Slaughtering the opposition?

Slaughter and May's ultra-conservative policy of turning its back on globalisation has served the firm very well, but Dominic Egan reports that its big five rivals say Slaughters needs more than a little help from its best friends on Wall Street to get by in the next decade.

The Slaughter and May creed has always been a simple one: God is an Englishman and Slaughter and May is the best firm in the world. Foreigners and heretics can scoff all they want. The fact remains that Slaughters has more than its fair share of the best lawyers, the best clients and the best work.

And then there's the money. According to 1999's The Lawyer 100, Slaughters' partners remain the highest-earning solicitors in the country. In the last financial year, they enjoyed average profits per partner of £728,000 and top-of-the-equity earnings of £950,000.

That's not bad for a firm that continues to run itself almost as if the last 30 years had never happened. Although it now has 109 partners, Slaughters still conducts itself much like it did when it was a mere fraction of the size. It has virtually no management structure, partners still enjoy an enviable level of freedom in the way they choose to run their practices and, most remarkable of all, the firm has never bothered to develop a strategy beyond the basic principle of playing to its established strengths.

But that's the way the partners like it. They do not want the firm to change. They know they are on to a good thing and are determined to keep hold of it for as long as they can.

In the light of Slaughters' continuing financial success, the partnership's refusal to move with the times may well prove justified. However, the decision to sit tight while its rivals are merging with foreign firms and investing heavily in globalisation is one of the most crucial Slaughters has ever made.

The firm's future is at stake. Given their apparent inaction at this crucial time, just how will Slaughters' partners of today be judged by their successors tomorrow?

There is something quintessentially English about Slaughters. "They are a bunch of wacky, extremely talented guys," smiles a partner with a leading City firm. "They have a wonderful gentlemanly approach. They are so patrician! They really do wear double-breasted, chalk-striped suits, the stuff that nobody's been seen dead in – certainly east of Temple Bar – in the last 10 years."

And because the partners have refused to adopt modern forms of management the firm resembles a set of chambers, with partners being trusted to build and run their own practices and intrusion from central management kept to a bare minimum.

And there is no managing partner. Senior partner Giles Henderson plays the role of roving ambassador, working quietly behind the scenes to resolve conflicts and achieve consensus.

Henderson is one of the 10 members of a partnership board that meets monthly. He tends to hold informal meetings with practice area heads once a fortnight. However, the overriding principle is that meetings should be avoided unless there is an obvious necessity.

Despite the lack of a dominant management structure, the partnership remains a remarkably cohesive unit. Slaughters' partners would argue that the firm's highly tolerant culture militates against destructive splits. However, an equally important factor is an extremely conservative partnership selection process.

A very high percentage of Slaughters' partners did their articles with the firm and no lateral hire has ever been given a partnership immediately. Thus, by the time they make it to the top, partners are well and truly imbued with the firm's ethos.

Furthermore, those who are eventually chosen are never going to rock the Slaughters boat. Wacky eccentrics may be welcome, but genuine mavericks certainly are not.

Conservative it may be, but the Slaughters formula has worked wonderfully well. The foundations of Slaughters' success are no secret – it enjoys an unbeatable combination of innovative legal minds, top-quality lawyers and the strongest corporate practice in the country.

"It has more than its share of rocket scientists, but also more than its fair share of seriously impressive players, certainly in the corporate area," states a partner with a big five firm.

Indeed, he admits: "If I was running a large industrial company or a pensions fund, I'd go there rather than anywhere else."

Slaughters not only has more FTSE 100 clients than any other firm, it enjoys a remarkable degree of loyalty from them. As a lawyer with a major rival puts it, the refrain among many clients is: "You would be negligent not to use Slaughters."

And the firm's long-standing relationships with a string of leading legal practices all around the world – and in the US in particular – have always ensured a steady flow of top-quality referral work. Slaughters also used to enjoy extremely close ties with various merchant banks. However, takeovers and the unstoppable rise of the US investment banks have weakened its position in recent years.

