More than a decade since they first came to the UK in earnest US firms have the opportunity to make a major breakthrough in the City. Alex Aldridge asks if they have the will and wisdom to seize their moment

June 2009, and it was just another not-so-hectic day in the finance department of Addleshaw Goddard's London office – which, after some busy years in the middle of the decade, had slowed dramatically following the onset of the credit crunch in 2007. The firm had recently posted its annual financial results, announcing a fall in revenue of 11.4% and a 30.9% decline in profits per equity partner (PEP), having earlier that year cut 10% of its partnership. Needless to say, acquisition finance partner Phil Slater was on hand to answer his phone when it rang that morning.

"It was the usual thing: 'There may be an opportunity that you could be interested in…'" recalls Slater, a veteran of Clifford Chance, Latham & Watkins and Weil Gotshal & Manges.

A few days later, Slater was sitting in the Strand offices of headhunters Hoar Marshall, where he was informed that Reed Smith's London arm was in the market for leveraged finance lawyers. Over the course of the next few months Slater met many of Reed Smith's senior management and executive committee members via a series of lunches, interviews and video conferences. He was impressed by their talk of counter-cyclical investment, designed to strongly position the firm in one of the most competitive practice areas when the credit cycle turned.

"They gave the impression of wanting to move quickly in order to take advantage of what would likely be a limited window of opportunity to bolster their UK finance capacity. I could see where they were coming from, liked their decisiveness and had got to a point at Addleshaws where I felt like I needed a new challenge," he recalls.

By August, the move was sealed, with Slater becoming one of Reed Smith's five lateral recruits of 2009 – the second highest number of partner hires by a US law firm in London, behind Paul Hastings Janofsky & Walker, which brought in eight last year, including a seven-strong team of restructuring and capital markets lawyers from Cadwalader Wickersham & Taft. By 16 November, Slater, who moved alongside fellow Addleshaws finance partner Lucy Newcomb, was doing his first day at Reed Smith's new offices in the freshly-constructed Broadgate Tower on the northern edge of the City.

Slater's experience echoes that of many City lawyers considering such a move. And the current appeal of US law firms to lawyers at UK firms goes beyond the traditional incentives of better money and international opportunities.

"It's about belief and momentum," argues Paul Maher, the chairman of Greenberg Traurig's recently-founded London office (locally known as Greenberg Traurig Maher), which has hired no less than 16 partners since last June, taking it up to a total of 50 lawyers. "Without naming names, there are obviously a lot of UK firms that have been struggling with middling profitability for quite a while, and that leads to disillusionment among partners. In contrast, we have a clear strategy and a strong desire to implement it," he adds.

Maurice Allen, who is spearheading the launch of Ropes & Gray's London office after moving from Freshfields Bruckhaus Deringer last year, sees things similarly: "There is a high level of unhappiness at UK firms that hasn't existed for some time. Even at firms that are doing relatively well there have been redundancies, which puts the partners under pressure.

And where you have that you often get a breakdown of culture," he argues, adding that traditional relationships between firms and clients have been undermined by the departures and the series of restructurings that have taken place. He continues: "In many ways, it's all to play for."

The size of many US law firms relative to mid-tier UK practices means they have the financial muscle to back up this sales pitch. Greenberg Traurig was the ninth largest law firm in the US by revenue, turning over $1.17bn (£817m) last year – placing it not far off magic circle size and well above any other UK firm outside the top four. Boston-based Ropes & Gray, the 30th largest law firm in the US, posted revenues of $790m (£550m). By way of comparison, revenue in the same period for the 30th largest law firm in the UK, Withers, was £93.3m, which gives a sense of the greater resources that US firms have at their disposal compared to all but the largest City practices. Added to this, the current weakness of sterling against the dollar means the greenback goes a good deal further in London than it ever did during the period in which US firms started investing in the UK in the late 1990s.

It is hard to predict how long this window of opportunity will last – sterling appears to have hit a medium-term floor of around $1.45/£1, from which it will probably begin to recover at a higher level. And the early numbers from the 2009-10 UK results season suggest recovering profitability at City law firms, which are typically more cyclical than American firms, will soon begin to take effect. US law firms have a short period in which to take advantage in the Square Mile before the going gets tougher once more.

