Going for broke
26 February 2001
11 October 2013
5 August 2013
3 September 2013
17 March 2014
7 October 2013
If you are ever stuck for conversation sitting opposite a City lawyer, try this to get things going: gingerly mention the words McDermott Will & Emery and London office in the same sentence, then sit back and wait for the reaction. It always works, and usually elicits a flood of opinions, some more considered than others. If you are speaking to someone from a UK firm, they will typically shrug the practice off and start telling you that building a full-service law firm from scratch can never work. Someone from a US firm will more likely try to convince you that McDermotts has not got any work and will claim to have seen a rush of CVs from disillusioned associates.
But love 'em or hate 'em, McDermotts is achieving the unthinkable. After only two years of business in London, it is making enough money to pay all its costs, pay its partners and then send some profits back to its parents in Chicago.
The firm that opened the doors of its London office in November 1998 with two heads of department and a senior banking partner from Simmons & Simmons, promising to be a 200-lawyer practice in five years, is coining it in.
In 2000, the office billed an impressive $26.4m (£18.4m) with an average headcount of 49 lawyers, 11 of whom were partners. By the end of the year, there were 13 partners out of a total of 60 lawyers.
The firm refuses to comment on the profitability of the office, saying only that it sent money back to the US. It insists that profits are not calculated on an office-by-office basis, but The Lawyer can reveal that the costs for the office amounted to around £12m last year, the partner draw about another £5m, leaving a tidy £1.4m profit to be sent back to the US.
If you said that to the City lawyer sitting opposite you, you can guess what the next question would be. Where is all the money coming from?
The answer, it would seem, lies largely with senior partner William Charnley. Charnley was one of the original three partners from Simmons who launched the practice, having been head of corporate finance there.
He is the firm's £1m partner, with a package including bonuses that takes his pay packet up to a seven figure sum. Last year he billed more than £5m, more than double that of the office's second-highest biller Stephanie Liston, who joined from Baker & McKenzie in July 1999.
He had so much work that at the end of the year he stepped up from managing partner to senior partner, and ex-Herbert Smith litigation partner John Reynolds took over management.
One City source says: "If Charnley's tenacity equates to good leadership, and his ambition equates to good leadership, then they have got a good man. No one else in corporate or finance there gets even close to him - they got the right guy in terms of heading it up."
The corporate department, which includes Charnley, Liston and former Morgan Lewis & Bockius partner Robert Rakison, accounts for half the office's turnover, followed by the employment and intellectual property practices. There are 20 assistants in the corporate group alongside the three partners, so while the gearing of nearly seven-to-one might raise supervision issues, it helps the profitability.
But one source close to the firm says there are assistants on the market. He says: "[The corporate group] is doing good work but they have got a large number of assistants and they need a partner to come in with a £1m practice. They need more work, the assistants need to achieve 2,000 hours to get their bonuses, and they are not doing that."
Charnley says: "I think that there are a number of assistants in the corporate group that are working beyond capacity due to the workload, and a number that are under capacity due to the fact that they have been brought in more recently and are not on the major deals. Overall last year, everybod
y was working in excess of where you would expect to be in a UK firm. Corporate is very transactional-based, and therefore there will be peaks and troughs."
Only four assistants have ever left the office - three to in-house positions and one to a rival US firm in London. McDermotts says he left because he wanted to do US securities work. And for a firm that is nearly two-and-a-half years old and now numbers 16 partners and a total of 65 fee-earners, that is pretty good going.
The average billing per lawyer last year was about 1,800 hours, and Charnley says there were plenty of associates who did make their 2,000-hour targets. The target is the same for all lawyers in the firm, and bonuses are paid according to how much lawyers exceed it by.
A recruitment consultant reports that lawyers are queuing up to join the firm, and of the partners hired, two thirds are rated as leaders in their fields.
Charnley says: "Obviously, now we have got a track record because we have shown where we have got to. We are still seeing a large number of CVs across the board in all disciplines, but we are very careful in the way that we approach it. We have obviously got to get the right people that do believe in the strategy and do want to add something to what we have already got. There was a mantra that was put forward by the chairman before we started. When we asked are there any rules he said: 'There's only one rule and that's no assholes,' and we have stuck to that."
