Gaining ground on the magic circle

The American invasion is gathering pace. Hardly a week goes by without The Lawyer reporting further signs of US expansion in the City, with firms recruiting top UK partners, moving into bigger premises, switching from US law to compete for UK work, and taking clients from UK firms.

And still they come, either opening offices independently or seeking merger partners. The globalisation of their clients' business and the fact that English law is the only rival to US law when it comes to international transactions means that many major legal players view having a presence in London as a necessity.

Over the past year both lawyers' and clients' attitude towards US firms has changed radically. A partner joining the London office of a US practice is no longer seen to be making an eccentric or reckless choice – too many have made the choice before him and survived.

US firms are now an established part of the legal landscape in the UK, often winning work in beauty contests with magic circle firms.

Research carried out by the Legal 500 directory shows that behind the “US firm” tag lies a wide range of strategies to expand in the City. Top-tier New York firms Cravath Swaine & Moore, Davis Polk & Wardwell and Simpson Thacher & Bartlett are among the firms that practise only US law from their London offices. These firms have long-standing relationships with prominent US investment banks meaning they can rely on bringing in plenty of US capital markets work.

And with Cravath's profits per partner a reported £1.24m (AmLaw 100), a firm could be excused for believing it had the right strategy. A year ago the same would have been said of fellow New York firm Sullivan & Cromwell.

However, in January the firm hired Norton Rose project finance partner Jamie Logie. Sullivan & Cromwell is now in the process of recruiting English assistants, though the firm is understood to be restricting UK recruitment to project finance in order not to upset its close referral relationship with Slaughter and May.

These firms unsurprisingly feature in the top band of firms practising corporate and commercial law. They are joined by a number of firms offering dual capability.

At the other end of the spectrum from the top US-only firms are those seeking to become full-service UK firms. Baker & McKenzie has already achieved this, and it is often forgotten that the winner of Global Law Firm of the Year at this year's The Lawyer awards is based in Chicago. The firm appears in the top tier of all but one category in the rankings.

Peter Knight, a partner on the London office's management committee, says there is a problem in the way the firm is perceived by others. “It's a question of categorisation in the sense that people want to categorise firms into being a particular nationality, which doesn't fit with our global structure.

“Therefore we are concerned to be recognised as a UK firm within the UK marketplace and a US firm when compared with other US firms,” says Knight.

Other firms looking to go full-service include White & Case, which hired founding partner David Llewelyn and other key IP lawyers from niche UK firm Llewelyn Zietman, and McDermott Will & Emery, which surprised the legal world by hiring Baker & McKenzie's employment doyen Fraser Younson.

The last year has seen a renewal of the US firms' assault on top UK partners, and Chicago firm McDermotts has led the charge.

Following last October's recruitment of founding partners William Charnley, Graham Rowbotham and Peter Nias from Simmons & Simmons, the firm has hired rapidly, taking Younson and telecoms partner Stephanie Liston from Baker & McKenzie, litigation partner John Reynolds from Herbert Smith and Warner Cranston employment head David Dalgarno, among others.

Then fellow Chicago firm Altheimer & Gray arrived in July, promising to grow its new office to 100 lawyers within two years.

Los Angeles-based Gibson Dunn & Crutcher, which has been in London for 20 years, is also entering the UK market. The firm is promising to hire top lawyers, not just in core areas like corporate finance and M&A, but also in IP, employment, tax, property and other complementary practice areas.

This will mean another firm with profits per partner that far outstrip those of all but the top City firms in the hunt for UK lawyers. Gibson Dunn's reported profits per partner last year were £494,000, which only the UK magic circle and Herbert Smith are able to match (see The Lawyer 100), and the firm can pay salaries to match. And the London managing partners of firms like Latham & Watkins, Jones Day Reavis & Pogue, Morgan Lewis & Bockius and Cadwalader Wickersham & Taft report that they are continually on the lookout for UK partners and assistants.