Another important, but not so well-known, factor in keeping Slaughters at the top of the profits tables is the fact that the firm is run along extremely tight financial lines. With 109 partners responsible for 491 other fee-earners, the firm's leverage ratio is 1:4.5. And Slaughters' assistants and trainees certainly work hard for their money, being thrown in at the deep end from an early age, often with minimal partner supervision.

As the most profitable practice area, the corporate department, which has 61 partners and 215 other fee-earners in the London office, utterly dominates the firm. All other departments exist merely to service corporate and are kept as small as possible so that they do not become too much of a financial burden.

Nor is Slaughters particularly renowned for spending its money. The firm could never be accused of being at the cutting edge when it comes to investing in new technology and, for a practice of its standing, has some extremely tired-looking offices. Indeed, the London partners and staff are currently spread out over four buildings near Moorgate. The firm will finally move to a nearby single office site at Bunhill Row in 2002.

There are many who believe that it is the partners' reluctance to put their hands in their pockets that drives Slaughters' international strategy – or, to be more precise, lack of strategy.

"They're very profitable," says a partner with one of Slaughters' big five rivals. "They don't grow, but their bank accounts do swell."

The partners at Allen & Overy, Clifford Chance, Freshfields and Linklaters have all had to suffer the financial consequences of their firms' heavy investment in foreign offices. The partners at Slaughters, by comparison, have got off lightly. The firm has just five foreign offices, none of which is huge and some of which are tiny (see box 1). When its Frankfurt and Tokyo operations failed to meet expectations, Slaughters simply pulled the plug.

Rather than follow the same route as its four main rivals, Slaughters has chosen to develop what it calls a best friends strategy, allying itself to a highly impressive group of firms around the world (see box 2). Crucially, they include the top five on Wall Street and Hengeler Mueller Weitzel Wirtz, one of the premier German firms.

However, no commitments have been made. The friends may choose to refer work to each other and share information, but are not under any obligation to. The one crucial principle is that no friend should compete directly with another in its jurisdiction.

The loosest of associations, it is hard to take best friends too seriously. At first glance, it looks suspiciously like an international, upmarket version of the defunct Norton Rose M5 Group, an enterprise that singularly failed to take the English legal market by storm. The best friends strategy is surely no more than an attempt by Slaughters to take out a little insurance against a rainy day by improving its relations with some top-quality firms.

"It's now very, very close to Hengeler," says the managing partner of a big five firm. "If the ground is taken out from under its current strategy, it could be in bed with a lot worse than Hengeler." However, he has major reservations about Slaughters' policy.

"The best friends strategy is based on the premise that there will always be a high-quality independent around to do your work, who is not conflicted," he says. "And that's a pretty risky strategy. You can already see how that strategy simply will not work in certain countries."

Some of the best names in the Dutch and French legal markets are currently in turmoil, he says.

"I'm not saying they're under terminal threat, but they've been rocked by what has happened. They've down-sized, they've lost lots of able partners," he says.

"You can't compare all markets and say what has happened in The Netherlands and France will definitely happen in Germany, for example. But in nearly all markets in Europe now there are similar moves and there are very few quality candidates left who are still independent."

Turning to the critically important US market, Slaughters seems on safer ground. Given the size of its domestic market and its vastly superior profitability, it looks highly unlikely that the top Wall Street firms will be entering into international mergers in the foreseeable future. However, a partner with a big five City firm insists that Slaughters has misread the market.

"Increasingly, the US general counsel of a US-based multinational with business interests in Europe doesn't just have business interests in the UK," he says. "He has business interests across Europe. He's not looking for good law firms in London, Paris and Amsterdam to help him with his problems. He's looking for a one-stop shop – an international law firm, probably based in London, perhaps in Brussels, that can offer him solutions to European problems, not just a solution relating to individual inquiries of the UK business."

