In the first interview since his firm merged with Clifford Chance, Larry Cranch, Rogers & Wells managing partner, tells Sean Farrell that this is no takeover.
No one has dared say it out loud, but reaction in the UK to Clifford Chance and Rogers & Wells' vote in favour of merger has treated the deal as Clifford Chance acquiring a US arm. But Larry Cranch, Rogers & Wells' managing partner, is keen to stress that this is not the case.
“One thing that was essential for us was to create a transaction and structure that reflected a real merger and the creation of a brand new firm, rather than an acquisition by Clifford Chance of a couple of other firms,” he says.
It was a chance meeting between Cranch and Stephen Hood, Clifford Chance's New York managing partner, at a San Francisco conference in March last year that set the ball rolling. “We had had lunch several years before with Clifford Chance in New York, so when we found ourselves speaking at the same conference we came up and said hello,” Cranch recalls.
“We walked back to the hotel after the dinner, and during that conversation I discussed the fact that we [Rogers & Wells] were facing an issue about our ability to afford the investment in our global office network. We were finding it difficult to compete with the global law firms such as Clifford Chance.”
Hood replied that Clifford Chance was having trouble competing in New York for major transactions from its banking clients because the New York office could not provide enough support on the big deals in areas like tax, litigation and bankruptcy. “They felt if they had those practice areas they could capture a lot more business,” says Cranch.
From this one late-night confessional the merger started to gather pace.
But the idea received a mixed reaction from Rogers & Wells' partners. “People in the cross-border securities area immediately thought it was a spectacular idea, but for people in the domestic litigation business the synergies weren't immediately apparent, though over time everybody in the firm has become very enthusiastic.”
In any law firm merger, there are four big issues that need to be addressed, says Cranch – the name of the firm, compensation, governance and conflicts of interest. “We had issues in each of those categories and we were able to resolve them quite easily,” he says.
“That is settled,” Cranch says of the new firm's name, despite speculation that the US title – Clifford Chance Rogers & Wells – may not be set in stone.
When news of the merger talks leaked out, the reaction from rival firms was: “How are they going to reconcile those compensation structures?” Clifford Chance was a lockstep firm, paying its partners according to seniority, while Rogers & Wells was known for having one of the most “merit-based” systems that rewarded its go-getting rainmakers.
But the prospect of lockstep was an opportunity rather than a problem, according to Cranch. Rogers & Wells was a lockstep firm until the early 1990s, when it changed to its competitive pay system. “We felt that we had to provide very targeted incentives for partners to increase the revenues of the firm and go out and bring in new, important clients and, frankly, work harder.”
By the end of last year, these targets had been achieved, says Cranch, but some aspects of the system were “counterproductive”.
“It wasn't as efficient as we wanted it to be in fostering co-operation, team building and an institutional approach to clients. It fostered intense entrepreneurial behaviour, which was what we needed in terms of profitability and quality of clients, but we felt we wanted to move away from such an entrepreneurial system and towards a lockstep system.”
But a move back to strict lockstep would have created losers at a firm where a few partners earn salaries that are five times higher than those of their colleagues'. Cranch admits it was senior management that wanted to make the move back.
The main objectors would be anti-trust partners Kevin Arquit and Steve Newborn, who were said to earn more than $2m a year each, and corporate rainmaker Martin Gibbs and IP litigator John Kidd who were not far behind in the pay stakes.
“It's true, we did have to build in flexibility which allowed us to compensate our higher producers at their current levels, because there is a market here and you have to react to that.”
Apart from Cranch's position as regional managing partner of the Americas, the senior posts in the new firm have gone to Clifford Chance partners. Both global practice heads announced so far – Stuart Popham and David Childs as heads of finance and corporate respectively – are from the UK firm. But two of the three remaining practice heads will be Rogers & Wells partners, says Cranch
Cranch says: “We are now partners with a say in how the firm is governed, with significant inclusion of Rogers & Wells and Punders in the governance of the new firm.”
There were two other important points that were conditions of the merger on the US side. Rogers & Wells partners will keep the flexible terms that allow them to leave the firm at short notice, rather than adopting Clifford Chance's restricted covenant, which is understood to include a year's gardening leave. “There is no concept of gardening leave in the US and it is not enforceable,” says Cranch. “It wouldn't be possible to enforce that system on a group of partners in the US.”
Rogers & Wells is a New York limited liability partnership (LLP), which protects partners' assets from negligence claims against the firm. LLPs are available in all 50 US states but are not yet allowed in the UK and keeping LLP status was another condition of the merger for Rogers & Wells, says Cranch.
“There was a need to create an entity which would preserve for the partners of Rogers & Wells their existing limited liability status. There was also a perception that would be attractive to all partners of the global firm.” This means the new global firm will be registered as a New York LLP, says Cranch.
The legal world is now asking what the response will be on both sides of the Atlantic to the merger. Cranch does not think rival US firms will be rushing to the airport just yet.
But he adds: “It will depend on how successful this new firm is as a competitive force in the market. And if it is very successful then people are going to have to respond. And I am sure it will be.”