Clydes is succeeding where many a magic circle firm has failed, but will its strategy outlive the downturn? asks Julia Berris
International expansion has been at the heart of Clyde & Co’s strategy for years.
During the 2007-08 financial year the insurance-focused firm stepped up a gear, borrowing almost £40m to help fund its ambitious international expansion programme. Central to this strategy: the US.
This substantial borrowing indicates how serious Clydes is about being a truly international firm and making it in the US.
Clydes has two offices there, in New York and San Francisco. While all four members of the UK magic circle have tried and mostly failed to gain traction in the US, Clydes has had some success.
The US practice turned over around $20m (£11.77m) in 2008-09. This is encouraging for Clydes chief executive Peter Hasson, who sees the firm’s insurance and reinsurance focus as the key to its success.
“We’ve seen significant growth and we’ve done well because we’ve been very clear about what it is we’re trying to do,” stresses Hasson. “We’ve not tried to take over an existing US firm, we’ve created something from scratch.”
This approach, more akin to a super-boutique than a full-service assault, contrasts sharply with the magic circle’s US strategies, in which the UK’s top firms have tried to beat the New York elite at their own game by attempting to muscle in on longstanding corporate and financial institution clients.
“It makes sense to go a different route,” argues one New York legal recruiter. “Realistically it’s very hard to take on the US elite firms, so using something that’s a speciality is a great idea. This is exactly what Clydes have done.”
The firm initially launched in New York and Los Angeles (LA) in 2006, snaring a four-partner team from US insurance boutique Condon & Forsyth, including Kevin Sutherland, with three partners on the East Coast and one on the West.
Last year TheLawyer.com reported (28 April 2008) that Clydes had raided US rival Duane Morris for a 10-lawyer insurance litigation team. The firm then decided to close in LA, moving all of its West Coast capabilities to its new San Francisco base.
Since its US launch Clydes has managed to attract some big names from the US insurance world, including partner Mike Knoerzer from Dewey & LeBoeuf, who joined the UK firm in 2007.
“A lot of partners like the idea of being in a smaller, insurance-focused firm because you don’t run the risk of coming up against conflicts all the time,” claims
one New York-based insurance partner. “This can easily happen at a lot of larger firms.”
Clydes’ management insists conflicts are not too much of an issue because of the firm’s focus on the insurance sector and lack of a heavy-hitting corporate/M&A client base. This is a major attraction for lateral hires.
Last year Clydes hired former Thacher Proffitt & Wood partner John Woods for its New York office from the now defunct firm. The hire was made when the 60-lawyer Thacher Proffitt team joined Sonnenschein Nath & Rosenthal in December 2008.
“The firm didn’t have the right capabilities for John to be able to develop his practice,” says Hasson. “Partners can develop their practice at Clydes without conflicts. For their clients there’s a real benefit for turning to a pure insurance firm in the US.”
It sounds as if life is good for Clydes in the US at the moment. It has made impressive hires and has managed to develop two US offices in just three years.
But the challenge is not over yet. The firm’s boutique image means it is not well-known in the wider US legal market. As one legal recruiter puts it: “I have zero knowledge of Clyde & Co. I didn’t even know they were here.”
The firm’s relative invisibility might seem a minor problem when set against the undoubted gains it has made, but reputation and branding are always important. Clydes still has a long way to go before it is a name insurance firm in the US.
But Clydes has worked hard to push itself to the forefront of the US insurance legal market and can now point to a 20-strong team in Manhattan and 25 lawyers in San Francisco.
Competing with US heavyweights such as Dewey is not going to be easy, however, so Clydes is going into battle by offering a more favourable fee structure to clients.
“We do offer competitive rates for clients who are instructing us on large blocks of business,” admits Hasson. “This forms the core of our San Francisco practice. It provides a valued service to the market, where for the majority of claims clients are looking for a reliable and cost-effective solution from a firm that understands insurance.”
Hasson sees the firm’s fee structure as appropriate for the US insurance market. But others in the market identify this as a potential problem.
“Lots of insurance work is being brought in-house or given to smaller firms that are able to offer better rates for the client,” says one US insurance partner. “This will work for Clydes during the downturn, but what happens when times aren’t so tough?”
Will its US clients return to the New York elite when cost is not such an issue? Reduced fees would appeal to any client right now, but when the economy recovers it could be a different story.
Despite this risk Clydes has approached the US with a creative yet realistic attitude. It has not tried to take on the big boys and has stuck to its core expertise to gain a foothold in two major markets.
“It’s impressive,” admits one New York-based recruiter. “But I don’t think you can say the firm has made it here. There’s a long way to go and US firms will for sure put up a fight.”
The next few years are critical for Clydes. But if it can maintain its client base after the recession and build up a reputation as a well-rounded international insurance firm it may well do what the magic circle has been trying and failing to do for years – crack the US market.