Arquit exit compounds CC's transatlantic merger upsets
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17 February 2014
No one ever said it was going to be easy. But then, no one ever thought it would be this hard.
Tackling a transatlantic merger, especially of the size that Clifford Chance took on when it hooked up with Rogers & Wells more than two years ago, was naturally going to present a myriad of integration problems.
However, last year was supposed to be the time when Clifford Chance was concerned with merely tweaking its US strategy. But that was before 'Paddinggate' reared its ugly head.
All of this was further compounded by the recent shock announcement - revealed on www.thelawyer. com/lawyernews on 17 December 2002 - that Kevin Arquit, top biller, rainmaker and global co-head of Clifford Chance's antitrust group, was packing up and heading off to Simpson Thacher & Bartlett.
Perhaps describing Arquit's decision as 'shocking' is too strong. While it made scintillating reading for those of a vulture-like nature, it was well known that the Clifford Chance partner was on the market for some time.
In fact, Arquit was nicknamed (somewhat uncharitably) 'Kevin I quit' in certain quarters of Clifford Chance. What has been shocking, though, is the speed at which Arquit's departure to Simpson Thacher took place.
Despite suggestions within Clifford Chance that Arquit's move took months of negotiations, in reality talks began in earnest just four weeks before the departure became news on 16 December, the very day on which the partners were asked to vote on the new arrival.
Much of this is thanks to the rather bizarre part that Robert Kindler, a former corporate partner at Cravath Swaine & Moore, and who is now global head of mergers and acquisitions at JPMorgan Securities, played in all of this.
It was Kindler that acted as a kind of 'go-between' for Arquit and Simpson Thacher, suggesting that the two might just have a chat about the Clifford Chance partner joining the firm.
What prompted this rather speedy defection is open to all sorts of speculation, most of which centres around remuneration. It was well known that Arquit, alongside co-head of global antitrust Steven Newborn, were compensated outside of the lockstep.
A throwback to the original talks between Clifford Chance and Rogers & Wells and the often fraught discussions over moving the US firm (formerly very much an 'eat what you kill'-type practice) to lockstep resulted in a clutch of the US partners staying outside the UK system.
Partners such as Jim Benedict, who was one of the few who gained extra points, have since moved into the lockstep. Yet Arquit and Newborn remained above it.
It is known that this has been a huge bone of contention with partners outside the US. There have been hints that Arquit, who was awarded 250 points compared with partners on plateau, who gained 100 units, was about to be reined in to the UK system.
Whether this would have come at the end of the two-year period in fiscal year 2003, when Arquit's performance was due to be assessed as part of the criteria for receiving extra points, is not known (and perhaps never will be).
The then management of Clifford Chance surely thought that awarding extra points was a way to bridge some of the cultural barriers thrown up by the merger.
Clifford Chance employed the same system in Italy, when five of the eight equity partners at the firm's venture partner Grimaldi e Associati were given extra units. In this case, the result proved rather less than satisfactory when name partner Vittorio Grimaldi left anyway, showing that money cannot necessarily buy loyalty.
In Italy, then, employing this tactic was a mistake, and was only rectified when Peter Cornell, now the firm's managing partner, showed his true mettle by putting his foot down on a difficult situation.
But in the US it is not so cut-and-dried, and alongside the regrettable associates' memo, it highlights only too well the cultural differences that still exist between New York and London.
By way of explanation, it is worth thinking about this: when Arquit moves over to Simpson Thacher this month he will slip straight into the firm's modified lockstep.
In 2001, Simpson Thacher posted average profits per equity partner (PEP) of $1.69m (£1m).
Clifford Chance's PEP was a more than respectable £714,000, with those on plateau at £815,000. This would place Arquit, with his 250 points, with a remuneration figure around the £2m mark.
Although Simpson Tha-cher operates on a modified lockstep, it is known that a small group of the most senior partners are paid at the very top of the scale.
Given that top New York firms are notorious for their huge spread between the top and bottom of equity, it takes no stretch of the imagination to assume that Arquit would not see too much of a drop in his pay. This is assuming he joins at the very top of the firm's system.
And these are the cultural differences that Clifford Chance has to contend with.
While partners outside the US may find it hard to accept that Arquit was remunerated in this way, Clifford Chance is fighting against New York firms that do not have to massage their systems to attract this level of talent.
In the long term, Clifford Chance will hopefully see its profits at a comparable rate to New York firms; but for now, if the UK wants to compete in the US, these are concessions it has to make.
For his part, Arquit insists that money was not the motivator behind his move. But still, reading between the lines, the question of culture did have some part to play.
Arquit told The Lawyer: "I'm likely to do much better in a more traditional US practice.
"Simpson Thacher is much smaller than Clifford Chance. It's a different feel, and I've known the people there for such a long time it just seems to make sense.
"These firms are two different models. Both are high quality, but Simpson Thacher is just smaller and Clifford Chance is obviously a global firm."
Also, proximity to the corporate practice has emerged as an important factor. Back in 1999, Clifford Chance and Rogers & Wells made much of the fit between antitrust and corporate, espousing the possibilities of the merged firm providing a one-stop shop service for clients.
And while Clifford Chance has not been short on cross-border transactions, it is understood that activity has not been at the level that Arquit expected.
Even after Arquit's departure (along with Aimee Goldstein, who is going with him to Simpson Thacher), Clifford Chance still has a weighty antitrust capability that includes Newborn.
On reflection, it is not the end of the world that Arquit has left, since antitrust accounts for just 2.8 per cent of overall revenues, but it has highlighted the fact that Clifford Chance still has some way to go before all the creases of a UK-US merger are ironed out.
Ashurst Morris Crisp and Fried Frank Harris Shriver & Jacobson, take note.