Partners joining US firms have tended to come from the tier beneath the magic circle, with only a handful of partners joining from the top five. In the last year, only Mike Francies has left the top five. He departed Clifford Chance last November to join his friend Maurice Allen at Weil Gotshal & Manges.

But firms like Simmons & Simmons, Ashurst Morris Crisp and Wilde Sapte have been regularly plundered by the US firms.

Yvonne Smyth, of recruitment consultants ZMB, says the top City names will stay with UK firms unless one of the elite New York firms enters the market.

“Once you get onto the lockstep of one of those [magic circle] firms, you are made, so why leave?” she says.

“If someone like Davis Polk or Sullivan & Cromwell came on the market for a partner then you would see people leave the top firms.”

In fact, partners at top five firms often believe they should be able to join one of the equivalent US firms they see on the other side of deals, not realising that these firms do not practise UK law, she says.

But Smyth says for UK lawyers working just outside the elite, the US firms have become more attractive than they were only a short time ago. “The fears people had about them being here for a short period of time and vanishing into thin air have been allayed, and the horror stories in terms of hours and culture have been put to one side. People are seeing the US firms as an opportunity to get significantly more international work,” she says.

Tom Benz, managing partner of Philadelphia-based Morgan Lewis & Bockius' London office says the longer careers offered at US firms are an attraction for UK partners, who are often put out to grass by their mid-50s. “Many people we talk to are relatively senior partners at their existing firms and at a relatively modest age they wonder how many years they will have left to build a career,” he says.

And with clients increasingly identifying with individual lawyers rather than firms, the fear for a City firm is that when a partner leaves for a US firm that client is gone for good.

Paul Griffin, London managing partner of Cadwalader, says: “They are prepared to look at individuals rather than go by brand name. I think clients are becoming happier that we are not different and we don't charge more. As far as Cadwalader is concerned it's a pretty English approach that we have.”

When Steven Mostyn-Williams left Ashurst Morris Crisp last July he is understood to have taken key banking clients, including Bankers Trust, Morgan Stanley and Goldman Sachs with him. And Younson's practice appears to have arrived intact at McDermotts. London managing partner William Charnley says: “In employment we have got every major brand name you can think of. We have a pre-eminent practice in that area.”

Francies' departure from Clifford Chance to Weil Gotshal saw major corporate clients move with him to the New York firm's London office. Weil Gotshal recently acted on Telewest Communications' £900m tender offer for General Cable. “We have taken the Telewest relationship away from Clifford Chance,” says Maurice Allen. Francies also acted for MediaOne, a Clifford Chance client, on its £8bn sale of One2One last month.

On the banking side Allen says it is harder to pin down which UK firm has lost out, but says: “Any big bank we act for you could say they have moved to us, because they would use half a dozen firms and we have got a portion of the work.

“We are one of Chase Manhattan's lawyers, and they previously would have used Clifford Chance and Allen & Overy,” he says.

If a partner moves to a US firm, an added attraction for clients is the US firms' strong relationships with US investment banks and access to the US capital markets. It was the need to get closer to these markets that prompted Clifford Chance's merger with Rogers & Wells. US firms also lead the way in sophisticated products like high-yield debt instruments, on which UK firms lag behind in expertise.

But there remains scepticism about what some of the US firms are up to in London, even from among their own number. “There are 100 US firms registered in London, and we see six of them on deals. I want to know what the other 93 are doing,” says a London managing partner of a heavy-hitting New York firm, in typically abrasive fashion.

But Morgan Lewis & Bockius is happy to grow its office without any grand ambition. Benz says that since the office, founded in 1981, began to move into English law five years ago, it has reversed the direction of its business. “On the corporate side, it used to be that the great proportion was work that we generated from the London office and then referred on to the US. Since taking on English lawyers we have reversed that flow and now the balance of our work is coming out of the US,” he says.

Competing for work with City firms is “the next stage, after we have achieved the mass we need”, he adds. And. as The Lawyer 100 rankings showed last week for UK firms, not all successful practices are based on big value corporate and banking work. There are, of course, a number of brass plate offices merely providing an outpost in London. But relatively small niche firms can prosper, especially those concentrating on the fast-moving worlds of intellectual property and IT.

