Imagine your highest-paid partners walking out after you pulled every trick in the book – from extra units on top of the lockstep to a life annuity – to persuade them to join you in the first place. Imagine also that the ringleader is one of Italy’s top three corporate lawyers. When Clifford Chance went through this turmoil last year, its acrimonious and highly public divorce from senior partner Vittorio Grimaldi (and with him four other partners and 26 lawyers) served as a timely reminder of the kind of management headaches the Italian market continues to present to international organisations.
Even the German firms, with their residual resistance to UK management structures, never caused so much heartache. But it is worth it. The prospect of further privatisations, new corporate laws and the overhaul of the tax regime are making Italy one of the hottest markets in Europe.
So, how do the fresh round of entrants from among the US firms adapt to the idiosyncrasies of the Italian firms? As The Lawyer’s research illustrates, there are numerous routes into the market.
Skadden Arps Slate Meagher & Flom might be one of the better examples to follow. Its alliance with top-tier firm Chiomenti Studio Legale has avoided all the pain of trying to turn Italian lawyers into Skadden lawyers. “Banking and M&A clients are not going to be satisfied with a brass plaque operation,” says Skadden partner James Healy, who works closely with the Italians. Not just a good match on quality, the beauty of this relationship is that neither of these strongly independent firms wants to talk about merger. Ever. “I think we’re the only working alliance in Italy,” says Healy, in what sounds like a covert dig at Linklaters‘ relationship with Gianni Origoni Grippo & Partners.
On the downside, conflicts inevitably mean that they cannot always pair up. With nothing stronger than a referral relationship between them, neither side is ever going to give ground.
At the other extreme, Dewey Ballantine has gone for the small-scale approach, scooping a tailor-made team led by former Simmons & Simmons rainmaker Bruno Gattai. Critics question whether Dewey is interested enough in international work to make this deal a winner, but they may be quietened by news that the team has already brought in and completed its first major deal. A joint Milan-London team including Gattai, London-based partner Ugo Giordano and UK-qualified partner Jane Da Vall has just advised ABN Amro on its e555m (£386.5m) buyout of Global Garden Products from UBS Private Equity. Key partners Bruno Gattai, Stefano Speroni and Ugo Giordano have worked together in the past, but this is very much a new start-up, so ought not to come with the same integration issues as a long-established unit. The London presence should further aid the process.
Latham & Watkins and Shearman & Sterling – both in the market for key Italian laterals – may have missed out on a cracking team here.
But here is the biggest conundrum: what are Carnelutti and McDermott Will & Emery thinking? While Carnelutti has had problems over the years, it is still seen as a better firm in Italy than McDermott is globally. US and Italian lawyers alike are sceptical about the alliance. “McDermott will have no work to refer to the Italians,” says one partner in a typical comment. “The firm is small in the UK and there aren’t that many [US] midwest companies doing things in Italy.”
October 2003: McDermott Will & Emery merges with Studio Legale Carnelutti
Italian partners: 20
Total Italian lawyers: 70
McDermott shocked many this year by scooping a merger with Carnelutti, one of Italy’s oldest independent law firms. The two were brought together by legal consultancy Blaqwell. McDermott gained a full-service firm headquartered in Milan and a small Rome presence. Carnelutti billed around $21.8m (£12.9m) last year. During their talks, the firms teamed up for clients that included Finpart and airport operator Sagat.
Italian managing partner Luca Arnaboldi professed Carnelutti’s independence almost until the day the merger was announced, but the firm was widely known to be on the market after a series of departures left it vulnerable. What did come as a surprise was that such a well-regarded Italian practice chose to be allied with a Chicago rather than a New York firm, and one with a relatively small London presence, which limits the referrals it can offer.
Other recent mergers: In January 2001 White & Case merged with Italian corporate boutique Varrenti e Associati, gaining offices in Rome and Milan.
