Manhattan transfers

Allen & Overy has big plans for New York. But can any UK firm really mount a serious challenge in Wall Street? Jon Robins reports

The boardroom of Allen & Overy's New York office, 24 floors above Madison Avenue, boasts a spectacular view of the Manhattan skyline and well beyond. However, managing partner Carl Sheldon is pointing out one particular midtown skyscraper a couple of blocks away for the benefit of The Lawyer.
Later in the year, the McGraw-Hill building at 1221 Avenue of the Americas will become the firm's new home. One feature has caused quite a stir among the ex-pat lawyers in New York. The firm has reserved more than 135,000 sq ft on its three floors, which is a hell of a lot of room for the firm's 60 resident lawyers.
But not for long, if Sheldon has anything to do with it. “We're looking forward to occupying the new space and continuing to expand the New York office,” declares the lawyer. He reckons that the firm could recruit as many as 200 lawyers in four years to fill up all that empty floor space.
It has been 18 months since Clifford Chance and New York's Rogers & Wells signed on the dotted line to form the world's largest law firm and, so they would claim, create the blueprint for a new breed of global law firm. “We're leading the way, others will have to follow,” was the proud boast of Keith Clark, chairman of Clifford Chance. For a time it appeared that Clark was right and Manhattan was abuzz with the sound of partners trying to broker transatlantic deals.
But the urge to merge seems to have abated of late. Clearly, A&O is pursuing its own strategy of aggressive expansion. As for a merger, the firm's attitude is 'never say never', but at the moment there is nothing on the horizon. “It can be a fall-back for the firms that lack the ambition and imagination to go down a different path,” comments Sheldon. Who can he be talking about? He adds: “A merger is something we might do if it offered us some immense strategic upside, but otherwise, absolutely not.”
The firm's New York office is upbeat, having completed a number of impressive lateral hires of late, most notably Dan Cunningham, senior M&A partner and head of the derivatives practice at leading Wall Street firm Cravath Swaine & Moore. Cunningham's recruitment is a breakthrough for the firm, illustrating its pulling power in the tight New York recruitment market.
All the City firms with global aspirations know that they have to make it in the Big Apple to attract and retain the biggest international clients. Dual capability is key to an international firm. As one commentator puts it, firms without a presence in both New York and London will not automatically be shut out of the big cross-border deals but having a dual capability means that they will be shortlisted for many more.
“We didn't come to the US solely because we wanted to be here,” explains Stephen Revell, head of Freshfields Bruckhaus Deringer's US practice. “We wanted to be in the US as a component of the global market and that element has been more successful than we could have hoped.” The firm has more than 45 lawyers in New York, where three partners were recently made up and where new signings are imminent. Also, the firm has just appointed a new tax partner in its Washington DC office.
Being labelled a 'UK firm' clearly rankles Marianne Rosenberg, who heads Linklaters & Alliance's New York office. “We'd describe ourselves as an international law firm headquartered in the UK,” she says, adding that having a US lawyer heading the office “sends out the right message to the market”.
The firm has 38 lawyers in New York and only one UK partner, and according to Rosenberg, “even he has gone native”. It is presently recruiting at all levels. “We're eager to grow and keen to hire, but that said, we're extraordinarily picky. In a lockstep firm, you bring someone in for life. We aren't Grand Central Station,” she adds.
So continued growth is on the agenda for all the international firms, but the question remains as to what is the best strategy to build. Many in the market are openly sceptical about the success of the Clifford Chance-Rogers & Wells marriage. Others are less than impressed by A&O's bullish approach to expansion.
According to one UK partner in New York, the story of the firm's relocation broke first in the real estate trade press. “We're not going to suddenly take 200,000 sq ft and say, 'Right, now let's fill it',” he notes dismissively. “It seems a flawed strategy to build on the basis of real estate.”
At Freshfields, finance partner Ted Burke says the firm is “always interested in, without necessarily committed to, the idea of a merger. No chairman or chief executive is going to say they'll never merge, and so you never rule it out and you always talk to other great firms.”
“If you look at all the US firms, they're all craving solid UK capacity and they're all hiring. If you look at the UK firms, they're craving US strength, so logically, why don't we merge?” The question, posed by Rosenberg, is rhetorical.
Lateral hiring might be slow when compared with the big-bang effect of a merger, but it allows a firm to control the quality of intake and manage issues of cultural integration. “I'm not saying we'd be prepared to put the firm through the wrenching divisiveness of ripping ourselves apart unless we were persuaded that it was absolutely the best thing to do,” says one managing partner of a UK firm.
