16 May 2008
US firms have flooded the UK legal market in recent years, but while many have set up shop in the capital, successfully penetrating the London market is an arduous process.
Last year, the top 10 London offices of US firms and the UK top 10 both had an average profit per equity partner (PEP)
increase of 10 per cent. But the US firms apparent success is skewed somewhat by the inclusion of some heavy international players such as Baker & McKenzie, Mayer Brown and White & Case, which have long had a focus on London and the overseas markets. Their results highlight the different strategies used by US firms in their attempts to make a successful break on this side of the pond.
In London, US firms have adopted a range of different approaches to building up strength and a presence in the City, with varying degrees of success. Elite US firms such as Davis Polk & Wardwell, Simpson Thacher & Bartlett and Sullivan & Cromwell primarily use their London offices to serve US clients with US legal advice (although Sullivan in particular has ramped up its English law capability in recent years). Others, such as Shearman & Sterling, Skadden Arps Slate Meagher & Flom and Weil Gotshal & Manges have made a concerted effort to compete with top UK firms by hiring local lawyers and growing their London offices organically.
There are several categories of US firms in London, confirms Weil London managing partner Mike Francies. Not all firms want to build a client base from scratch. If the firm doesnt need or want that theres really no point.
Firms such as Weil have always wanted to be successful in London with their own clients. Its an important financial centre for us and the London office is integral to the firm.
Weil partners Marco Compagnoni and Richard Ginsberg have driven the offices success, securing private equity clients such as Lion Capital, Terra Firma and Advent. Yet, as for many US firms, there is a perception surrounding Weil that achieving a degree of UK autonomy has been a struggle.
Over the years relatively few Weil lawyers have been promoted to the partnership in the UK. As one former London-based Weil partner puts it: The firm wants London to be successful, but not more successful than New York.
London has done exceptionally well in recent years but it will never have the degree of autonomy most partners want.
When Weil launched in London in 1996, banking and finance star Maurice Allen and his team from Clifford Chance helped the firm break into the UK market with a splash. In 2000, Allen joined US firm White & Case with banking partners Nick Holt, Martin Hughes and Rachel Hatfield after a dispute about the firms European expansion strategy. Since then Weil has successful cultivated its private equity practice.
Finance didnt work for us because there are a lot of good firms occupying the market, admits Francies. Our private equity work on the other hand has been very successful for us.
Another leading US firm that also has a battle to succeed in London is Shearman. It has just revamped its global management team and appointed a new London managing partner in Anthony Ward, but has struggled to capitalise on its aggressive recruitment drive during the late 1990s and early 2000s.
Hires such as former head of banking at Ashurst Stephen Mostyn-Williams, who joined with colleagues Adrian Knight and Ward, put Shearman in a good position to rival the magic circle. But, according to one UK magic circle partner, it simply hasnt worked.
The firm looked ready to take us on but somehow it let it slip and hasnt become the transatlantic powerhouse it wanted to be, says the partner.
Shearmans traditional relationships with Citigroup and Morgan Stanley have not been successfully transferred to London, partly because of internal tensions between New York and the European offices in London, Germany and Brussels.
While Shearman attempted to create a full-service global firm with strengths in major financial centres including London and New York, discontent over the lack of promotions in the London office has led to a slew of departures.
Last year, Lawyer 2Bs sister title The Lawyer (21 May) reported that nine counsel had left the London office since 2004 to join other firms due to lack of partner opportunities. Like its US counterparts, it is thought the London office introduced the counsel position for those associates not likely to be promoted to the partnership.
The majority of Shearmans former counsel have gone on to become partners at other firms: they include Adam Cooper at Simmons & Simmons, Stephen Jurgenson at legacy firm Dewey Ballantine (now Dewey & LeBoeuf) and Elisabeth Baltay, who joined former Shearman partner Stephen Peppiatt at Bingham McCutchen.
The partnership is very tightly held at the firm and this leads to a lot of associates moving on because of the lack of opportunity, a former partner at Shearman explains. These are really talented lawyers who will want to move up the scale rather than be sidelined.
Outside London, Shearmans German practice, known for its strong relationship with car manufacturer DaimlerChrysler, has suffered an office closure and partner departures. Last month (22 April) The Lawyer reported on the closure of Shearmans Mannheim office with the entire 30-lawyer team leaving to form Schilling Zutt & Anschutz.
Despite allegations of discontent, Ward does not agree that the firm is lacking a one-firm culture and connection with the New York office. Weve always been very well connected to all of the offices in the network, he argues. It is obviously very important for us to make sure we are working together and that we are providing the best service for our clients.
Cultural issues can also be a block to building a successful London practice. As Dewey & LeBoeuf partner, Fred Gander puts it: There is a period of education when firms launch in a new jurisdiction. Some firms may expect client relationships and management structures to transfer but this may not be the case.
Dewey merged with LeBoeuf Lamb Greene & MacRae last year, creating a firm with 400 lawyers in Europe, 200 of which are based in London. Since then, chairman Steve Davis has vowed to make London a priority as it strives to become a transatlantic powerhouse.
Other US firms have already successfully imported, or hired, the skill sets to make them powerhouses in the City in a range of practice areas.
Weve seen Skadden, Cleary Gottlieb and White & Case on deals during the past year, points out one silver circle capital markets partner. We would definitely view these firms as competition and they have certainly been building up their teams in recent years.
Cleary for one is winning lucrative mandates beyond its New York base. For example, Hong Kong partner David Hirsch recently led the team advising the underwriters on the IPO of Indian Power group, Reliance Power.
Clearys drive to succeed in London as well as in New York is apparent not only in the firms practice groups, but also in its approach to graduate recruitment in the capital.
Organic growth is exceptionally important, says one Cleary partner. We are constantly revising our summer vacation scheme, the seats we provide and were always looking at how we can better develop our trainees.
Despite that enthusiasm for making a long-term investment in the City, becoming a firm with comparable strength and capabilities in London and New York is a costly and risky business.
White & Case, which has dedicated its growth strategy to building local, UK and US law capabilities globally, is one firm that has learned how difficult it can be to sustain success.
It has long used its offices in the financial centres of London and New York as a springboard to build up its practices in Asia, continental Europe and the Middle East.
Last year, White & Case appointed former Moscow office managing partner Hugh Verrier as firm chairman. Verrier, who is supported by two US partners and one Turkish partner on a management board, came under fire for not recognising London on the board.
The dispute brewed until banking and finance partners Maurice Allen and Mike Goetz left earlier this year to join magic circle firm Freshfields Bruckhaus Deringer, with the blame for the exits laid squarely at the door of discontent in the London office over White & Cases new management structure.
US firms have a long way to go before they can truly rival the magic circle in London, but headway is being made as the top firms recognise the benefits of having a permanent and strong on-theground presence in the UK.