Americans first, Italians later
March 2002: Shearman & Sterling opens in Rome
American partners in Italy: Two
Total lawyers in Italy: Five (including three double-qualified associates)
Shearman was already active in Italy before officially opening a Rome bridgehead with partners Michael Bosco and Robert Ellison. Its strategy is to add pure Italian capacity (including a Milan office) and a deal is understood to be close. Shearman also has close contacts with Italian firms, including Bonelli Erede Pappalardo.
With an eye on achieving longlasting stability and integration, Shearman wants Italy to mirror its Paris operation, where 40 per cent of its lawyers are US or English-qualified, with the balance French-qualified. The prime target is M&A and capital markets work, with finance the next priority. Ellison says the firm is in no rush to expand, especially because of the state of the international deals market. “The most important thing is to get the right people and put together a team that is going to be stable in the long term,” he says. “We don’t want to put in place the kind of unstable structure that some of the London firms have suffered from.”
Shearman was international counsel to underwriters Société Générale and Unicredit Banca Mobiliare on the e97.5m (£67.9m) Fiera Milano flotation last December. This year the firm represented Finmeccanica as guarantor in the issue of e501.4m (£349.2m) 0.375 per cent guaranteed exchangeable notes, due 2010, by subsidiary Finmeccanica Finance. Other clients include Fiat.
September 2003: Dewey Ballantine acquires new group led by ex-Simmons & Simmons rainmaker Bruno Gattai
Italian partners: Six
Total Italian lawyers: 20
Dewey launched offices in Milan and Rome plus a London Italian desk to help target investment banks. M&A specialist Stefano Speroni joined from Gianni Origoni Grippo & Partners to head Rome; Gattai heads Milan; and former Clifford Chance and Chiomenti lawyer Ugo Giordano joined from Merrill Lynch to establish the London desk. They have worked together in the past, but this was very much a new start-up.
The aim is to start with a reasonable number of fee-earners to service a large deal. Dewey London head James Simpson approached Gattai after he was asked to investigate the Italian market in early 2002. A combined track record includes work for BNP Paribas, Permira and Centrobanca, corporates such as Barilla and Falck and Treasury-owned conglomerates Finmeccanica and Enel. The new team has already brought in its first major deal for Dewey, advising ABN Amro on its e555m (£386.5m) buyout of Global Garden Products from UBS Private Equity.
Other recent start-ups: Orrick Herrington & Sutcliffe raided Ernst & Young’s Italian legal arm in the spring, taking its national director Alessandro De Nicola, two other equity partners and a total of 20 lawyers to launch a corporate and public law practice in Milan.
June 2001: Skadden Arps Slate Meagher & Flom signs exclusive referral alliance with Chiomenti Studio Legale
Italian partners: 25
Total Italian lawyers: 145
This deal came just a few months after Chiomenti finally rejected the advances of Freshfields Bruckhaus Deringer, which wanted to enter an alliance as a prelude to full merger. Skadden and Chiomenti have no intention of merging, but have been integrating IT systems and have “gone a long way towards integrating, culturally and professionally”, according to Skadden partner James Healy.
After lengthy investigations into setting up its own Italian operation, Skadden concluded that an exclusive alliance with a firm of an equivalent status to its own would give it the kind of depth, experience and credibility it was unlikely to achieve for a long time by growing piecemeal. By this time, Skadden had already gained a share of the Italian market in M&A, banking and securities work.
Common clients included Mediobanca and Enel. More recently, the duo has advised Citigroup and Morgan Stanley together, as well as Finmeccanica on a $615m (£364.5m) acquisition from Marconi. However, Skadden and Chiomenti are often seen acting for separate parties in the same deal, a prime example being Telecom Italia’s auction of its Seat Pagine Gialle yellow pages business.
Mamma mia: the classic pitfalls plaguing foreign firms in Italy
Clifford Chance kept the Italian market transfixed with the collapse of its marriage to Grimaldi e Associati last year; Simmons & Simmons has been losing Italian partners with alarming regularity; and Allen & Overy (A&O) is trying to see off tensions within its Italian practice by imposing a new management structure.
