In this part 3 of this four-part series, we will now turn to an analysis of the Chambers rankings of the top 20 foreign law firms in China.
As previously noted in part 1 of this series, there is a clear break-away group of four firms at the top of the charts, and overall the UK firms lead the way, holding nine of the top 12 spots, with US firms taking the final 8 positions in the top 20.
So which non-UK have taken the remaining three spots in the top 12? The chart below will answer this question, but raise another equally important question – can we say that any of the three non-UK firms in the top 12 are truly US firms?
Before we reveal the top 20 list on the international law firm side in China, a brief recap of the ground rules is in order. We used the same basic principles as for the domestic firm weighted scores, but we did have to make some adjustments as described below:
- As in the case of the weighting of the rankings for the domestic law firms, we again assigned four points for a band 1 ranking, three points for band 2, two points for band 3 and 1 point for band 4, and the sum was our weighted score.
- The M&A rankings presented a bit of a dilemma in that there are two groups, elite firms and highly recommended firms, each with separate band rankings in each category. We opted to treat only elite firm M&A rankings as true bands 1, 2 and 3, and all other M&A rankings were treated as band 4 by default in this weighting process.
- It bears repeating that this weighted score arrangement was not created or calculated by Chambers, but is one way of defining relative positioning based on the Chambers rankings as published.
- We again did not differentiate between “core” practice areas and “non-core” practice areas. A band 1 ranking in shipping disputes, for example, was given equal weight to a band 1 ranking in bank finance. Unlike the situation with the domestic firm rankings, this did not appear to create any significant distortion in the weighted scores.
- We included both Hong Kong-based and China-based rankings as long as they fell under the general heading of international firms in China. As mentioned in the first blog in this series, Chambers included Hong Kong as an integral part of China for purposes of these rankings, and while there may be legitimate differences of opinion as to the propriety of that arrangement, we have accepted that for purposes of this analysis.
- We again tallied the number of partners in each international firm listed as a leading lawyer in the Chambers rankings, and used this only as a tie-breaker. As before, if a lawyer was rated in more than one practice area, we still only counted him or her once.
- Rankings for KWM included only the rankings of the legacy Mallesons side (kwM in this series) under the international law firm categories, virtually all of which were Hong Kong based in any event. See the first blog in this series for a further explanation of the rationale for this separation (again, this was done by Chambers and not by us).
- Otherwise, we accepted the rankings as published by Chambers even where we may have had different (and probably less informed) views of the market. All in all, I would venture that Chambers has a better sense of the relative positioning of the international firms in China because of a better understanding of the standing of these same firms in their home markets and globally.
- Again, it is very possible to quibble with the choices we have made in this analysis as outlined above, so feel free to disagree with the methodology and/or the results.
With that introduction and disclaimer, here are the 2013 composite rankings of international law firms in China.
|Rank||Foreign firms||Band 1||Band 2||Band 3||Band 4||Total Rankings||Ranked Lawyers||Weighted Score|
|1||Baker & McKenzie||11||12||7||0||30||44||94|
|4||Allen & Overy||5||9||8||2||24||32||65|
|5||Mayer Brown JSM||6||5||4||5||20||26||52|
|7||DLA Piper UK LLP||1||7||8||6||22||25||47|
|10||Herbert Smith Freehills||4||4||5||1||14||23||39|
|11||Simmons & Simmons||2||4||8||1||15||12||37|
|12||Norton Rose/ Fulbrights||2||3||7||4||16||12||35|
|15||White & Case||3||2||6||2||13||14||32|
|17||O’Melveny & Myers||0||5||5||1||11||8||26|
|19||Orrick, Herrington & Sutcliffe||1||1||5||3||10||9||20|
|20||Shearman & Sterling||0||6||1||0||7||9||20|
There are a few things that jumped right out at me when we finished this compilation.
Bakers by a nose
Baker & McKenzie leads the way in these rankings, but with only the smallest of margins over Clifford Chance, and even then it depends whether you want to look at total band 1 rankings (Clifford Chance wins), total overall rankings (Bakers wins), or use this weighted scoring (Bakers by a nose).
Twenty years ago, Bakers was on top, with only Coudert Bros and White & Case in the same league. Fast forward to ten years ago, when Bakers exiles had populated half of the foreign firms in China which had proliferated around the turn of the new millennium, and many in the market were talking about a supposed irreversible decline in the fortunes of Bakers in China. That has clearly been proved wrong.
In retrospect it is apparent that Bakers in Hong Kong and China has enjoyed a higher degree of stability in its partnership than perhaps any international firm in China, where the laterals merry-go-round never seems to stop spinning. As I once heard a managing partner of a leading London-based firm once say, you can never bet against Bakers in international markets, and that has continued to be borne out in this market.
