When the Americans began encroaching on territory traditionally marked out by City firms, the reaction was apoplectic. But some small specialist players have now seen the potential for lucrative relationships with their US counterparts.
When US firms first opened in London, it struck fear in the hearts of lawyers in the City who were terrified of losing rafts of clients and work. The potential threat to the pre-eminence of the UK's leading corporate lawyers may remain, but many now view their arrival as a means of generating a new and potentially very lucrative market.
A good handful of firms, particularly boutique practices, are making a tidy packet through sub-contracting arrangements with those US firms lacking the capability to offer a full service to their clients particularly in the employment, tax and IP arenas.
Skadden Arps Slate Meagher & Flom is a good example. It currently outsources millions of pounds worth of work to UK firms for property, tax, IP, environmental, pensions, insurance and litigation advice.
London managing partner Bruce Buck says the firm would like to be able to handle more IP and tax work in-house but says that the firm has no current intention of ever becoming a full-service firm in the UK.
Skadden Arps is not alone. And, as such, the opportunities to develop a valuable and long-term client base alongside a US firm are in abundance – particularly for specialists in all the above areas, as well as employment and property.
Fox Williams and Warner Cranston – both specialists in employment – have already secured a reputation in this emerging market. Others have cottoned on and are busy marketing themselves as potential allies to US firms in London. Ian Johnson, London managing partner at Orrick Herrington & Sutcliffe, says: “Some smaller firms are targeting us and have been quite pro-active.”
Inevitably, the likes of Fox Williams and Warner Cranston are much in demand but there are other more surprising names on US firms' lists of preferred subcontractors.
William Charnley, London managing partner of McDermott Will & Emery says his firm last year outsourced work valued at between £150,000 and £200,000, almost exclusively for property advice. That figure is expected to rise again this year but surprisingly it is a small and little-known Buckinghamshire practice, Peters & Co, now merged with Sherrards, that has benefited most.
The firm was discovered by a client of McDermotts, Dominos Pizza. When McDermotts was acting on its flotation, which ultimately aborted, Peters & Co produced a report on over 100 properties. According to Charnley the firm provided a “fantastic quality” service. The result is that Peters & Co has become McDermotts' preferred subcontractor for property advice.
Manches is another firm to have exploited US firms' lack of full-service capability. It assisted with the setting up of Weil Gotshal & Manges' London office and consequently won a substantial amount of pensions work before Weil Gotshal set up its own capability.
The bar has also spotted the potential. Charnley says: “We've been contacted by a number of people at the bar and we have used chambers in the past for specific pensions and IP work. But this is now done in-house.”
One attraction of looking to specialist firms or the bar for advice is the level of service on offer. Johnson says: “We are an important client to those smaller firms, whereas we wouldn't be with a firm like Clifford Chance.”
Another reason to ignore the leading City players is that US firms inevitably fear the threat they present to any long-term client relationship. US firm Davis Polk & Wardwell has established relationships with Slaughter and May, Freshfields, Rowe & Maw and Ashurst Morris Crisp, but it doesn't practise UK law.
“If a firm practises UK law without having capability in all specialist areas it is likely that it will go to a boutique,” says Paul Kumleven, a partner in the firm's London office.
However, even some of the City's big guns have worked themselves into the referral frame. largely because the demands of the client are paramount.
For example, Orricks uses Ashurst Morris Crisp for employee benefits, share option scheme advice and even some property work. “It depends entirely on the client. At the end of the day we have a duty to clients to choose the best lawyers available. However, we would be less likely to refer work to another US firm,” says Johnson.
In similar vein, Shaw Pittman has instructed Clifford Chance in the past on finance and trademark points and does not fear losing clients in the process.
Shaw Pittman corporate technology partner Andrew Moyle says the individual departments in big City firms are often reluctant to embark on major internal cross-selling. This is because there is always the potential for relationships to sour, either with the US firm or with the client.
“They are walking a tightrope if they want to keep that kind of work,” he says. Rather, it seems that Shaw Pittman prefers to build long-term relationships with individual firms.
“We try to find someone who operates a similar business to us in their approach. We will usually prime that relationship and develop it with a single firm so that we can provide a seamless service,” he says.
Moyle even goes as far as to say there are occasions when it is of genuine benefit not to have in-house capability. “We are not restricted by using in-house tax counsel so we use existing relationships with the big five [accountancy firms],” he says.
To have developed relationships with specialist practices can also be useful when conflicts situations arise.
“The last thing we want to do in a conflicts situation is provide client with a rival firm who then takes the work so we use a specialist firm like us,” says Moyle.
Ultimately, it is a question of handling any external relationship in such a way as to meet the needs of the client. “The important thing is managing relationships. If the client wants a one-stop shop they can have it,” says Johnson.
However, it obviously depends on the specifics of the transaction. Skadden Arps' Buck says: “If it's a securities offering, and as part of the due diligence we needed external property expertise, we would manage the relationship. But, if the client was acquiring a commercial building we would probably not manage it.”
