, the first thing that catches your eye is a wall decoration highlighting the numerous awards that the firm has won over the years. Its most recent accolades include being named ‘law firm of the year’ by The Lawyer and ranking first among City firms in a client satisfaction survey by Legal Week,
which also gave RPC an award for
‘best legal employer’.

Sitting on the reception counter is a folded pamphlet with RPC’s ‘manifesto’. Open it and the first words that catch your eye are: “We’re intent on rewriting the rules. Revolutionising our sector.” Expand it further and you see that this pamphlet is a list of expectations of prospective recruits to the firm.

After the financial crisis hit London, RPC took the view that it was the perfect time to invest in its people. “We said in October 2008 ‘never let a serious crisis go to waste’,” reflects Watmough. “We knew that we were stable, we knew that we would weather the storm, but we also knew that this was a peculiar opportunity to really upgrade the firm.”

A strategy was put in place to broaden and strengthen its practice areas during the recession, which resulted in a 25 per cent increase in the firm’s headcount over the past three years. The firm also re-engineered its people development processes and introduced in 2009 a ‘Career Builder’ meritocratic performance-management system for trainees through
to partners.

Comments Watmough: “It doesn’t
just provide ‘these are the activities and this is what you should be doing at this type of level’, but it also provides the
how. You mesh those two together
and you do away with any idea that advancement is all about length of
service, and suddenly you develop
a meritocratic performance culture.”

The strategy appears to have paid off. RPC has enjoyed about 40 per cent organic, non-merger revenue growth since 2011, which it says has been driven by a focus on providing higher-quality work that commands better rates. Since the beginning of the financial crisis in 2008, the firm’s average recovered hourly rate grew by more than 20 per cent.

RPC recorded annual revenues of £67.4m in 2012, which was followed
by 21 per cent growth to £81.7m in
2013 and revenues of £84.1m in 2014. However, net profits dipped last year to £26m (down six per cent), compared to a 15 per cent increase to £27.6m in the previous year.

Watmough isn’t unsettled by market concerns over the lower growth in profits, which he puts down to heavy investment in the firm’s future. “We don’t judge ourselves on the profits we deliver this year – it’s about where we are going as part of our long-term journey,” he emphasises. “When you look at things over a long period of time, you can afford to say ‘we’re going to make investments and know that it will take a lot of time to pay off’.”

He adds that, as of August, the firm achieved 14 per cent year-on-year growth in revenues in 2015, with average recorded rates also continuing to climb. He attributes this latest growth not to work done in the previous three months but rather to efforts made two to three years ago to increase the firm’s portfolio of client work.

Rewarding teamwork

For Watmough, at the very heart of RPC’s long-term strategic success is its focus on putting its partners and staff first – even before clients. “Without clients you don’t exist at the end of the day, but that’s not a strategy; the simple fact is that it starts with our people,” he says.

Part of that focus on the firm’s people is measuring and rewarding partners based on team-building behaviours rather than on individual contributions to RPC’s financial growth. The firm has a fully meritocratic remuneration system for
all of its 78 partners.

“It’s what we call a partnerial meritocracy and it’s not at all driven by metrics; it’s driven by behaviours,” says Watmough of the full-equity partnership. “We will reward someone more for what they do for their fellow partners in the
firm than for what they do for their
own account.”

In practice, this means that partner performance is mostly measured with reference to anecdotal evidence. The firm recently completed its annual partner review, which included obtaining widespread internal input on individual performance.

“It’s not a thing that ‘if you can’t measure it you can’t manage it’. The partners are financially astute and the business is run financially well, but that doesn’t mean we judge success by reference to the financial metrics,” comments Watmough.

“Some of it is financial because you can see some financial outputs but, broadly speaking, we focus more on behaviours than results because, in our experience, if you do the right behaviours, then the results will follow.”

For him, the key is to remember that the firm’s remuneration process is – as he describes it – an art, not a science. “It’s a principles-based system, not a rules-based system and, when you have principles, it’s ultimately flexible. That’s the beauty of it,” he says.

You may well wonder how fair or trusted this approach is to measuring and quantifying the annual profit share of each of the firm’s partners. RPC’s partner retention rates (see Figure 1) may seem to suggest that not everyone is satisfied with the way that their income is determined. However, Watmough insists that there
isn’t a negative link between the firm’s profit-sharing system and its partner retention rates; in fact, he says he isn’t aware of a single partner departing RPC because of disgruntlement with the firm’s remuneration system.

He argues that the system works well overall, primarily because the partnership is small enough to allow for the level of input required to measure individual contributions. “We’re big enough to be able to compete properly, but we’re small enough that our people still know what’s going on. I’m not sure you could run our system with a 1,000-partner firm.”

Certain types of behaviours are valued highest, particularly teamwork, communication, demonstrating trust in each other and delivering on behalf of fellow partners. The firm’s profit-sharing system supports and rewards the delivery of desired behaviours and penalises behaviours which go against those principles. Points are allocated based on how well partners perform each year.