UK strength at the top of the table
The majority of the top 10 international firms in China are the traditional leaders from the UK market – Clifford Chance, Linklaters, Allen & Overy (A&O), Freshfields Bruckhaus Deringer, and Herbert Smith Freehills. No surprise that this quintet is in the top 10 – they have been firmly entrenched at the top of the charts for 15 years or more – but it is a surprise that Freshfields has slid down to the bottom of the top 10. In the early 2000s, Freshfields was the consensus top dog in the market, in a much stronger position at the time than Clifford Chance, Linklaters or even Bakers, having raided Coudert Bros. and Bakers for top first generation “old China hand” talent. Most of that first generation talent has now retired while a few of their other top performers of the second generation of China lawyers have moved on. Freshfields is still very formidable (as witnessed by its lead role on the Alibaba IPO), but (at least according to these rankings) it is no longer top of the market as it once was in China.
Of this quintet, Clifford Chance and Linklaters have continued to go from strength to strength. In the mid 2000s, Linklaters had taken the dominant position in the market off the back of its extraordinary financial institutions M&A practice. Word on the street was that Linklaters was charging full London rates and achieving full (or, if possible, better than full) utilisation, making it the most profitable law firm China during this heady period. Clifford Chance was never far behind, and has just kept marching forward. Recording 15 band 1 rankings is a remarkable achievement in this market, even taking into account that much of this is generated from the firm’s strong Hong Kong base.
A&O and Herbies have swapped positions in the market over the last ten years. In the early 2000s, Herbies had effectively leap-frogged up to near the top of the tables with a very strong capital markets and M&A practice led by some very savvy foreign-qualified Chinese lawyers, while A&O was struggling a bit to find the right combination of partners to get it up to the top end of the table. Herbies has since slid back down a bit, not too much, while A&O has clearly found its footing and marched back up to the front.
I am pleased to see that my old firm, Hogan Lovells, has maintained a top ten position in China in the composite rankings, down only a few slots from its top-five ranking in the mid 2000s. I still consider this to be a UK-based firm for these purposes even with the merger with Hogan & Hartson; the Asia operations of Hogan Lovells are run from London, and the legacy Lovells side has continued to lead the way in Hong Kong specifically and China generally.
Much the same observation can be made about DLA and Norton Rose/Fulbrights (apologies to the NRF style mavens) – both really should be treated as UK firms for these purposes since the US side had not had made a significant splash in the China market rankings pre-merger. We have added the Fulbright Jaworski rankings to the Norton Rose rankings in China for purposes of this analysis, adding to the weighted score only where there were non-duplicative rankings. The Fulbrights side has a very solid team comprised of several top lawyers I know and respect, but based on the Chambers rankings, the addition of the Fulbrights China team helped Norton Rose make only a modest improvement in their overall rankings and relative positioning, reinforcing the proposition that this is primarily a UK firm for these purposes.
The leading UK contingent is rounded out by Simmons & Simmons, which moved into position just outside the top ten. Simmons has always been a very capable player in the China market, but this does mark a bit of an advance up the table over the last several years in my view.
Where are the US firms in the top group?
No matter how you slice it, the UK firms are clearly on top in the China market, but are there really any US firms in the top group?
It is open to debate whether Bakers should be considered a US firm. Twenty years ago when I was with Bakers’ China practice, it was common to hear partners talk of jettisoning the weaker US offices so the stand-alone international practice could flourish more easily. That’s not going to happen, but it does underscore the sentiment within the firm that it is an international firm not just a US firm (a view shared by many in the market), and in China it was the Hong Kong office, not Chicago, that acted as the launching pad for the hugely successful Beijing and Shanghai offices.
One of the biggest surprises in the top 10 on the international side is the rise of Mayer Brown JSM. Ten years ago, JSM was probably outside the top 20 firms in mainland China (excluding Hong Kong) in the market consensus view, and Mayer Brown was not really on the radar screen. The fact that the combined firm has been able to jump queue into the top five based on these composite rankings is very impressive, but I think most market observers would again chalk this up to the strength of the original JSM side of the firm in Hong Kong, while the combined firm’s presence and profile in mainland China generally would not be considered to be as strong.
But query whether we should consider this a true US firm for these purposes – based on the experience of so many other top US firms over the last 10 years, I expect it would have been very difficult for Mayer Brown to have made this leap on its own without the foundation which JSM offered in the market, so it again underscores the importance of Hong Kong in these composite rankings and in the China legal services market on the international law firm side.
The international side of KWM is unique among the leading group of firms in Hong Kong and China in that it is clearly neither a US or UK firm. More impressively still, it is not founded on the base of an indigenous Hong Kong firm. The Mallesons side of KWM (which we are referring to as kwM in this series) has been in Hong Kong for some time, and historically has had a very strong presence in projects and construction in the China market generally, but it was a significant surprise to me to see it advance all the way up to number six in these composite rankings, which clearly evidences that it has expanded well beyond its original base.