While many US firms are building towards full-service, for most that goal is still some way off. For others it is an impossibility. Employment and property are the two key areas for US firms, but there are opportunities for tax, litigation, pensions, environment and IP experts as well.
With many more US firms keeping a keen eye on the UK and European markets, there will be plenty of opportunities for smaller firms to get a piece of the American action.
Who uses whom
Firms which have already secured a reputation in this emerging market tend to be highly specialist boutique firms in areas such as employment. Inevitably, the likes of Fox Williams and Warner Cranston are much in demand but there are other more surprising names on US firms' lists of preferred subcontractors.
Cravath Swaine & Moore
Currently outsources in: all areas of UK law
Previously outsourced to: Slaughter and May, Herbert Smith, Freshfields, Allen & Overy
Davis Polk & Wardwell
Currently outsources in: All areas of UK law
Previously outsourced to: Ashurst Morris Crisp, Freshfields, Rowe & Maw, Slaughter and May
McDermott Will & Emery
Currently outsources in: property
Previously outsourced to: Sherrards (formerly Peters & Co)
Orrington Herrington & Sutcliffe
Currently outsources in: property, employment and litigation
Previously outsourced to: Fox Williams (employment); Langley & Co (employment); Ashurst Morris Crisp (employee benefits/share options, property); Bird & Bird (IP); Willoughby & Partners (IP)
Currently outsources in: tax, finance, trademarks
Currently outsources in: property, tax, IP, environmental, pensions, insurance, litigation
Previously outsourced to: Unavailable (“You'd be surprised,” says Bruce Buck)
Weil Gotshal & Manges
Currently outsources in: particularly complex employment matters
Previously outsourced to: Fox Williams (employment); Manches (property); Sacker & Partners (pensions)
THE BAR ALTERNATIVE
With or without the recent advances made by solicitors into the field of advocacy, it has for many years been important for both branches of the English profession to nurture links with US law firms and in-house lawyers. A significant amount of work, especially in the commercial field, derives from the USA, and the “special relationship” has long extended to the legal community.
When solicitors began to bid for advocacy rights in the higher courts, the commercial bar saw both a danger and an opportunity. The bar recognises and values its established links with solicitors, who still provide them with the great bulk of their work, but the moves that many solicitors have made themselves into fields hitherto inhabited exclusively by barristers have compelled the taking of new initiatives.
There is no need for this to be a matter of controversy between the two arms of the profession. Most solicitors recognise it as inevitable that the bar will and must reach out to secure additional sources of work as a response to the challenges which it faces.
This thinking underlies the creation of the Commercial Bar Association (COMBAR) at the end of the 1980s. One of COMBAR's key activities ever since has been the relationship with US (and Canadian) lawyers. Often the instructing US lawyer does not want to conduct the litigation in England himself, and is happy to use a solicitor/barrister team. But barristers have a greater role now than hitherto in influencing the assembly of those teams, and persuading the US lawyers to use the bar.
This is working in two ways. First, where the US lawyer does not want to carry out the solicitors' role in the English litigation, he has decide whether to use the Bar at all, or be persuaded by a City firm to use its own in-house advocacy department. The greater awareness that now exists among US lawyers as to the bar's existence, its role and its expertise, leads to the opportunity for more informed choices to be made as to who is to conduct the advocacy. It may not necessarily be in the client's interest to use the bar, although the bar believes it is ideally placed, both by reason of experience, expertise and cost competitiveness, to provide a superior service. This is much better understood by US and Canadian lawyers than it was a few years ago.
Second, the opening of a significant number of London offices by US firms recently has made it possible for those US firms to instruct the bar direct for litigation (or arbitration) work. This is likely to increase over the next few years in cases where the US firm, through its London office, regards itself as being in competition with English solicitors. We are still at a very early stage in the process of US firms employing advocacy specialists in their London offices so there is an important opportunity for the bar to attract work and maintain its position in the advocacy field.
There is no doubt this involves an element of marketing on the part of the bar. The bar is getting used to this, and is improving its ability to obtain wider recognition for its services. This has happened to a small extent with direct access work from accountants and other professionals, but it has had a limited effect because most of that work has not been advocacy work provided by the bar by those willing and able to conduct the traditional litigation solicitor's role. The provision of work by US lawyers, wither through London offices dealing with litigation, or in-house legal departments of international companies, is an important opportunity which the bar must grasp.
This trend is likely to continue. Despite our ever closer ties with Europe, there is no doubt that the US is the largest and most important source of work from abroad, particularly for the commercial bar. The common language and the common basis of our respective legal systems, allied with the commercial and economic importance of North America, mean that this relationship will not diminish. Nor should it. It is also very much in the interests of clients, as consumers of legal services, that the bar should make sure that what its members have to offer is as widely known as possible. This is not to say that everything that solicitors tell US or other foreign lawyers is “propaganda”. It is simply to recognise that solicitors have their own story to tell, and their own wares to promote.
Americans are famed for their directness and openness. Their reaction to these initiatives has, not surprisingly, been positive and will continue to be so.
Michael Brindle QC is a barrister at Fountain Court Chambers.