Between them they have 15 years’ experience as merged firms in Italy, yet all of them are still struggling to manage their practices. More recent US arrivals can take their pick of the mistakes from which to learn:
Don’t buy talent with deals you can’t keep
It is well known that senior partners at Italian firms are remunerated on a scale disproportionate to the top global firms. Clifford Chance approached this issue with an off-lockstep deal for five Italian partners when it merged with Grimaldi in 2000. Two years later, the remuneration deal was at the heart of the highest-profile divorce ever seen in the market. When compensation came under review, Vittorio Grimaldi and the other two remaining Italian partners with extra units broke away with around 30 other lawyers.
The shape of the traditional Italian compensation pyramid, coupled with the highly personalised rather than institutional nature of client relationships, remains an acute problem for any firm hoping for a high-quality practice. “In Italian firms there are fewer people at the top taking home a lot more money,” sums up one US partner. “That makes integration very difficult.”
Clifford Chance bodged the issue. By treating certain Italian partners differently, it reinforced their identity as a firm within a firm, stalling integration and fuelling instability. Partners outside Italy began to question Vittorio Grimaldi’s special treatment. It was a recipe for disaster.
Don’t take on existing hierarchies
“You have to be careful about bringing in existing hierarchies,” warns one US partner active in Italy. “If you take a small firm, and there’s the usual 50 to 60-year-old guy taking a huge share of the profits and paying relatively low salaries, then you take on a lot of problems.” For example, you could find yourself taking on a whole lot of discontent in the middle ranks.
“You should try to create your own democracy,” urges one partner. “Italian lawyers aren’t great at that.”
One hierarchy that appears to have been left untouched is the former Milan office of Coudert Brothers, which moved lock, stock and barrel to DLA earlier this month. The four Italian partners and 25 assistants made up a different profit centre from Coudert’s international practice, diminishing their incentive to stay. On the other hand, DLA’s rush to integrate the Italian partners (they have gone straight to the top of lockstep) may cause problems of its own.
Simmons also fell foul of old hierarchies after it merged with alliance partner Grippo e Associati in 1997. It has since lost most of the old guard from the Italian firm. The biggest group of 11 lawyers loyally departed with Eugenio Grippo himself when he decamped to Gianni Origoni.
Don’t sign up to a joint venture without common aims
Negotiating a semi-exclusive referral relationship avoids tricky internal management issues, but can bring its own problems. Gianni Origoni and Linklaters are the longest-running allies in Italy, but the two firms are divided on how they see their future together.
“Gianni Origoni doesn’t want to merge, but Linklaters does. Linklaters made its views clear when it scrapped the Linklaters & Alliance structure, but unless a merger kicks in what are they going to do?” asks one partner at another firm.
At the top of the Italian rankings in its own right, Gianni Origoni feels no need to give up its independence, even in today’s difficult M&A market, and is often seen teaming up with US firms.
Another partner comments: “Generally speaking, clients don’t mind whether it’s one firm or two, but if I was a young associate I’d think, ‘My bosses are going to make a lot of money out of this, but how does that play into my future?'”
Don’t delay rolling out your global management structure
A&O’s recent management restructuring in Italy triggered a spate of rumours that high-profile partners were set to quit – including Roberto Casati, who was instrumental in negotiating his firm’s 1998 deal with A&O.
The firm seems to have weathered that particular storm for now, but is hoping to get its Milan, Rome and Turin offices working more effectively together through a new management structure more in keeping with its other offices.
Its move to scrap its three separate managing partner roles in Italy in favour of pan-Italian practice heads was a case of better late than never. Clifford Chance was not so lucky. After the Grimaldi departures, it handed out the role of joint Italian managing partner to remaining star Luigi Chessa – who quit six months later.
Don’t neglect quality control in your haste to hire a team
Firms may have fine-tuned their hiring procedures on home ground, but sources in the Italian market say that this is often forgotten in the rush to pick up teams in Italy. “They sweep in and take 40 or 50 lawyers, but they don’t know whether people in that group are good or bad,” says one partner practising in Italy. No doubt A&O, Clifford Chance and Freshfields Bruckhaus Deringer would all recognise this issue from their early experiences.