Linklaters’ Simon Davies: “The magic circle isn’t what it used to be”

This week Linklaters’ governing bodies, long-defended lockstep and US game plan came under scrutiny from partners in the first bi-annual partner meeting in six years. Is the firm at a crossroads of identity?

Managing partner Simon Davies says it is the magic circle suffering the branding crisis, not Linklaters. “There is a point about longevity and brand in the market,” he says.

“The magic circle isn’t what it used to be in the context of the US market or any market. I don’t think it’s going to gain power or momentum and I don’t think it’s a strengthening brand in itself,” he says. “At the end of the day we see ourselves as one of the leading global law firms, not one of the leading magic circle firms.”

Whether partners feel part of a global or a magic circle firm, after seven years after being appointed as Tony Angel’s successor, Davies’ flock appears to be calling for change. Earlier this year a groundswell over the position of the litigation team resulted in it being wrestled out from the shadow of corporate and finance and established as a standalone group (15 September 2014).

Now partners are asking questions about how the firm plans to break the US and consolidate success in Asia as well as probing its governing structures.

When it comes to the US, Davies acknowledges Linklaters was relatively late into Washington DC. The firm opened a base there in 1992 but shut 10 years later (28 November 2012). It re-opened in the city two years ago, 16 years after Clifford Chance and Freshfields Bruckhaus Deringer entered (29 September 2014).

“It was very clear to us that we needed to be in Washington,” says Davies. “We’ve been very intensively working on that and we’re very pleased we opened.”

But faced with rival Freshfields’ swagger into the market earlier this year, hiring six US partners to boost its public M&A practice, it needs to decide on its own tactics.

Davies says he is aiming at cross-border US law provision, tapping into regulatory mandates as well as transactional work. He says: “We want to be very strong in the US, particularly on the cross border US law provision.” In particular, Linklaters is targeting Fortune 500 clients.

Davies thinks US work is Linklaters’ for the taking.

“I don’t believe that is an area which is currently dominated so there’s an opportunity there,” he claims, but acknowledges: “In order to achieve that we’re going to have to be stronger in NY and Washington than we are today.”

That means lateral hires, to build out the 50-strong US practice.

And so to the elephant in the room. Davies agrees that for some candidates Linklaters’ lockstep will be off-putting but refuses to agree that breaking lockstep might be necessary.

However mood appears to be shifting within the firm towards an acceptance that greater flexibility in the model might be the future. This week a high-level partner implied that tweaks in the model could lie on the horizon and others in the magic circle have already broken lockstep to lure key partners over the pond (25 November 2014).

Davies says he will “not rule anything out” when it comes to lockstep flexing but is dismissive of the idea of blockbuster pay for US hires, saying only: “Where we are today we have plenty of flexibility, it’s about using that flexibility.”

However lockstep “tweaks” are on the cards elsewhere. Part of Tuesday’s discussion was around the idea of freeing up equity points in order to bring in more of the firm’s tiny salaried partner group – currently 6 per cent – into its equity ladder.

That move would reignite a two year debate over the move to an all-equity partnership, which was scrapped after partner consultation (27 April 2012).

The other long-running debate on the agenda this week was the size and scope of the firm’s governing bodies. The firm’s 15-strong international board (IB) and 12-strong executive committee were both put under the microscope at the meeting, following a year of discussion over whether to reduce the IB or even merge it into the executive (27 February 2014).

There were “no dramatic resolutions” as a result of the talk, says Davies, who is keeping schtum about the temperature of the room on a board streamline. “What is key is getting partners together to have the debate, that’s the most important thing,” he says. But he has now put a 2015 deadline for a final decision on how to govern the firm.

If open debate and consultation remains around the firm’s US plans, lockstep and governing bodies, one topic which seems less open to debate is the firm’s Asia strategy. Davies is quick to set out a stall for Linklaters as “the strongest international practice in Asia”.

“We think we have an enviable position in China today,” he says.  “If you look at particular strengths, Hong Kong, Shanghai, Beijing, there’s no stronger firm and one of the ingredients of that is that around 120 of our lawyers are Mandarin speakers and around 50 are PRC law trained.”

So what of the murmurs earlier this year about the firm seeking a China alliance? Unfounded rumour, says Davies. In the summer, sources suggested that the magic circle firm had made overtures to at least two Chinese firms in the wake of liberalised Shanghai trade laws and the game-changing merger between King & Wood Mallesons and SJ Berwin (31 October 2013).

Both Global Law Office and Commerce & Finance were believed to have been tapped on the shoulder but Davies says an alliance is not on the cards and the reluctance is two-way. “I speak to lots and lots of people but not with that in mind,” says Davies, who is sceptical about the idea of Chinese alliances across the market.

“I’m not sure how many firms are tying up with domestic firms,” he says. “Obviously there’s King & Wood Mallesons, but there isn’t anything else of that scale that I’m aware of. My sense is that the leading firms in the market are fiercely independent and don’t feel they need an alignment with an international firm.”

For now then, Linklaters is content to bed down its current alliances with Webber Wentzel in South Africa – a deal brokered in 2013 – and Australia’s Allens Arthur Robinson, launched in May 2012. Davies says the Allens relationship has resulted in a little over 700 referrals between firms in two years and Webber Wentzel and Linklaters have worked through 250 referrals.

Davies does have room for a little swagger when it comes to the firm’s performance. It returned to its strongest revenue position in five years at the end of 2013/14, boosting turnover by 5 per cent to £1.255bn up from £1.195bn the previous year (8 July 2014). Added to that, Davies claims client acquisition is at 90 per cent for the previous 12 months.

But the year ahead will involve tricky decisions around competing across the pond and shifting the perception of the firm as a corporate and finance firm to a global leader. What are Davies’ aims in numbers?

”I think a professional services firm will tend to be doing well if it can put 2 or 2.5 per cent on top of GDP growth as a rule of thumb,” he concludes.