Mark Brandon: UK law is focusing too much on the wrong things

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  • Interesting opinions, although there's not one mention of Bond Dickinson's role controlling this bright future.

    Seriously though, why do you think Slaughters is best placed out of all the MC firms to survive? Is it because they have differentiated themselves from the other MC firms?

    I think you are spot on about ABS though; all this fanfare for something that really only threatens volume law providers.

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  • I have spent a lot of time with private equity houses and firms talking about the possibility of direct investment and I am in no doubt now that ABS will remain focussed on consumer markets for many years to come, as Mark highlights.

    Any direct investment into B2B legal services will need to be from specific and specialised vehicles targeted solely at that sector .

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  • I believe he means he expects Slaughters to fail. "Expect", not "except".

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  • First off, thanks Anonymous! I except Slaughters on two grounds really, the first is that despite the market in general feeling they are part of the MC, they are already a very different entity from the other four, so much so that The Lawyer expelled them from the Circle, at least for its own analytical purposes, already. The second is, I think, that they are very distinctive in character and, dare I say, purpose, from the other MC firms. Will that alone be enough to save them? I think it probably will, as long as they can maintain their focus and distinctiveness.

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  • Clever, amusing and largely correct (and by the way, the answer's 42.....)

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  • A provocative piece as usual, Mark. Some points where I disagree:
    1. Consolidation. The 1970s consolidators failed because there was no synergy between elements. The consolidated law firm succeeds because the client doesn't have either (a) the skill or (b) the desire to disaggregate themselves. Many clients are more dysfunctional than the firm they instruct.
    2. Vereins are over. Agreed about point of contact, but companies' profit pools are just as regionally disfunctional as a law firms. Sadly global firms need to reflect local rates when getting work and paying partners.
    7. Future is about purpose, not process. Agreed, but that there is a world of difference between process re-engineering (internal engine-fixing) and project management (engaging with the client to deliver the quality the client will pay for in the timeframe they desire). Process is easier to fix, as we can usually avoid confronting partners. Project management requires partner commitment, not just involvement.
    I am still pondering 3-6. Point 8 contains an interesting example of an oxymoron "a, organic, cool and trusting... law firm". let me know if you find one

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  • I think the danger for UK based firms focused on M&A and corporate law generally is whether they can continue to attract quality deals at a global level. I think you are right Mark that US firms have an advantage as their large home market often attracts a sizeable amount of these type of deals! Traditionally, the Sullivans, Cravaths, Skaddens and Simpsons all dominated Global and European rankings by value. This also prevented them from investing abroad.

    However, I think that certain overseas investments made by the MC have paid off. The UK is a relatively small legal market - certainly compared to the US - yet the M&A H1 2014 league tables show that the only non-US headquartered firms to come in the top 15 worldwide by deal value were Freshfields - at No.2 in the world according to Mergermarket - and Linklaters. This is quite a feat.

    What I think should be worrying for firms like Slaughters, is that they do not even appear in the top 20 by deal value in Europe. A firm like Simpson Thacher, whose home market is not even in Europe, consistently does. In the most recent European rankings Freshfields are No.1 for M&A value in Europe and Linklaters No.3.

    This trend seems to continue at UK level as well. The London corporate departments of the MC firms - including Slaughters - are all roughly the same size (unlike their respective European footprints). Freshfields were No.1 in the UK having completed 45 deals at $73.3bn. Linklaters did 44. Slaughters only did 21 deals - half that of Freshfields and Linklaters - and at a significantly lower value of around $30.7bn.

    Having worked in M&A for a long time, much of one's future position is determined by the deals that you complete today and rankings are - unfortunately - an increasingly important and objective means of showing this. Davis Polk, Sullivan and Cromwell and Simpson Thacher all performed a volte-farce and launched English law practices in London (despite maintaining for years that there was no need for local law capability). To my mind, this shows the increasing internationalisation of the ultra-premium market.