The plan was always to be 200 lawyers five years from opening, and half way through it is not yet half way to the target. The rest of the aim was to be full-service.
Charnley says: "We were looking at being a full-service law firm, taking leaders in their fields so that we could build something that no other US law firm had done, so that we would have something on the whole vastly superior to what others had done."
Clifford Chance London managing partner Peter Charlton says: "It's an ambitious strategy because unless it has got a client base which is supporting it, it rather implies that it is going to build its own client base from its home market, which is not easy. It's really different to what the other US firms have done, which have really been content to be niche."
One big client of the London office says: "I think what it has done is amazing in the time. To recruit so many heavy-hitting partners in such a short time is very difficult. It is very strong in some areas but needs to build up in others. I think inevitably law firms have particular areas that they are very good at, but to be very good in everything, I'm not sure that's possible. It can't be all things to all men."
Nigel Boardman, head of corporate at Slaughter and May, says: "I think the idea of building on areas of strength is a sensible one and I think it's good for London to have as much competition as it can have."
Unusually for a US firm in London, McDermotts does not practice US law in London and does not have US lawyers in the office. Nevertheless, there is plenty of cross-selling, with two of the office's biggest deals having come in from stateside last year, namely the Daewoo debt restructuring and the Consolidated Papers merger (see box left).
Of the $26.4m (£18.4m) billed by the London office in 2000, $8m (£5.5m) was work done in London for US clients, and the US offices handled $2.6m (£1.8m) worth of work for UK clients. And of the fee-earning work in London, 80 per cent is generated from the UK and Europe.
Reynolds says: "I think probably every other US law firm has a partner from the US over here, but we are all speaking every day with a colleague in the US about potential new work. The reason it works is probably because we have so many offices in the US, to an extent we are just like another one of those. Many of the problems you face with LA to New York are the same as New York to London."
The 900-lawyer firm has eight offices in the US, and others in London, Moscow and Lithuania. For 1999 it was ranked tenth among US firms in terms of revenue, recording $444.5m (£310m) and profits per equity partner of $785,000 (£545,000).
In London, the practice is driven by corporate, but the partners are at pains to point out that the other groups are not support functions. Reynolds says: "Obviously the corporate practice is the engine to any City law firm, but we are not supporting it. There's a lot of cross-selling - this is where having market leaders is important because there is client confidence and client trust. That's the way McDermotts is in the US."
The employment practice, for example, boasts that 90 per cent of its work is self-generated. But many top City lawyers will still remain sceptical of the sales pitch. One recruitment consultant says: "Top-notch partners tend to say 'no thanks'. They just don't think that its full-service London thing works. How can it ever really compete with Freshfields Bruckhaus Deringer, or Norton Rose for that matter, when it doesn't have a dedicated market position or sector that it is going after?"
But whatever the market thinks, no one can deny that it is doing well to be sending money back home. One partner at a rival US firm in the City says: "If it is doing that it is doing better than 90 per cent of the US firms in London."
So what is the secret? Reynolds says: "Part of the secret was good timing. The firm happened to be looking and took the decision to [open in London] at exactly the right time."
No doubt the adverts offering million-pound packages helped with the recruitment process as well. "I think it's easy to sell in the first two years when you are saying we are new, come and join us and help us build. It's going to get harder now," says Reynolds. Charnley adds: "I don't think we should make out that it's all plain sailing because it's not. It's hard work."
Nick Holt, the former managing partner of Weil Gotshal & Manges' London office who is now running KLegal's UK practice, says: "In terms of strategy I just wait and see with interest how they get it to the next stage. Recruitment, expansion and retention will be the big issues now. It's relatively easy to get to stage-one base camp, but how you get further up the mountain is more difficult."
But Charnley's not done yet - the big plans keep coming. He says: "We want to recruit more lawyers in all the disciplines that we have got," he says. "In addition, we want to add in property and competition - those are the two we have not yet filled, but we're close to doing so."
It is clearly a firm that gets what it wants, and you get the impression that McDermotts will be a conversation-starter for a few more years yet. n