But the real problem with Slaughters' strategy goes much deeper than that. "The bottom line is you cannot be a leading player in London in 10 years time solely off the back of referrals from kindly friends on Wall Street," states a partner at a big five firm. "It is just not a strategy for growth. It's not a strategy for credibility."

Up to now, credibility has not been high on Slaughters' list of priorities. The firm has never been one to court journalists. Indeed, it has never employed even a single marketing or PR specialist. As a result, its relations with the legal press could at best be described as cool. Thus it came as no surprise when Henderson declined to talk to The Lawyer for this article.

However, the firm can no longer afford to ignore its public image. Law students are a lot more sophisticated these days and a far greater volume of information is now available to them. Many are highly suspicious of Slaughters' strategy and want to know why it differs so greatly from that of the other members of the big five.

Slaughters is clearly concerned about this. It has recently taken the somewhat extreme measure of bussing Oxbridge students to London to meet Hengeler Mueller partners and to talk about the two firms' international strategy. But is that really going to be enough?

The best young lawyers want to be with a firm that is exciting, one that they feel is going somewhere. Allen & Overy, Clifford Chance, Freshfields and Linklaters may not have all the answers, but they are clearly building for the long term. Many of their current partners will never see the fruits of the investment they are funding.

"We're not just trying to shape our own destiny," says a partner at one of those firms. "We're also trying to shape the destiny of the next generation of people who run this firm. We're not thinking entirely of ourselves."

At Slaughters, too great an emphasis has been placed for too long on short-term profitability and preserving the firm's culture. It is still a great law firm with a reputation that is second to none. But is it a better firm than it was 10 or even 20 years ago?

Slaughters' current crop of partners have been dealt a difficult hand. It is much too late now to start building an international network. However, they cannot afford to do nothing. So long as they continue with their current strategy, their destiny lies not in their own hands but in those of their powerful friends on Wall Street. A firm of Slaughters' stature and pride surely does not want to end up playing second fiddle to US lawyers. After all, isn't this the best law firm in the world?

Slaughters. The year so far

Linklaters and Freshfields top M&A league tables for Europe and Asia 17 January 2000

Claire Smith reports on a year of mixed fortunes for UK firms, after the release of figures on deals in Europe and Asia.

Linklaters & Alliance and Freshfields have knocked the US law firms off the top spot for European merger and acquisition work, announcing more deals than the US firms in the last year.

But, according to figures released by Thomson Financial Securities Data, Slaughter and May has recorded a disappointing year, slipping out of the top 10 ranking for European deals.

The fact that Linklaters and Freshfields are advising the major players in Vodafone AirTouch's hostile $149bn (£90.5bn) bid for Mannesmann – until last week the biggest deal ever announced – is said by some to be partly responsible for their performance. Linklaters is acting for Vodafone, Freshfields for Mannesmann.

Drugs giants merger fees may hit £30m 24 January 2000

Slaughter and May and Linklaters & Alliance could earn an estimated £30m in fees from the merger of drugs giants SmithKline Beecham and Glaxo Wellcome.

The £114bn merger is one of the world's largest.

SmithKline Beecham and Glaxo Wellcome are long-term clients of Linklaters and Slaughters respectively.

Slaughters' seven-strong team is led by corporate partners Robert Stern and Michael Pescod. The other partners on the team are Malcolm Nicholson (competition), Howard Nowlan (tax), Eddie Codrington (share schemes) and Howard Jacobs (employment).

Slaughters acts in Blue Circle battle 07 February 2000

Slaughter and May is being thrown into the fray to defend Blue Circle against a hostile takeover bid from French firm Lafarge.

Blue Circle is fighting off a £3.4bn debt and equity bid from the buildings materials business, which the UK cement maker has condemned as 'unsolicited and unwelcome'.

William Underhill, corporate partner at Slaughters, who is heading a team of five lawyers at the firm, says: 'In these situations there is no time for preparation and the response must be made quickly but accurately.'

Slaughters and A&O fail to make top table

14 February 2000

Slaughter and May and Allen & Overy have not been included in a global league of deals for 1999.