    Can you explain why, in your mind, this spells doom for Freshfields and Linklaters but not Slaughters?

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  • @Arachnae: maybe law firms in Mark's new world should turn to branded towels rather than branded umbrellas?

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  • Thanks all. @Jamie, I don't disagree with your points. My piece suffered a little in being edited for length, so I'll expand a little here. My thinking re the 70s conglomerates is that they were about opportunistic territorial expansion. Some - not all - of the massively expansive law firms have little business logic behind the thinking save for having flags in maps and being able to say to (theoretical) clients that they have presence in 'x'. That, for me, links to the verein point; without the ability to deliver global resources at a locally-acceptable rates with a single point of contact, clients are often better off co-ordinating their own activity.

    Your point on project management is also valid, but good project management still doesn't equate to organisational purpose. I look at some major law firms right now and I think "what are you FOR?"

    @Jeffrey, thanks for your input, very interesting. I think Slaughters' future lies in their distinctiveness, specifically the comment - time and time and time again - from clients that Slaughters produces more 'holistic' lawyers, which allows them to put fewer people on deals, think around problems more effectively and leverage their undoubted intellectual talent to a very profitable extent. The firm also has, according to some experts I've spoken to, an unrivalled alumni, not just in terms of quality, but how it 'manages' it. You can't buy connections like that. I think there could always be a future for a firm like that, not least because they are unthreatening to the major US firms. As I see it, the other MC firms have all poked the hornets' nest in taking on the US firms on their own turf, so far to very limited effect.

    The other MC firms in London meanwhile are fertile hunting ground for headhunters, losing quite a few real prime-movers to US firms; are they replacing them fast enough? We have no way of knowing. If the core of truly excellent partners becomes sufficiently eroded, they will become very vulnerable very quickly.

    As the axis of world thinking swings towards Asia, the cultural links of Empire have allowed the MC (and chasers) to attempt to outflank the US firms with an 'Asia via Australia' strategy, but I know as many people who think this is plain daft as think it's a good idea.

    Whatever happens in Asia, I remain unconvinced how a firm can claim to be truly global without having cracked the largest legal market on the planet, and short of merger (= submission) I just don't see how you do it.

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  • Thanks for your reply Mark.

    I think the MC are - at some point - headed for some kind of merger with their US equivalent. I think that you are spot on that firms like Slaughters (and Herbert Smith pre Freehills) have benefited in the short term from not stepping on the hornets nest of Wall St so to speak; however, this leaves the firm much more vulnerable and much weaker than the rest of the MC should it ever need to merge. It will undoubtedly be the weaker player to any major Wall St firm. Freshfields and Linklaters - perhaps less so with CC and A&O - are at least as strong as most of the Wall St elite in deal value and partner profits (although the latter can depend on the value of the pound to the dollar). Although whether Wall St or the MC are willing to even look at a merger is a whole other kettle of fish! However, the only firms that rival the Wall St elite in terms of M&A prowess on the world stage are Freshfields and Linklaters.

    The clear danger of the so-called 'best friends strategy' is that you get none of the benefits of expansion with much of the risk. Slaughters has no access to the ultra profitable New York market (which I believe is Freshfields most profitable office per lawyer) while at the same time it is forced to watch its so-called best friends now move ever more into English law (and Hong Kong law). Davis Polk, Simpson and Sullivan have all built sizeable English and HK law practices (DP and Sullcrom have established training contracts) which will inevitably cut off the flow of referrals from Wall St. The firm faces a big strategic issue: it doesn't have the capability to handle the same level of transactions abroad as its rivals in the MC or Wall St and it is too far entrenched and dependant upon its 'best friends' to turn back from its strategy now. This doesn't mean that the firm is heading for collapse but its relative position is much weaker. In a world where Wall St is no longer willing to stay out of London or HK, which is what this strategy is founded upon, it is not good enough for a firm's overseas strategy and international deal strategy to depend solely upon Wall St's good will.

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