Washington-based Shaw Pittman Plotts & Trowbridge's four-partner office opened last year and concentrates on intellectual property, IT and telecoms work.

Andrew Dunlop, who joined the firm from Dibb Lupton Alsop last year, says: “We are focused on the technology sector, which has been helped by the explosion in e-commerce and internet work. We were very confident that clients would appreciate a practice that is focused fully on the technology sector.

“It's not the case with some firms that come in, but we have stuck to what we do best so we don't face some of the issues with saturation and lots of lawyers chasing the same work,” he says.

Philip Fletcher, partner at Milbank Tweed Hadley & McCloy, believes a key recent development has been a blurring of the line between US and UK firms, saying that clients increasingly look at a firm's ability in a practice area rather than its country of origin.

“The line of demarcation between UK and foreign firms is much narrower, and depending on the sector we are more of a UK firm. If someone was asked who are the top five project finance firms in London they would include us without thinking,” says Fletcher.

Law is going global, and the US and UK firms are the major players. With UK firms hiring US lawyers or merging with US practices and US London offices like Weil Gotshal, McDermotts, Cadwalader and Morgan Lewis building essentially English law practices the distinction between US and UK firms is going to become still harder to make in years to come.

US firms rated for corporate and commercial (including markets):

Baker & McKenzie

Cleary Gottieb Steen & Hamilton

Cravath Swaine & Moore

Davis Polk & Wardwell

Shearman & Sterling

Simpson Thacher & Barlett

Skadden Arps Slate Meagher & Flom

Sulivan & Cromwell

Weil Gotshal & Manges

Cadwalader Wickersham & Taft

Dewey Ballantine

Fried Frank Harris Shriver & Jacobson

Jones Day Reavis & Pogue

Latham & Watkins

Milbank Tweed Hadley & McCloy

Morgan Lewis & Bockius

Sidley & Austin

White & Case

US Firms rated for banking:

Baker & McKenzie

Cadwalader Wickersham & Taft

LeBoeuf Lamb Green & MacRae

Shearman & Sterling

Sidley & Austin

Weil Gotshal & Manges

White & Case

Coudert Brothers

McDermott Will & Emery

O'Melveny & Myers LLP

Salans Hertzfeld & Heilbronn HRK

US fims rated for dispute resolution:

Baker & McKenzie

White & Case

Jones Day Reavis & Pogue

Morgan Lewis & Bockius

Salans Hertzfield & Heilbronn HRK

Weil Gotshal & Manges

Wilmer Cutler & Pickering

Coudert Brothers

Dechert Price & Rhoads

Sonnenschein

Cozen and O'Connor

Fulbright & Jaworski LLP

Kilpatrick Stockton

McDermott Will & Emery

Skadden Arps Slate Meagher & Flom LLP

Sulivan & Cromwell

Winthrop Stimson Putman & Roberts

US Firms rated for intellectual property and information technology:

Baker & McKenzie

Arnold & Porter

Covington & Burling

Shaw Pittman

Milbank, Tweed, Hadley & McCloy

Dorsey & Whitney LLP

Morrison & Foerster LLP

US Firms rated for project finance:

Milbank Tweed Hadley & McCloy

Shearman & Sterling

White & Case

Cadwalader, Wickersham & Taft

Dewey Ballantine

Skadden Arps Slate Meagher & Flom

Sulivan & Cromwell

Lathem & Watkins

Mayer Brown & Platt

Orrick Herrington & Sutcliffe LLP

Vinson & Elkins LLP

US firms rated for tax:

Baker & McKenzie

Jones Day Reavis & Pogue

Dechert Price & Rhoads

Morgan, Lewis & Rhoads

Sidley & Austin

Weil, Gotshal & Manges

Cadwalader, Wickersham & Taft

Dorshy & Whitney LLP

McDermott Will & Emery

Shearman & Sterling

Wilkie Farr & Gallagher