Transatlantic relations

They may have the resources, but do US firms have the nerve and patience to take advantage of the current situation? Recent history provides mixed signals. By broad reckoning, the last time conditions for US firms in London were so favourable was in the early part of the last decade, during the market hangover of 2002-05. This was a stage when many large UK firms were struggling to cope with a slump in European M&A while wrestling with unprofitable international networks. During this period firms like Lovells, Ashurst and Norton Rose saw a number of partners quit for US practices. However, by 2005 London firms were rebounding thanks to strong markets and, in many cases, restructured foreign practices.

Tensions with US-based management also played a part in some US firms' failure to fully seize their moment in London. In some cases there was simply too much meddling from head office, slowing the decision-making process. In other instances, the lack of engagement from US-based management teams hindered firms' ability to push on meaningfully, as they found themselves treated as short-term money generators with little ownership of the firm's broader development.

Former Cadwalader lawyers cite what they believe was a lack of commitment from the firm's New York-based management team following the launch of the London office in 1998: "To them, it was just about money. You could see that in a number of ways; principally the fact that they didn't send a single US lawyer over to the London office, and also the general lack of communication or willingness to see us as properly part of the firm," says one. Many believe the fact that the firm built one of the City's most highly-rated restructuring practices was due to the ability of entrepreneurial individuals such as former London office head Andrew Wilkinson to operate independently of the US.

But whatever reverses US firms have suffered over the last 10 years, there can be no doubting that progress has been made. Legal Week's research reveals that responding international firms now have 1,172 partners in London, including 616 equity partners – roughly equivalent to the partnership of two magic circle law firms.

And foreign firms are looking to grow again in London after drawing their horns in during the brutal market conditions of 2009. Ninety-two percent of respondents said they were aiming to grow their London offices in 2010, against 75% in 2009. More than a third of respondents (38%) specified that they were intent on growing by more than 10% over the year.

And in many ways, 2009 proved a more robust year for senior recruitment at foreign firms in London than some would have suspected. While there was a virtual shutdown in partner recruitment in the first half of the year as many firms put in place hiring freezes and undertook restructuring programmes, but this was offset considerably after the summer. While responding firms hired 126 partners in 2008, there were still 85 lateral hires in 2009 amid the toughest phase yet of the global slowdown.

Inspiration or cautionary tale?

Unlike most US firms, New York-based White & Case has a history of taking international expansion seriously – a state of mind that arose from a decision to develop its operations outside the US three decades ago. With this experience it was able to not only spot the opportunities emerging in London during the early part of the decade, but exploit them in a sustained manner. From 2000, the firm embarked on an aggressive period of growth; the starting point of which was marked by the recruitment of a host of senior banking partners, including a team from the City arm of Weil Gotshal & Manges, led by Maurice Allen. The result is that today White & Case's London office, with over 300 lawyers and a turnover of $197m (£135m), is the largest practice owned by an international law firm in London.

However, revenue was down last year by almost $50m (£34.2m) from the 2008 figure of $245.9m (£169.5m). An exodus of high-profile partners has compounded the problems. Some link the office's current troubles to the rapid expansion a few years ago. One senior lawyer at a US firm in London outlines the theory: "What Maurice Allen (pictured) did at White & Case was amazing, but it was also a bit like what a Russian trawler does, hoovering up everything that moves in the bay. So in came some good lawyers, some bad lawyers and some serial movers. Plus, there was no time to build up an internal culture organically. It works in the short term, but later on generates problems, as we're seeing now."

Allen himself, however, rejects this idea. For him, White & Case's predicament at the moment is down to the firm's failure to follow through wholeheartedly on the next stage of its growth. "We didn't grow too quickly," he argues. "The plan was to grow to a critical mass that would allow us to compete with the magic circle. The problem was that we didn't follow through into stage two, which was, having grown the London office, populating the other international offices with top English lawyers. But this didn't happen, principally because a number of those offices operated as individual fiefdoms where there was resistance to taking lawyers who would be seen as having loyalties to those elsewhere in the firm."

Indeed, there is a consensus that in terms of hiring, White & Case did as well as could have been expected during that period. Still, the difficulty getting the right people on board – which White & Case has shared with all other US firms in London – reflects an inbuilt problem in the lateral hiring on which they are reliant: the relatively high incidence of idiosyncratic personalities among the group of partners in the market for a move. And with their often limited market knowledge, US firms have previously shown themselves to be a magnet for such characters, in many cases demonstrating naivete about the basic truth that many of those who want to move, you don't want to hire.

