Focus: Clifford Chance, Reborn in the USA
11 October 2010
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11 November 2013
Clifford Chance has had a tough time of it across the pond, with its litigation practice suffering while competitors have prospered. But now the firm is adopting a rebuilding strategy intended to make it a force to be reckoned with
Perspective is everything if you’re Jeremy Sandelson. “Having been much bigger a few years ago, our US litigation practice is now about the same size as the other UK firms,” Clifford Chance’s global head of litigation insists. “And we’re investing again.”
Sandelson, relentlessly upbeat, is enough of a realist to admit he has a tough job on his hands selling this line to the market - and potential recruits. If his firm is serious about rebuilding its litigation capabilities in the US, he has some convincing to do.
His optimism is particularly unexpected given the recent trajectory of Clifford Chance’s global litigation revenues. As figures compiled for The Lawyer’s annual global litigation report, to be published on 18 October, will reveal, Clifford Chance is the only one of the UK’s big four to have posted a drop in worldwide litigation revenue over the past three years (see table).
A significant chunk of that decline is the result of the steady diminution of the US end of the firm’s business. Now it is Sandelson’s job to convince the market he has successfully slammed on the brakes on that particular slippery slope.
The fortunes of the UK’s largest firm contrasts most sharply with those of Freshfields Bruckhaus Deringer, a firm that has been very publicly investing in its global - and most particularly US - litigation group in recent years.
While Clifford Chance’s worldwide litigation revenue has fallen by 10 per cent since 2007-08, from £199m to £179.5m, Freshfields’ has ballooned by 42 per cent, from £177m to £250.8m.
Indeed, Freshfields now has the largest litigation group of the big four both by gross revenue and as a proportion of firmwide revenue (22 per cent, compared with 15 per cent at Clifford Chance, 13 per cent at Allen & Overy and 11 per cent at Linklaters).
To his credit, Sandelson’s take on the decline is not to skirt it but to try to put the figures into context, with the aid of a little slicing and dicing.
“If you put the US to one side for a moment, the practice has actually grown in all areas both by revenue and in profitability,” he insists. “In fact, on average it’s one of the firm’s most profitable practice areas. So clearly it’s not a practice area that is causing us concern.”
Sandelson, understandably more focused on his ambitions for the future than Clifford Chance’s past, says the increased profitability is the result of the firm downscaling or jettisoning certain areas of lower margin work over the years, including wet and dry shipping, trademark-filing and small-ticket insurance litigation, in favour of higher margin business streams.
It’s a strategy that was crystallised around a year ago at an off-site litigation group meeting. Since then, Clifford Chance has focused broadly on four core areas: antitrust, white-collar crime, regulatory compliance and commercial financial services litigation.
In recent years Sandelson, and Nick Munday before him, have concentrated on taking the practice upmarket. These days the key words in Sandelson’s group are focus and alignment.
Both are words beloved of management consultants, and reflect Clifford Chance’s strategic aim of growing its more profitable business streams and winning mandates that leverage off its key selling point - its international network.
“For example, we’ve seen a 90 per cent increase in the volume of global contentious regulatory work since May 2006,” Sandelson offers.
The globally aligned strategy makes sense. Clifford Chance’s global platform is clearly a competitive advantage - although one might say the same of firms such as DLA Piper, K&L Gates and certainly Hogan Lovells.
But with the increasingly integrated and hardline approach being taken by the world’s financial regulators, international alignment with serious dispute resolution capabilities around the globe should be Clifford Chance’s sweet spot.
Indeed, the firm has won an impressive roster share of recent high-profile multi-jurisdictional mandates. They include defending Dexia, Belgium’s biggest bank by assets, against suits from both the US and Belgium; Singapore-based utilities and marine group Sembcorp Industries in a successful court hearing in New York; and EADS in a multi-jurisdictional case relating to an alleged breach of corporate financial communication duties and insider trading rules.
“We’ve experienced most of the growth in London because that’s where most of our clients are based,” admits Sandelson. “But, for example, the Asian practice run by Martin Rogers, who joined eight years ago from Herbert Smith, is mirroring the UK practice by looking after clients such as UBS, Morgan Stanley, Deutsche Bank and Citigroup. That’s a jewel of a practice, and the model is to replicate what we have in London.”
But if Asia is a jewel, the US part of Clifford Chance’s 76-partner, 450 fee-earner litigation group has been made of glass in recent years.
The group has been shattered by a series of high-profile departures. They include white-collar specialist John Carroll, who joined Skadden, Arps, Slate, Meagher & Flom in 2008, Mark Kirsch and his team, who left for Gibson Dunn & Crutcher in 2009 and former litigation head Peter Chaffetz, who co-founded litigation boutique Chaffetz Lindsey, also last year. Further back in time the UK firm saw virtually all of its rainmakers from merger partner Rogers & Wells depart.
To be fair to Clifford Chance, the last of the big-name US exits came more than a year ago. But lawyers have long memories.
“What Clifford Chance needs is a period of stability,” says one rival. “The current market view is there’s been too much instability over the past few years, even going back to the Rogers & Wells deal.”
Clearly the impression of rockiness generated by the past few years is not going to be easy for Sandelson to dispel.
Indeed, when quizzed about the profitability of the US end of the business Sandelson insists it is close to the firm average of £933,000, partly thanks to the restructuring and realignment.
Rivals, less charitably, say the reason US profitability is so high is because there are barely any full-equity partners left.
“There is not a single equity partner in New York,” says one former partner.
