DWF: Questions abound over CEO's shock departure

News that DWF’s longstanding managing partner Andrew Leaitherland had been ousted from the firm in a shock management reshuffle last week has left the industry questioning what went wrong.

Leaitherland helmed the firm for 14 years, leading its expansion from two UK offices to more than 30 worldwide. The ABS became the UK’s largest listed law firm in March 2019, at a value of £366m.

However, the covid-19 pandemic appears to have unearthed signs of financial mismanagement grave enough for the chairman, and former DLA Piper co-chair, Nigel Knowles to call for Leaitherland’s departure and step into the breach himself.

In what seems a somewhat scathing announcement to the market on Friday (29 May) it was declared that “strong and experienced leadership is essential” for the firm to weather the covid-19 storm, despite the erstwhile leader’s significant time served.

Covid-19 was at the heart of the announcement to the market, however Leaitherland’s exit package appears to penalise him for the financial difficulty the firm is facing.

Despite DWF’s meteoric rise during Leaitherland’s tenure, the firm has revealed that he will not receive his final £530,000 salary in a lump sum but rather it will be paid over the year in monthly instalments. He will also not receive a bonus this year.

The Lawyer reports today that he will get to keep 70% of shares, worth £3.3m at today’s market value, although these will be paid in instalments over the next five years. The remaining £1.4m is to be retained by the firm.

While Friday’s announcement referred repeatedly to the need for “extensive experience” in the light of unprecedented times”, it seems that DWF was overstretched before the pandemic hit.

The business's accounts reveal it had net debt of just under £50m at the end of October, a significant increase its April debt level of £35.3m. In March the firm announced it was seeking an expansion of its credit facility with lenders.

At a cost of £13m to pursue last year’s IPO, were the firm’s cards already marked with the unexpected addition of global pandemic just bringing the inevitable forward?

Friday’s trading announcement revealed what may turn out to be the tip of the iceberg. On 27 March the firm forecast revenue growth of between 15% to 20% for the financial year, taking the pandemic into account. By Friday that had withered to just 11%.

“The impact and timing of covid-19 gave little opportunity for remedial action in this financial year, further reducing the Group's profit expectations”, the statement continued. EBITDA therefore, dropped from a forecast c.£34m to c.£21m.

The management reshuffle installed senior independent non-executive director Chris Sullivan as interim chairman, while a permanent replacement for Knowles is sought.

Sullivan provided the obligatory gratitude for Leaitherland’s service on Friday, continuing: “The board believes that Sir Nigel's extensive experience in building and leading a global legal business will be invaluable as group chief executive officer in ensuring that our strategy delivers sustainable growth and attractive returns for all our stakeholders."

In signing off Leaitherland added: "It has been a privilege to be group CEO of DWF for nearly 14 years and I am incredibly proud of the progress we have made in that time. It is a fantastic business with great people committed to delivering the best possible service to our clients. I wish Sir Nigel every success in taking the business forward."