There have been a number of high-profile failed transatlantic mergers, including most notably Ashurst Morris Crisp's talks with Latham & Watkins and Bird & Bird's with Orrick Herrington & Sutcliffe. Rosenberg joined Linklaters from New York firm White & Case in 1998 and didn't approve of its aborted merger talks with Richards Butler.
Of course, not all of the magic circle firms are pursuing the American dream. Slaughter and May has gone its own way and deliberately maintained a low profile in New York. The firm has a best friends relationships with a number of the biggest Wall Street firms, such as Cravath, Davis Polk & Wardwell, Simpson Thatcher & Bartlett and Sullivan & Cromwell.
Slaughters' approach to the US mirrors that of its pals at Cravath. It believes that its big corporate clients are too sophisticated purchasers of legal services to be interested in the one-stop shop model of the global firm. The bigger the firm, the more diluted the talent pool, the argument goes. Presiding Cravath partner Bob Joffe once joked that it “disturbed” him that his partners were spread over 12 floors, let alone the globe.
Associate Mark Cardale is one of two lawyers that Slaughters has on this side of the Atlantic. “The office is valuable because it gives us a window on life over here, and people here have a chance to look at what we're doing in London and Europe,” he says.
Of course, being perceived as unthreatening to Wall Street lawyers reaps its own rewards in terms of referral work. As Cardale explains: “The fact that we're not practising US law strikes a friendly note with firms over here because we're obviously not trying to usurp their clients.”
Lovells also knows the value of referral work. The firm has always had a strong North American corporate client base, principally from the retail and manufacturing sectors. “We still get a lot of work from the big and medium national US law firms, and it's an important source of work for us,” says Charles Penney, who heads the 22-lawyer office. “Our view is that if we suddenly go out there and say we're looking to recruit, then that's going to dry up. It's definitely not our strategy.” Last year Lovells acted for 170 of the Fortune 500 companies. Penney describes A&O's plans to expand as “incredibly bold”.
A&O, Freshfields and Linklaters are all recruiting. For example, Linklaters had 21 law students on its US summer associates programme last year and A&O expects 45 students on its scheme this year. All firms are prepared to match the salaries of their Wall Street competition at associate level.
Poaching the heavyweights remains a challenge to the UK firms, but not impossible. Rosenberg cites a recent story in The Lawyer which revealed that plateau partners at Linklaters earned over £1m to make her point: “We're not in a situation like those non-New York US firms based in California and Texas trying to make inroads here.”
Undoubtedly, it was a considerable coup for A&O to attract Dan Cunningham. According to one rival, the lawyer comes with the kind of reputation that can “electrify” a firm. Another less charitable commentator snipes that Cunningham left because Cravath was not prepared to support his derivitives work. In May, A&O also appointed two Cadwalader Wickersham & Taft partners David Frauman and Kenneth Coleman to the partnership.
It has been suggested that Cunningham took as much as a 50 per cent pay cut by joining A&O. “I was well compensated and I'm still well compensated,” he says with a convincing smile. It has also been reported that he will receive a stake in an online derivatives product, but Cunningham stresses that his move was not motivated by financial factors.
One reason for his departure was clearly the attraction of working for an international firm. Joffe might claim that is not the model a Cravath client wants, but Cunningham has no doubts that it is what his clients want. “If you go to the investment banks with a derivatives business, it's grown into a global business and the book is run around the world,” he says. “They want a law firm that provides the service that reflects the business.”
The perception is that another major stumbling block to UK firms merging or recruiting in the US is lockstep. Many US lawyers still believe it is demotivating and unfair, but the magic circle continues to regard it as an asset, not a hindrance.
Rosenberg acknowledges that the lockstep system is far from perfect. “However, it does have the advantage of everyone pulling the oar in the same direction,” she argues. “The dangers of that not happening in a partnership are far greater than the risks of lockstep.”
Freshfields' Revell reckons that many of its lateral hires have been refugees from merit-based systems. “They were survivors of a system that carries with it such a degree of internal competition, and such an amount of time spent wrangling with your partners about compensation,” he says.
Lockstep concentrates the collective minds of the partnership on the outside world. Ultimately, the firms' adherence to pure lockstep will make merger difficult, if not impossible. Clifford Chance 'modified' its own system in its merger with Rogers & Wells to keep the big billers on board until next year.