“It’s a points-based system, but it’s not a lockstep, it’s a pure meritocracy. People can go up and people can go down,” comments Watmough.

“We don’t call it a balanced scorecard but, in effect, it is a balanced scorecard. Within those four quadrants, we don’t have some sort of metric-based scoring system because we’re not based around some sort of formulaic approach. In broad terms, people are clear about what the main strategic drivers are.”

Safety valves are also built into the system to ensure that partners get rewarded for long-term contributions to
the firm, balancing out peaks and troughs in client work. “We look at things over three to six years,” he notes.

One of the biggest things which are measured is contribution to team performance. Partners are measured relative to how well their teams hit their targets, rather than how well they perform individually. They are also heavily incentivised to contribute to the performance of other teams in the firm.

“Each team has its own targets but, in the same way, partners are rewarded more for stuff they do for other partners on behalf of the firm, and that can be on behalf of other partners in another team,” comments Watmough.

Meanwhile, team targets are set individually, rather than with reference
to the performance of other teams in the firm, and a long-term view is taken in setting targets.

“We’re a heavy performance culture and individuals are expected to perform, but they are expected to perform for the benefit of the team. You can perform very strongly individually, but if that’s not a team contribution or it’s against the team, you will get heavily penalised for doing that,” he says.

“So we don’t have any rogue elephants kicking around, those big hitters who do what they like notwithstanding the impact on the rest of the firm. We don’t put up with that.”

However, he notes that partners who are ‘big hitters’ do get financial recognition for their contributions to the firm. “We have some big rainmakers here who get very heavily rewarded for bringing in a lot of work, but they don’t get heavily rewarded for doing it all themselves; quite the opposite.”

Watmough says this approach has enabled the firm to cross-sell much more effectively and to win client mandates well above the weight at which it is punching.

“The holy grail of success in a law firm is that it’s a team sport. It’s very simple.”

He suggests that many law firms fail to fully capitalise on the strength of their client base because they are “horrendously badly penetrated into clients”.

“I think a lot firms have natural barriers to cross selling and these are largely based on partners keeping things to themselves.”

At RPC, he says, a partner is allocated to each file who has primary responsibility for delivering that matter. But, he notes, “that doesn’t mean you killed it, it doesn’t necessarily mean that you’re doing a lot
of work on it and it doesn’t necessarily mean that you’re the main client
relationship partner”.

Strategic focus

At the heart of RPC’s talent strategy is rewarding lawyers for institutionalising clients, giving work away internally and being generous with their time and experience across the firm. For Watmough, the main thing to remember is that partners are much more motivated by working for the best clients, in good teams and working environments, than they are by increasing their annual profit shares. “They’re just human,” he says.

The firm’s strategy of investing in its people during the recession appears to have paid off in terms of revenues and client satisfaction ratings. The key test in the coming years will be whether RPC can retain and grow its market position and legal talent as the global and UK economies recover. Greater competition for the best and brightest lawyers will put pressure on all firms to up their games in the coming year.

 

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Full-time vs. part-time managing partners

Jonathan Watmough, 46, is the first full-time managing partner of RPC and has held the role since May 2008. Prior to that, he performed a similar role for two years as non-executive chair of the firm’s board, while maintaining his practice as a full-time M&A partner.

“I was doing two jobs and doing neither of them well, and I hardly left the office for two years,” he reflects.

For him, the only way to be truly effective as managing partner is to do the job full time. “Frankly, I think that any managing partner who is doing any sort of material client involvement is either killing themselves or is not doing the job properly in a serious law firm,” he says. “It’s a big job, and no other £100m business is run on a part-time basis.”

“If you think it’s a part-time job, then good luck. I tell you it won’t be very satisfying. You’ve got to have some confidence to back yourself, haven’t you?”

He suggests that managing partners who are required to be fee earners may not be fully trusted or valued by their partners to manage their firms. “A lot of City lawyers don’t like being managed. They love being led, but they don’t like being managed. So there are probably cultural issues in those firms, in which there are underlying issues. But, for me, I think you absolutely need the space and you need the time to do the job properly – and a lot of that is thinking time.”

Watmough, who was re-elected for a third three-year term as managing partner in May 2014, says that key to success in the role is having the confidence and support of the partnership to deliver long-term results for the firm. This, he says, comes from taking the time to understand the inner workings of the firm and the partnership.

“I have spent eight years doing this and it’s all about flying hours, it’s all about experience,” he says. “And, within a partnership, it’s deciding the way you go about doing things. That’s purely about experience, you can’t teach that,” he suggests.

The board, which is elected and chaired by Watmough, is vested with decision-making authority. But, big decisions are made by building consensus around how the firm will deliver on its strategic objectives.

“I can make a decision, but that doesn’t mean a partner is going to implement it. I’d rather the partners made a decision because they will willingly implement it,” he says.

“I’m not interested in decisions, I’m interested in results.”

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 Manju Manglani is editor of Managing Partner (www.managingpartner.com)