Reversal of fortune
One of Sandelson’s strongest - and one might say most disarming - qualities is his willingness to be candid. While he admits mistakes may have been made in the past, he is adamant that writing the firm’s US practice off would be a major mistake.
“Our competitors are often very keen to knock us in the US, by reference to past events,” he admits. “But that does not reflect what’s currently going on. If we were talking 18 months ago I wouldn’t be saying what I’m saying now, but we’ve made huge strides in the US to start growing and turn things around.”
Support for growth
Sandelson’s insistence that the US end of the business is healthy is echoed by US group head Juan Morillo. The Washington DC-based partner also claims that the suggestion, made by several former partners, that the magic circle firm’s management is not willing to invest in building the US end of the business is simply wrong.
There is “institutional support” for growing the practice, Morillo insists, pointing to the hire earlier this year of Milbank financial services litigation specialist Bill Wallace as evidence of that commitment.
“I wouldn’t be here if there wasn’t,” he adds. “We can’t grow substantially in London or Continental Europe anymore. Asia is, of course, a growth area but there are inherent limitations to our ability to grow in China and India. So the natural focus of growth is the US market. As a business imperative, that presents the real immediate opportunity for the firm in terms of growth.”
The problem for Clifford Chance is that while it may well be a business imperative, the firm has some longstanding barriers to growing the US litigation practice.
“Its problems stem from the Rogers & Wells merger,” carps one rival. “It was a mistake to merge with that firm and they couldn’t hang on to their stars because they wouldn’t commit to extending the lockstep.”
With lockstep an article of faith for Clifford Chance and the top of equity last year at £1.13m, Sandelson knows he’ll have a hard time persuading any of the top New York rainmakers to jump ship.
Equally, the firm is currently in the bizarre position - for a banking-dominated global practice - of having a US litigation practice that is run not out of New York but Washington.
“How can it run a US litigation practice from a DC base when its client base is financial institutions and corporates, and many of those are based in New York?” asks one partner at a rival firm.
True, some of the regulators and the people coming out of the regulators are in DC, but the centre of gravity of most firms’ practices is New York. Commercial securities litigation, to take one example, is a New York court-relevant practice.”
It’s impossible to resist the conclusion that the reason Clifford Chance’s litigation group is headquartered in Washington is because so many of its top partners left. In other words, it was by circumstance rather than design.
“It’s good to have one or two litigation partners in DC but to have it as the centre of your practice doesn’t make sense,” insists another rival partner. “There is nothing indigenous in DC.”
When The Lawyer meets Morillo in Clifford Chance’s DC office he says otherwise. “With all due respect, it is by design,” he says stoically. “We have intentionally grown DC over the past few years because what we focus on is a very heavy enforcement, regulatory heavy practice with a cross-border component. They are the least rate-sensitive, most interesting and high-profile representations. So it has been very much a concerted effort by the firm to grow Washington.”
It’s a brave effort, but if that really was the case then Clifford Chance should surely have more than just one former government prosecutor, partner Wendy Wysong, on its books. Having ranks of former Securities and Exchange Commission or Department of Justice lawyers on board isn’t everything, but having just one suggests Clifford Chance’s US litigation practice is lacking in credibility.
But as Morillo puts it: “The best way to determine whether or not we’re being successful in executing our strategy is to assess what kind of clients we’re representing and what kind of matters we’re doing, and how that compares with our competition.”
It is a reasonable point. As one of the firm’s rivals puts it: “It’s great to say you’ve got a global litigation practice, but the biggest external legal spend for most in-house counsel is US litigation. If you’re not getting a piece of that, how do you maintain those client relationships?”
And Clifford Chance is getting a piece of it. Sandelson answers the charge by highlighting the firm’s recent representation of Russian company Promnestroy in Moscow, Holland and New York in litigation relating to the aftermath of the Yukos bankruptcy.
In another case, the firm represented the government of Brazil on a precedent-setting money laundering investigation involving Switzerland while, thanks to its Middle East coverage, it also picked up high-profile work for the Dubai Islamic Bank on a multimillion-dollar, multi-jurisdictional matter relating to the 9/11 attacks.
According to Sandelson, cases such as this highlight the edge Clifford Chance has over most of its US rivals - its network. “Clients for the network come to us because we can look after them elsewhere around the globe,” he says. “So, for example, in one high-profile case we first represented the company outside the US. Then we handled their work in the US. Again with the Dubai Islamic Bank. They said ’we know you in the Middle East, we’re happy to use you in the US.’ And it was because of the strength of our global regulatory expertise.”
A realistic view
So the work is there, and while Clifford Chance’s US litigation revenues may have dwindled in recent years - the firm generated around $56m (£35m) last year - Sandelson knows that to achieve his ambitions he needs to grow the US practice, and New York in particular, significantly. And he’s enough of a realist to know that his firm is not necessarily in the market for the top rainmakers.
“We’re obviously keen to grow again, to increase revenue and maintain our profit growth. I personally am committed to growing litigation revenue, but in a measured and strategic way.”
Right now, the firm’s US practice is light on international arbitration and there’s a particular white-collar gap where John Carroll used to be. Other gaps will have to be plugged over time. And not only in the US - the firm’s most recent high-profile departure came this July when former Asia head Denis Brock left for Australian firm Mallesons Stephen Jacques.
But the emphasis now for Sandelson and the rest is rebuilding the US side of the business and reaching the necessary critical mass for it to adequately service its global clients.
“Our ambition for the US is, mid- to long-term, to be a top-tier New York and DC litigation practice,” Sandelson says.
It’s a goal shared by many, but achieved by few.