Lovells' Penney recently brought all UK partners from firms across New York together for lunch at Della Femina in the East Hamptons. The last time there was such an expat meeting was in the late 1980s when, as Penney puts it, relations between compatriots was far “chummier”.
But life for the Englishmen in New York has changed dramatically over the past decade. It struck Penney that, despite the fact that the presence of the UK firms had dramatically increased in New York, there were actually fewer UK partners. The New York offices have transformed from two-man showrooms to fully-manned practices of 60-odd lawyers, but despite this, there were only 11 partners.
So what was the hot topic of debate at the lunch? “We didn't talk about work at all,” Penney says unconvincingly. Really? “There was some light banter along the lines of, 'Who are you going to merge with',” he admits, adding that there was nothing more to it.
It is when the lawyers stop talking that you know something is really up.

How the other magic circle firms are doing in the Big Apple
Allen & Overy
Numbers: 60 lawyers in its New York office (including 40 US lawyers). In total, it has 125 US-qualified lawyers in its US law group. The office opened in 1985 but dwindled to a representative office with three or four UK lawyers, until it was relaunched in 1997.
Recruitment: This year the firm recruited Dan Cunningham, the senior M&A partner and formerly head of the derivatives practice at Cravath Swaine & Moore, as well as two Cadwalader Wickersham & Taft partners, David Frauman and Kenneth Coleman. The firm has 45 law students on its summer associates scheme.
Plans for expansion: The firm moves into new premises with more than 135,000 sq ft and anticipates having in the region of 200 lawyers in the next few years. It never rules out the possibility of a merger, but nothing takes its fancy at the moment.
Deals: Advised Petrobas, the Brazilian state oil company, with its acquisition of two Brazilian gas companies from Enron Group; advised a subsidiary of an Italian company in connection with the acquisition of a US IT company; advised Orbian (an affiliate of Citibank) in connection with the establishment of a global settlement system for buyers and suppliers; provided corporate advice in connection with UPC's acquisition of Cignal Global.
Freshfields Bruckhaus Deringer
Numbers: The firm has more than 45 lawyers in its New York office and 60 in the US. In 1998, the New York practice was a 'representative office', but that year five partners joined, including four from Milbank, Tweed Hadley & McCloy.
Recruitment: The firm has just appointed a new tax partner in Washington DC, and in New York three partners have recently been made up.
Plans for expansion: According to finance partner Ted Burke: “Freshfields is always interested in, without necessarily committed to, the idea of a merger. No chairman or CEO is going to say that they'll never merge, and so you never rule it out and you always talk to other great firms.”
Deals: Advising Chase Manhattan Bank and other lenders in the 570megawatts Liberty merchant power project in Pennsylvania; advising Export-Import Bank of the United States on the financing of the $4.5bn (£3.1bn) Hamaca heavy oil project in Venezuela, involving intercreditor issues among bank lenders, capital markets debt and US Exim; advising Inter-American Development Bank and Banco Santander Central Hispano on the financing of a transmission line system in Peru consisting of 444km of transmission lines and four substations.
Linklaters & Alliance
Numbers: There are 38 lawyers in Linklaters' New York office, including 24 US-qualified lawyers. The firm has 71 US-qualified lawyers worldwide. In 1998, Marianne Rosenberg joined from White & Case with two partners and nine associates.
Recruitment: The firm is presently recruiting at all levels. Despite its enthusiasm to grow, it remains choosy. In particular, the office is looking to recruit banking and securities lawyers. The firm has 21 students on its Summer Associates scheme.
Recent deals: Advised Metropolitano de Lisboa on the award-winning $113m (£80m) pickle-service contract for rolling stock ('Rail Deal of the Year', awarded by Asset Finance International in March); advised JP Morgan Chase on a euro100m (£60m) three-year bond for the City of Buenos Aires; advised on the recently closed $1bn (£70m) bond issue by Argentina, which marks the country's return to the markets after a long absence.
Slaughter and May
Numbers: The firm has two lawyers in New York in an office headed by associate Mark Cardale: “The office is valuable because it gives us a window on life over here and people here have a chance to look at what we're doing in London and Europe,” he says. Lawyers from the London office come in as and when they are required.
Recruitment: No plans to expand. Slaughters considered expanding its New York presence when there was a lot of Latin American debt restructuring work 10 years ago. “But once the decision was made not to practise US law, the impetus died,” Cardale says.
Work: The firm has best friends relationships with a number of the biggest Wall Street firms, such as Cravath, Davis Polk & Wardwell, Simpson Thatcher & Bartlett and Sullivan & Cromwell.