A blip on Wall Street's radar
12 January 1998
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The feeling remains that those UK firms which have set up beachheads are still very much small fry in an enormous pond. Richard Tyler finds that America's finest are not exactly running for cover as the invasion by the UK's leading firms gathers pace.
When it comes to making it big in the world's biggest legal market, British firms finally have something to smile about.
Bridging the legal pond that divides Britain and the US, and overcoming the common language divide, has not proved easy for the "limeys".
But 1998 has been a good year for Clifford Chance, Linklaters, Freshfields and Cameron McKenna. All four City firms have said their aim is to build a truly global practice, but until now the US has been a real stumbling block.
The years of hard sell are beginning to pay off and leading US partners are starting to sign up to the global vision.
Linklaters kicked off first in May by recruiting the core of White & Case's New York-based asset finance practice. Freshfields followed by taking Chadbourne & Parke project finance partner Thomas Hechl and six associates to set up an office in Washington DC.
Then, in September, came Cameron McKenna's overtures to Washington DC regulatory boutique Morley Caskin. This eventually led to the eight-lawyer firm joining up with Camerons' existing two-lawyer office in the city.
Not to be outdone, Freshfields announced the arrival of four big-name partners from US rival Milbank Tweed Hadley & McCloy in the same month, leading Ian Terry, Freshfield's managing partner, to enthuse: "This is the birth of Freshfields America."
It was the turn of Clifford Chance to capture the limelight last month by announcing a new six-lawyer Washington DC office, to be staffed by both Clifford Chance lawyers and senior US lawyers from rival firms.
The latest news is that Cameron McKenna has set up a permanent six-lawyer office in San Francisco.
Could this mean that the UK City firms are starting to have a real impact in the US? After all, the talk of truly global legal services has been heard for years. And the infamous transatlantic merger between an English and US firm has still not materialised.
Historically, this has partly been due to the wide disparity in profitability between US and UK firms. But during the 1990s, City firms have been quietly catching up, and this summer's annual profits survey conducted by The Lawyer showed that UK firms had their most profitable year yet.
But when talking to the leading Wall Street, national and regional firms in the US, the feeling remains that those UK firms which have set up beachheads are still very much small fry in an enormous pond.
How quickly this might change is a matter of debate. Wall Street firms seem to have barely noticed the rapid advances made by UK firms this year. Sam Butler, presiding partner of Cravath Swaine & Moore, says the UK firms are not visible at all.
And Rhett Brandon, New York-based partner at Simpson Thacher & Bartlett, describes the growth of UK firms in New York as having "a negligible effect on our strategy".
All the leading New York firms, such as Cravath Swaine, Simpson Thacher, Davis Polk & Wardwell and Sullivan & Cromwell, feel little pressure to change the type of service they offer clients.
Butler says Cravath Swaine has no plans to hire English solicitors. "Our strength is that everyone is home-grown," he says. "We are selling consistency of partner expertise and knowledge."
Cravath Swaine - a US version of Slaughter and May - is driven by its US mergers and acquisitions and public offerings practices, a strategy that has proven extremely profitable for the firm.
Simpson Thacher is starting to recruit European and Asian-trained lawyers to staff its foreign offices, but is retraining them to practise New York law. "It makes sense to expand our talent pool to those that are more locally oriented," says Brandon.
On the horizon for both firms is the potential boom in Europe's capital markets, after the introduction of the European single currency. In 1999, Butler says Cravath Swaine plans to follow its investment bank clients into Europe.
"London will become a market that may well rival New York if the euro really takes off and we will look to maintain the same percentage of work in London as we do for investment bank clients in New York. If euro issues call for English law rather than US law then we hope to work out arrangements with Slaughter and May, Herbert Smith and other English firms that don't have US lawyers," he says.
The next tier of New York firms are looking at the options even more seriously. Christy & Viener decided to put into practice what most firms have only talked about in theory. In September, it merged with European-based Salans Hertzfeld & Heilbronn to create a 350-lawyer firm with offices in New York, London, Paris, Eastern Europe and Russia.
But most US firms are still wary of full-blown transatlantic mergers. New York-based Fried Frank Harris Shriver & Jacobson has taken an alternative route. In August last year, it set up an international securities unit (ISU) with Simmons & Simmons.
Robert Mollen, resident partner at Fried Frank's London office, says: "We decided not to become a multinational partnership [in London] but recognised that certain areas - capital markets for example - have gone global and we felt we needed a joint capacity. With the ISU we can offer a full service capability that, short of a full merger, we would not have been able to provide."
A new generation of national US firms, which have expanded aggressively during the 1990s in an attempt to challenge the New York legal establishment and carve out niche cross-border practices, are also trying to work out what the future holds for them.
San Francisco-based Orrick Herrington & Sutcliffe is one such firm. It now has more lawyers in its New York office than on the west coast and has recently set up a London office headed by ex-Ashurst Morris Crisp projects partner Ian Johnson and US partner Michael Volstad.
The firm's chairman Ralph Baxter says: "There is an increasing awareness among US firms that there is a facet of globalisation that is having a real impact on the competitive environment in the US - part of that is down to the success of the UK firms."
As competition for work increases in the US, so firms like Orrick Herrington are looking to develop practice groups that can offer their existing client base expertise in cross-border transactions. "If we are not participants in commerce outside the US we will be at a competitive disadvantage," says Baxter.
Orrick Herrington has chosen to focus on project and structured finance, hence Johnson's recruitment in London.
"The firm has determined that our number one priority in 1999 for investment in growth will be in London," says Baxter. "No client said you must go there. We are just going where the transactions are."
And that may be the biggest change of all. Firms have always justified investment in foreign offices by saying that clients demand it of them. But for now, the US offices of City firms - perhaps Cameron McKenna aside - appear to be justified only by the way they fit nicely into the long term vision of a fully global practice.
And so, for the time being at least, US firms can feel confident that the presence of UK firms on US soil will only be a slight irritation, rather than a direct threat.
"I see it as the introduction of new competition at the margins," says Fried Frank's Mollen. "In the US market we have a number of competitors at least as large as us - so there is a limit to the extent to which any player can materially affect the market by lateral moves.
"The big challenge is to see where the clients are going and having the capability, and the visibility in the market, to respond."