Turning challenges into opportunities is a positive response to any potentially deleterious market condition. Matt Byrne and Julia Berris reflect on how US firms in London are achieving this

For the leading US firms in London, the past 12 months have been characterised not only by the pressures created by the economic downturn but also by how they have responded to those challenges.

As with any seismic shift, which by almost any measure is exactly what the past year has been, there are almost as many opportunities created as dangers.

Nowhere is this more illustrated than in the year enjoyed by the London office of Paul Hastings Janofsky & Walker. The West Coast-headquartered firm was already showing signs that its London office was becoming increasingly central to its strategic plans last March, when The Lawyer revealed that it was relocating the chairman of its real estate practice from Los Angeles to the City.

The arrival of Phil Feder signalled that London was a key engine in Paul Hastings’ future growth. It was also more specifically an attempt by the firm to capitalise on the workflows from Europe and Asia into the UK capital.

“The hit the New York investment banks are taking is substantial,” Feder said at the time. Coming six months before the demise of Lehman Brothers, that statement looks remarkably prescient now.

By the beginning of this year, however, it was clear that Paul Hastings was even more determined to channel resources into building up its London office. On 14 January, The Lawyer reported that Cadwalader Wickersham & Taft had been hit by a seven-partner walkout, a group that included office head Michelle Duncan. The destination? Paul Hastings.

This critical development gifted Paul Hastings’ London office with a boost in bankruptcy, investment funds and structured finance. It also gave the firm a major acceleration to the more slow and steady expansion strategy it had followed over the past decade. Along with its significant recent expansion in Germany, the US firm now boasts around 150 lawyers in Europe.

Another firm that has seen significant changes, both to its London office and globally in the past year or so, is Dewey & LeBoeuf. Dewey likes to think of itself as a new firm, just 18 months old. But ironically, it is also celebrating the centenary of its earliest predecessor firm this year. For Dewey’s energetic chairman Steve Davis, who splits his time between New York and London, the idea that the merged entity is effectively a new firm represents a major opportunity.

“The reality is we’re a new organisation and so there’s no ingrained sense that we must do things a certain way because that’s the way they’ve always been done,” he says.

For Dewey’s London office, its second largest globally, that approach has informed much of the past year. The key word is “integration”. That is what both legacy firms have been spending much of their time on since late 2007. As one London-based partner told The Lawyer: “The first six months were mainly about fixing systems.”

More recently Dewey has joined the ranks of firms also fixing headcount levels. In London so far that has meant announcing a consultation process in the City that is likely to result in 15 lawyers losing their jobs.

Davis is understandably reluctant to embark on a round of the even larger layoffs that have been announced at other firms.

“One of the issues that we’re very conscious of is that you can cut so deep into an organisation that, when the cycle turns, you really don’t have the resources to service the client,” he explains. “We certainly have a real concern that we could get ourselves into such a situation.”

Equally, however, Davis fully understands that there is only so long any firm can carry under-utilised lawyers. “That’s really the challenge for all law firms,” he adds.

One lawyer who is unlikely to be under-utilised at the moment is Gibson Dunn & Crutcher’s star UK hire of 2008, Lord Falconer. The move of a figure from the centre of British government to a US law firm was virtually unprecedented until Debevoise & Plimpton hired former attorney general Lord Goldsmith in September 2007. Gibson Dunn’s move last year may have mirrored Debevoise’s, but it was hardly less headline-worthy.

Both hires may have been more about PR than chargeable hours, but equally both look well-founded in the current, disputes-heavy environment. Lord Falconer said as much when he told The Lawyer last year: “My challenge is to prove there’s more to it than marketing. My aim is to be a hands-on lawyer and work on cases in the common-law world.”

Certainly both moves have been seen by the market as innovative and even aggressive attempts by US firms to carve out a niche for themselves in London. Any law firm knows that these days a degree of marketing goes hand-in-hand with almost all of their external-facing activities. Hiring former members of the British government to help build a local litigation capability seems as good a way as any to achieve that.

One of the US firms that had the most upheaval to deal with during 2008 was White & Case. Near the start of the year the firm’s London office saw the defection of banking duo Maurice Allen and Mike Goetz to Freshfields Bruckhaus Deringer.

That departure was dramatic enough, but it signalled the extent of the discontent in White & Case and its London office. Much of the blame has been laid at

the door of chairman Hugh Verrier, a controversial figure since he was elected in 2007. Verrier’s decision to leave London, one of the firm’s most significant revenue drivers, without representation on the global management committee has led to widespread discontent in the capital and was also thought to be behind the departure of Allen and Goetz.

While White & Case reported relatively healthy 2008 financial results, at least in comparison with several of its rivals, the firm has not been immune to the impact of the downturn. Global profit per equity partner (PEP) dropped by 4.8 per cent from $1.67m (£1.15m) in 2007 to $1.59m (£1.09m), although the London office’s PEP dropped by 2 per cent from $1.53m (£1.05m) to $1.5m (£1.03m). Global

revenue was up 7 per cent from $1.36bn (£0.94bn) to $1.47bn (£1.01bn), with London hiking revenues by 4 per cent up to $245.9m (£169.25m) during 2008.

As White & Case announced its results in February, it was implementing an associate salary freeze in its London office. London White & Case head Oliver Brettle pointed to the economic crisis for the step, saying the firm was making every effort to reduce costs during the downturn.

After the closure of several European offices last year, White & Case has now launched a global restructuring that will see 200 associates and 200 support staff axed. The London partnership will also be trimmed down in an attempt to respond to the changing global legal environment. The firm will announce which partners will be culled in London at the beginning of April.

In contrast with White & Case’s financial results, Weil Gotshal & Manges reported stellar figures for 2008. Defying the credit crisis, the US firm’s London office reported a staggering 22 per cent PEP hike from £1.35m in 2007 up to £1.65m last year. Revenue grew by 2.3 per cent from £57m up to £58.3m during last year.

Despite the downturn and the slowing of private equity activity Weil’s London office kept busy advising on a number of high-profile corporate deals. Corporate partner Marco Compagnoni and IP partner Barry Fishley snared a lead role advising Sir David and Sir Frederick Barclay’s company Shop Direct Group on its acquisition of the Woolworth’s brand in February this year.

Over in the US, Weil’s 2008 was defined by bankruptcy star Harvey Miller’s role advising Lehman on its landmark bankruptcy in September. But the London office has also made waves in the bankruptcy and restructuring sector. In November last year corporate partner Ian Hamilton was drafted in by Premier Foods to advise on its £1.7bn debt restructuring.

With a reputation as a bankruptcy and restructuring powerhouse in the US, Weil has made some moves to expand its UK restructuring capabilities. The firm

hired Cadwalader Wickersham & Taft restructuring partner Tony Horspool and O’Melveny & Myers finance partner Stuart Hill to build up the London office.

As well as continuing to grow the office through lateral hiring, Weil also promoted one partner in the UK last year. Of counsel Joanne Etherton, who joined from Clifford Chance in 2000, made partner in the firm’s London corporate pensions practice.