US firms dominate the table, which is based on deal value, but magic circle firms Freshfields, Linklaters & Alliance and Clifford Chance make it into the top 20.

The only other UK firm included in the table for leading legal advisers in worldwide M&A is Norton Rose, which is ranked in sixteenth place.

New York practice Simpson Thacher & Bartlett tops the table after working on 26.1 per cent of all deals during 1999.

Clifford Chance is ranked eleventh with $390bn (£242bn) worth of deals. Norton Rose, which acted for Mannesmann in the Vodafone bid, did $273bn (£170bn) worth of deals last year.

But City stalwart Slaughter and May, which has consistently resisted the creep of globalisation, does not figure in the tables.

Slaughters corporate partner Patrick Balfour denies that his firm has fallen behind. He says: 'Year on year firms go up and down the tables and I don't think that globalisation is just led by your ranking on a league table.'

Magic circle firms top charts among leading corporates

21 February 2000

Magic circle firms are pulling away from the rest of the pack when it comes to corporate finance work, according to a survey.

Slaughter and May, Linklaters, Freshfields, Clifford Chance and Allen & Overy were ranked one to five in the Consensus' Annual Broker Survey of more than 200 corporate finance clients.

The companies surveyed were asked to rate their three favourite firms in order of preference. The popularity ranking of each firm was then presented as a percentage.

But the survey showed a huge disparity in popularity even within the top five firms.

Slaughter and May was more than twice as favoured by corporate finance clients than Allen & Overy – scoring 19 per cent of votes in the popularity stakes in comparison with A&O's 9 per cent.

Linklaters scored 17 per cent, Freshfields 16 per cent and Clifford Chance 11 per cent.

Slaughters makes play for best friend in Paris

21 February 2000

Slaughter and May is grooming leading Parisian practice Bredin Prat to become its first French best friend.

Head of corporate Nigel Boardman says the firm has been talking to a variety of French operations, but adds that negotiations with other firms are now over.

'The relationship with Bredin Prat is much further ahead. We have met them and have talked about how we can work with them. We are developing a close working relationship.'

Although Boardman rules out immediately entering into a 'playground pact' with the practice, he says it could be a possibility in the long-term.

Bredin Prat partner Elena Baxter says: 'Slaughter and May is a prime example of the kind of firm we want and we have got to know a lot of the partners there very well.'

Insurers stick with CC and Slaughters 28 February 2000

Clifford Chance and Slaughter and May have been chosen to advise on CGU's merger with Norwich Union announced last week.

The decision sees both firms retain their regular corporate instructions from the insurance giants – Clifford Chance for CGU and Slaughters for Norwich Union.

Norwich Union says its current panel review, which includes an investigation into possible overcharging for bulk litigation work, had no effect on its choice of Slaughters for the deal.

'There is a review under way but for a merger of this size there is really only very few firms who can handle it,' says a Norwich Union spokesman. 'We saw no reason not to stick with Slaughters.'

The £19bn merger will create the UK's biggest provider of general insurance.

Slaughters' legal team will be headed by Glen James, with corporate partner Adam Signy taking on the same role for Clifford Chance. Slaughters corporate partner Jonathan Marks says the firm has a team of 15 lawyers to work full-time on the merger, including corporate partner Tim Clark, tax partner Howard Nowlan, EC competition partners Malcolm Nicholson and William Sibree and pensions/employment partner Jonathan Fenn.

'We expect to achieve completion by early June. There are many regulatory hurdles to overcome before we can proceed,' he says.

UK firms advise on Cap Gemini merger 06 March 2000

Linklaters and Slaughter and May are handling the merger of French management consultants Cap Gemini with Ernst & Young's consultancy arm.

Corporate partner Richard Godden is leading the Linklaters team, which is advising Ernst & Young on UK and French matters. Cleveland firm Jones Day Reavis & Pogue is representing Ernst & Young on US matters.

Slaughters company partner Christopher Saul is advising Cap Gemini on UK matters.