In fact, taking a closer look at its individual rankings, it becomes apparent that aside from construction, where it continues to be extremely strong on the international side, its other areas of strength all coalesce in the financial services sectors, including insurance, debt capital markets, derivatives, securitisation and the like. But the kwM team’s rise is due more to the overall breadth of its practice capability, with nine band 3 rankings, more than any other firm in the top 20 on the foreign firm side, demonstrating a deep and solid core of strength across a significant range of specialist areas.
This breadth of practice area coverage, which is perhaps disproportionately rewarded in a composite scoring system such as we have employed here, also reflects the increasing size and scale of the firm in Hong Kong. The combined KWM is now one of the largest firms in Hong Kong, positioning it to play (and thus be recognised) in more areas of specialism. But a closer look at the data also reveals that the kwM rankings are based almost exclusively on the position of the firm in Hong Kong, where 18 of the 19 ranked individuals in kwM are based, with the lone ranked individual international lawyer in China in kwM being a guilo with a regional portfolio based in Shanghai. Thus, the composition of the kwM team itself tends to reinforce and confirm the rationale for the binary international vs. domestic lawyer/law firm approach taken by Chambers in the China rankings.
A related interesting question is whether KWm + kwM creates a new dominant player in the combined domestic plus international law firm sectors in the China market. On the domestic side, we haven’t seen a significant impact of the addition of kwM to the already strong KWm position in China to this point. Not sure how the kwM piece is viewed by their international law firm competitors in China and whether the combination with KWm is a true game changer in that market segment. Given the very strong position of both sides of the KWM merger in the China rankings, I think we will see some impact as the two halves are more fully integrated in China, but it likely will be a question of degree.
The US chasing pack
Based on the foregoing analysis, it could be argued that there is no true US firm in the top 12 in Hong Kong and China. But US firms fill the rest of the slots in the 20 and 12 of the next 20. (Only five UK firms make the next 20.)
Most of the chasing pack of US firms have remained comfortably in place in the top 20 over the last five to 10 years, with some shifting of positioning within that grouping. Of this group, Sidley seems to have advanced the most, but all are excellent firms, and the composite rankings are for the most part bunched quite closely together in the middle part of this second 10, so it is probably unwise to draw too many conclusions in this regard.
Even so, it is worth noting that the average composite score of the second 10 shows a more than 70 per cent drop-off in comparison with the break-away group of the top four international firms and is less than half of the average composite score of the top ten firms, evidencing a narrower service offering and/or a slightly lower overall ranking among this group.
So what does this all mean?
This top 20 list includes a strong group of foreign firms, and the firms just outside the top 20 on the foreign side are also very good firms. The next 10 on the list includes such firms as Simpson Thatcher, Davis Polk, MoFo, Slaughters, Kirkland & Ellis, Latham & Watkins, and Weil Gotshal. For these firms, their positions in the rankings are defined not by their quality but by the fact that their practices are more focused in this market as they do not aspire to be full-service firms here in China, which makes perfect sense. (For those of you who are counting, I obviously did not list all of the firms in the third group of 10. There are also a lot of good firms in the fourth group of 10 whose names I will not recite here. Apologies to all who feel overlooked, but this way everyone else can argue that they belong in the open slots not listed here.)
But how many of the foreign firms are making money in China? My comment in a prior blog that 70 per cent of foreign firms in China were not even covering on-the-ground operating costs and another 20 per cent were not covering partner compensation received a bit of attention. It should be underscored that these are not my figures. I was much more optimistic – my personal (possibly unfounded) estimates were that only 50 per cent were not covering local office costs with another 30 per cent not covering all partner draws. The more pessimistic estimates reflected the consensus view from other presumably knowledgeable sources. I don’t think anyone actually knows.
But there are more than 200 foreign law firms in China, so can we safely assume that the top 20 firms topping the composite rankings list are all part of the profitable 10 per cent of the foreign firms in China? That is probably a bit of a stretch. If I were a betting man, I would happily wager that Bakers and the top UK firms are doing very well, certainly better in Hong Kong and China than most of the US firms. However, some of the US firms on the top 20 list are definitely still in investment mode, while some other US firms both inside and outside the top 20 are also doing just fine, thank you very much. It’s a mixed bag even among the top 20-30 firms in the rankings, but the farther you drop down the list, the greater the likelihood you are operating in the red in China.
The more interesting question may be how many firms are able to achieve a contribution of more than 5-10 per cent of global firm revenues from Asia, let alone from China. (Hint: read The Lawyer’s Asia Pacfic 150 report.) Perhaps the more important question is whether growth opportunities in China can help counter-balance flat revenues and profits in the home markets of the international law firms? We will plan to talk about that, and other issues, in the final installment of this series.