Breakaway Firms: Split decisions

It happened at Linklaters and it happened at Reed Smith. What’s the future for breakaway local offices of global firms?

Breakaway Firms: Split decisions Omnipresence used to mean the same thing as omnipotence to big law firms. But a sharp change in economic conditions has prompted the biggest firms to rethink their expansion strategies.

Most recently Linklaters and Reed Smith have hived off non-essential offices, creating breakaway firms. Linklaters’ central and Eastern Europe (CEE) practice has spawned the law firm Kinstellar, while Reed Smith’s Birmingham office is set to split and form Hill Hofstetter at the start of 2009.

There are two factors at play here. First, big law firms are finding that their clients, particularly in finance, are refocusing their resources on core markets and products, which means the lawyers have to as well. Second, Anglo-Saxon law firms have fewer resources to splash on exotic offices and overseas lawyers. Equity ­partnership places have always been few and far between for these ­outlying associates and partners, but now they are almost non-existent.

Niche or general? The two types of breakaway firm

There are two types of ­breakaway firm, depending on whether lawyers jump or are pushed.

The first is a small boutique operation set up by highly specialised lawyers who are dissatisfied with the big firm business structure. There are plenty of examples of this. Powell Gilbert, the IP litigation boutique launched by five ex-Bristows partners last year, springs to mind.

The second type generally leads to a bigger firm with a more varied client base – see Kinstellar and Hill Hofstetter.

Hill Hofstetter

It was never really clear what US firm Reed Smith wanted from an office in Solihull, West Midlands. The office will split from the firm in ­January, operating under the name of Hill Hofstetter and boasting nine partners.

Managing partner Chris Hill said the split had come about because Reed Smith was focusing “on bigger things”. He said: “They’ve got London, New York, Paris and Hong Kong. Where do we fit in?”

Reed Smith had merged with Coventry firm Warner Cranston in 2001 before deciding to move the office to Solihull in 2006.


It looked like it was game over for the Linklaters lawyers in Bratislava, Bucharest, Budapest and Prague when the firm took the decision to close the offices in May.

But backroom discussions with local managing partner Jason Mogg and the Linklaters central management ended with an agreement to split the offices off and create a new law firm with a best-friends relationship.
The new firm, Kinstellar, will continue to work with Linklaters clients in the region, which have included Axa, BNP Paribas, Credit Suisse and German energy company E.ON in the past.


Legance is a unique beast. The lawyers left of their own accord, but managed to keep a full-service operation. Around 17 partners left ­Gianni Origoni Grippo & Partners to launch their own firm at the end of last year.
Former Gianni Origoni managing partner Giovanni Nardulli is managing partner of Legance, which numbers 85 lawyers. The split came as a result of a dispute over the firm’s strategy and culture, with the departing partners favouring an institutional firm structure, with the emphasis on the Milan and Rome offices.

Nick Eastwell, head of Linklaters’ new emerging Europe, Middle East and North Africa (Eemena) group, was one of the architects of the ­Kinstellar breakaway.

“This has happened because there has been a change in the way our clients view the world,” he says, describing the thinking behind the move. “When we opened [in CEE] our big clients were falling over ­themselves to get in there. A lot of big privatisation deals were going on. Ten years later those same countries have become rather mundane ­European economies.

“In that same time we’ve seen a big increase in interest in the Bric [Brazil, Russia, India and China] economies,” he adds. “Our clients have moved their focus and we’ve had to move ours. There’s too much of a limit on resources to be in scores and scores of different countries.”

Eastwell also mentions that global conflicts were a big issue for the local CEE lawyers, who wanted to grow their domestic client base but were hamstrung by the emphasis on ­institutional client care at Linklaters.

This common problem has an impact on the career paths of local lawyers in the smaller offices of big firms. They have trouble generating their own work and so have trouble making a business case to make it into the firm’s equity, especially when the dealmakers in Dubai are ­rocketing ahead.