Recently, however, there have been signs that US firms have learned from some of their mistakes. The four banking partners – Chris Kandel, Sam Hamilton, Brian Conway and Jayanthi Sadanandan – who left White & Case's London office to join Latham & Watkins earlier this year are highly-rated and widely regarded to be a good fit. Meanwhile, Kirkland & Ellis' recent addition of Gavin Gordon and David Arnold, two rising stars from Ashurst's corporate practice, is viewed as a genuine coup. Kirkland London head Jim Learner comments: "I don't think you can make generalisations about lateral hires. But, of course, you need to have the right fit. I'm pretty confident that with the private equity tools we have in place here Gavin and David will be able to offer the same or better level of service than they did at Ashurst." Learner, who makes it clear that his ambition for Kirkland is to challenge London's top private equity players like Clifford Chance in their own backyard, has much riding on the US firm's ability to attract and successfully utilise the City's most promising young deal lawyers.

It has also been noticed that US law firms have been very picky about taking on the wave of partners that last year exited from large London firms in the restructurings. While some of these UK partners have been taken on where there has been a strong long-term business case, US firms have by consensus displayed more caution than in previous years about taking on the 'cast-offs' of City rivals.

"There is no question that US firms are getting better at identifying the right recruits," asserts Dominique Graham of partner recruitment specialists Graham Gill. "Why? Because over the years they've made some very expensive mistakes that they can't afford to make again in this climate. A lot more care is taken over hiring these days."

Looking after your own

US law firms have not only become more focused on the need to recruit younger partners rather than just senior rainmakers, but have also woken up to the need to concentrate harder on developing UK associates.

This cannot come a moment too soon as the London arms of US firms have traditionally had mixed results at engaging and motivating their staff, despite offering a considerable premium compared to the salary at UK rivals. US firms' traditional poor performance in the Legal Week Intelligence Employee Satisfaction Report (ESR) reflects this. Last year, four of the bottom five international firms in the report were all of US origin, with Baker & McKenzie bringing up the rear, followed by Dechert, Dewey & LeBoeuf and White & Case. All scored below average on culture and, with the exception of Dewey, on the issue of partnership prospects.

There are exceptions, however. Weil Gotshal's London arm, for example, has had success at associate engagement, being one of the top-rated firms in the ESR, which was based on responses from more than 4,000 associates.

"We take associate mentoring and career development very seriously – it's a firmwide thing rather than a London-specific policy, but obviously it's produced good results here," says Weil Gotshal London managing partner Mike Francies.

Latham & Watkins is another US firm in London with a reputation for effectively developing its own lawyers, even if that image suffered somewhat when the firm announced in February 2009 that it was to make 190 firmwide associate redundancies in response to the recession.

The firm appears to have quickly bounced back and in 2009 it promoted six associates to partnership in its London office – the highest figure of any US firm in London.

Latham partner Andrew Moyle (pictured) comments: "It's extremely important for us to nurture our own talent. London wouldn't have grown to nearly 200 lawyers if it wasn't for our ability to retain and promote from within. Developing associates through to partner is what binds the firm – and distinguishes us from many US firms in London, where you have to go back to head office to become a partner."

But in truth, US firms are still conservative about making up partners in London. Latham, Reed Smith and Kirkland made up six, four and three respectively in 2009, but it is not usual for foreign firms to have promoted no London partners last year. So far in 2010 White & Case has made up the most internal partners, with six, while Latham has made up three. Firms to have made up one partner this year include Cleary Gottlieb Steen & Hamilton, Sullivan & Cromwell, Debevoise & Plimpton, K&L Gates, Paul Hastings, Reed Smith and Mayer Brown. While a slim partnership round can be sustained for a year or two, there will be mounting pressure on US firms to keep promoting internally to the partnership. Indeed, a willingness to promote partners will perhaps be the most telling indication of whether US law firms have reached maturity in the City.

To be in a position to do this, there is a feeling that firms need to have spent sufficient time and care putting the groundwork in. For Bingham McCutchen London chief James Roome, who saw London revenues leap by 32% to £28m in the 2009 year thanks to its booming restructuring practice, the only way for US firms to approach the London market is through growth in "steady, considered, sustained cycles".

