I love London Town

With clients increasingly going international, it's a given that US firms servicing them must have a London base. But as William Charnley says, a sound strategy is called for

There has been some interesting coverage in the press recently about the possibility of some US law firms pulling out of the City. Apparently, there is not enough work here for all of the lawyers in London.

Many of these practices are maturing and, in some cases, still growing. With more than 100 US law firms operating successfully in this marketplace, it must be said that the facts do not appear to confirm this 'trend'. The globalisation of lawyers seems completely logical, and having a London base must surely be an integral part of this strategy.

Before looking at success and the ways in which it can be defined, what must first be examined is the business models of those firms that are in London to find out why they are here. Also, the ways in which they have approached this market must be looked at to establish what will work and which firms will flourish.

Most US firms originally set up offices in London in order to service the needs of a number of their domestic US clients. As they were here to practise US law, they parachuted US lawyers in, and the likes of Cravath Swaine & Moore, Davis Polk & Wardwell and Simpson Thacher & Bartlett have done just that – and very successfully too. It makes sense for corporates and investment banks to instruct US law firms with London offices on US legal matters, and the expansion of US companies has effectively underpinned the success that these firms have experienced.

The other business model pursued by US firms has been to set up London offices to practise English law, and examples of firms pursuing this model include McDermott Will & Emery and the likes of Cadwalader Wickersham & Taft and Weil Gotshal & Manges.

Before setting up in London, these firms will have all carried out their due diligence and looked at the strength and breadth required by clients for the practice to work. Some offer a wide range of services, while others are recognised for being niche firms offering services to a tightly defined client base. Either way, when they come to London they need to compete against other US law firms and the established UK firms, as well as having an appreciation that this is a very sophisticated market. A London-bound firm needs to be able to export some of what it is well known for at home; and a good profile and reputation for what it does back in the US will help build its practice and client base in the UK.

Depending on the US for work, however, is not a good recipe for stability or continued growth, but is obviously helpful early on. Access to international resources and know-how is also paramount.

However, to succeed in this marketplace, London partners of US firms need to generate their own work through contacts and by structured business development activities, rather than relying solely on the US to refer work over. The London office of McDermott was set up to be a strong English practice with a largely domestic (UK) client base. It also acts for some of the firm's largest clients, all of which can reap the benefits of the synergies between the US and UK practices to enjoy an integrated and consistent service offering. When the focus is well established, a firm can widen its service range significantly and so move forward.

Essentially, there are four ways in which US law firms can enter the highly competitive London market. These have all been tried in the past, some more so than others, but in reality they are: merger, acquisition, joint venture or the establishment of a greenfield site. Each of these options is governed by the strategy of the firm as to why it needs to be in London and what it is going to be doing from there. Only when that strategy has been established can a firm think about the method, the business model to employ and the critical success factors.

McDermott's London practice was fortunate in that, once the parameters were set, it was left to get on with it. It has grown organically and at a managed pace with a highly selective recruitment policy. If a firm is selective about laterals (which the US firms on the whole have been), it will end up with people who have been in both UK and US firms, which can help shape the organisation accordingly by combining best practice from each to form a hybrid that works.

US law firms have a lot at stake, and it is therefore in their best interests to have practices in London that succeed, whatever their present and future focus.

To maintain and grow their market share, these firms have to offer clients the ability to solve legal problems in many jurisdictions and across a number of practice areas. The firms that will succeed are those that in turn offer lawyers a competitive service platform so that they can provide clients with a wide range of resources to meet their legal needs.

Multi-location firms also provide an important competitive advantage for lawyers, which also benefits the client base. The diversity of locations and economic conditions can mean stability in downward economic cycles that cannot be provided in single-location firms. The latter are highly dependent on the economic performance of their region, as well as by the industry sectors on which they focus. By contrast, larger firms, if well managed, can easily absorb a regional or industry sector slowdown, and such broad-based firms are better able to do well in both the good times and the bad.

Unlike a number of the UK firms, US law firms have traditionally focused on profitability rather than growth for growth's sake, with sound financial controls to ensure that they are run along business lines. London is, after all, still the leading financial market in the world. With the flow of investment between the UK and Europe, and the increased levels of business between organisations in the UK and Europe, it has never been a more important time to focus on clients' requirements and the value of this work.

Firms need to do this whatever their origins or locations, but as the market consolidates and changes, there will be winners and losers. The better-managed US firms in London will survive and flourish as opposed to some of their counterparts, which are dependent on one regional stream of business and client. If a London practice is to succeed, it is not just the balance of work that has to change, but the operation and management structure that accompanies growth. The shift in how a firm manages a professional business while retaining that professionalism is a transition that it has to make, whatever the marketplace.

The markets that clients operate in are increasingly global, so it makes complete sense for law firms to be in the major financial centres of the world to service the legal needs of these clients.

William Charnley is the London senior partner at McDermott Will & Emery