“Every year we’ll make up a limited number of equity partners. Lots of people were going for those slots and those in places such as London, New York and Moscow would take ­priority,” explains Eastwell. “With the breakaway, the lawyers in Eastern Europe have much more independence in terms of law firm prospects. And that means clients can tap into a deeper team out there.

“I think that’s a common concern. One reason why we haven’t had a big exodus of people is that the lawyers are intelligent people – they know that the same issues are there at Allen & Overy and Clifford Chance; they’re not giving away equity. It’s conceivable that more firms will do this. As they grow in other areas they’ll find it harder to manage the resources in the smaller offices.”

Law firms have spent the ­economic bull run of the past six or so years building abroad and merging with local firms, giving them some exotic names on the stationery that may now look a bit extravagant. Rather than closing down the minor offices completely, firms have hit on the breakaway firm model as a way to take care of their clients in those areas where they cannot give up their own resources.

Eastwell says Linklaters will ­continue to give training and IT ­support to Kinstellar because the new firm will continue to service the firm’s big institutional clients. Linklaters even has a team based in London to service Kinstellar’s marketing needs and will pay the new firm’s CEE rent until the start of next year.

The scheme is sort of like an ­amicable separation, rather than a dumping on either side. It is a model that has worked for other firms.

“Obviously [a breakaway] is an option when you’re looking at how to best configure your business,” says David Morley, senior partner at Allen & Overy (A&O). “It can be very ­beneficial for both sides when it’s mutual.”

A&O used it in Turin two years ago, giving local managing partner Carlo Pavesio the firm’s local office as a going concern. The firm has been able to keep in touch with finance clients such as Finmeccanica, ­Sanpaolo IMI and Toro Assicurazioni, without having to devote all the time and money necessary for managing the office.

Looking to the future, a lot of firms still have some rather extravagant names on their letterheads. A similar model could work for them too.

Simmons & Simmons boasts an office in Madeira, while A&O has a presence in Antwerp. Even more unusual is Scottish firm McGrigors, which has an office in Port Stanley, the capital of the Falkland Islands.

But not everyone is convinced that big firms will shed offices. Morley makes it clear that he has no plans to detach the Antwerp office, saying that some jurisdictions, such as ­Germany where the firm has five offices, clients act regionally and more than one presence is needed.

Meanwhile, Tony Williams, principal at law firm consultancy Jomati, thinks firms will use prudence, rather than the axe, when it comes to ­managing small foreign offices. Most firms will want to be in the top 12 financial centres of the world, which generate around 75 per cent of all deals, but beyond that they will ­maintain rather than cut offices.

“It’s relatively unlikely that we’ll see a mass culling of international offices,” says Williams. “People ­invested a lot of time and money into them. I think most law firms will be approaching it in a strategic way. My sense is that some offices won’t grow whereas other offices will.”

For most managing partners at big law firms, omnipresence still has a nice ring to it. The raft of office ­openings in the Middle East is ­testament to this.
But the legal industry has also ­discovered that when clients no longer need you to be there in body, you can be there in spirit.

What’s in a name?

Breakaway firms are easy to spot. They often have unusual names dreamt up by branding consultants.

For example, Kinstellar is an anagram of Linklaters. The ‘kin’ suggests close and cosy links with clients, while the ‘stellar’ should get you thinking about quality.

Managing partner Jason Mogg said the name came out of brain-storming sessions at a branding consultancy and that he did not realise it was an anagram of his previous firm’s name until he was told.

The lawyers at Gianni Origoni Grippo & Partners breakaway Legance did not want a surname on their stationery and so opted for a word with an Anglo-Italian ring to it. The ‘lega’ is reminiscent of the Italian words for both law and league, but Legance is not an Italian word in itself.

French firm Capstan is another breakaway that took a branding company’s advice. It split from Barthélémy et Associés last year and focuses on employment law.

A capstan is a machine found on boats and docks that helps heave in heavy ropes. Unfortunately for the firm, Capstan is also a brand of filterless cigarette that old blokes used to smoke in dingy pubs.