He adds: "It's a significant move developing in a new market, and it's difficult. Part of that is because a law firm is a group of individuals who have their own approach and contacts but who also need to be fairly like-minded. And then, of course, the London partners need to share agreed strategies and values with the senior partners in the US. You can't look at an overseas office of a law firm like a division of a corporate."

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Transatlantic tie-ups – back on the agenda?

Despite the mood of consolidation in the market and recent unions of Lovells and Hogan & Hartson and Denton Wilde Sapte with Sonnenschein Nath & Rosenthal, the percentage of international firms in London willing to consider a merger this year fell moderately – down to 16.5% of firms, from 21% last year.

This is not surprising, given that some of the potential merger candidates – like Proskauer Rose, which is currently in merger talks with SJ Berwin – only have small UK presences and as such were not included in the survey. However, the number has fallen considerably from 2007, when 47% of respondents said they would consider a UK merger.

K&L Gates, Reed Smith and Bryan Cave said they would definitely consider a merger, while White & Case, Edwards Angell Palmer & Dodge, Hunton & Williams, Sidley Austin, Salans, Chadbourne & Parke and Mayer Brown all said they would 'possibly' consider a deal. Advocates of mergers say they are an excellent way for US firms to develop in London, taking advantage of the legacy UK firm's existing contacts, market know-how and culture: "Our strong legacy culture is a major advantage," says Laurence Harris, London managing partner at Edwards Angell, which merged with UK firm Kendall Freeman in 2008. "It means that we are a very stable firm, with low turnover and a highly collegiate atmosphere. There are many people here who, like me, have trained with the firm and never worked anywhere else."

And so the theory goes, in their new strengthened form these outfits are much better positioned than the legacy firms in their previous guise. "We're a billion-dollar business with 70% of our business coming from the US. That gives us a scale that allows us to compete much more effectively for the best lateral hires and leading graduate recruits," says Roger Parker (pictured), London head of Reed Smith, which merged with UK outfit Richards Butler in 2007.

Of course, there are downsides to law firms coming together, not least the challenge of marrying accounting models (US firms' cash accounting to the UK's accrual model) and having to deal with disgruntled partners opposed to the new arrangement. Perhaps the most significant problem for US firms is the obligation to take on departments that do not fit easily into their wider strategies. One London managing partner at a US law firm comments: "The problem is there's so much associated crap in the way many English firms are set up. As a US firm you're interested in London as a financial centre. But UK firms often have, for example, a real estate practice with some old partner who's been there for years, or all these offices in the provinces. It would be great if you could just take the bits you want, but unfortunately that would be rather difficult."

Still, many believe that over the next few years the market will see further mergers between UK and US firms – a phenomena that some argue will not just be about enforced consolidation due to market conditions, but client demand. There is also a general feeling that many US/UK mergers have bedded down respectably, even allowing for Mayer Brown's recent turbulent period. In addition, there is a clear feeling that the spate of transatlantic merger bids has reignited enthusiasm for cross-border deals. "The mergers we've seen so far are, to an extent, a recognition of the centralisation we're seeing in the purchase of legal services by major corporates. And that is a process we expect to see becoming more common," says Parker.

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International firms

The cluster of law firms in London from countries other than the US tend to offer only a very limited service. Most, like offshore firm Appleby (based in Bermuda and Jersey) and Spanish leader Uria Menendez, don't practise English law. "The purpose of our London office is to be closer to our English and continental-based clients," says Appleby London head Warren Cabral, one of two of the firm's partners based in the UK. "We're not here to compete with English firms," says Uria London office managing partner Juan Carlos Machuca (pictured), "rather to work with them and offer advice on Spanish and Portuguese law." This explains the lack of movement on partner promotions and lateral hires over the last few years at the London offices of such outfits.

Other firms, such as top-tier Italian practices Chiomenti and Bonelli Erede Pappalardo, operate in a similar way, although also offer limited English law advice. "Our English offering, which is provided by our four English-qualified lawyers, focuses on banking, finance and capital markets," says Chiomenti London office head Claudio Lichino. Though limited by their size, these firms are able to offer career paths to their lawyers in London, with Chiomenti promoting two associates to partner last year and Bonelli one.

The exception to the rule is Gide Loyrette Nouel, which caused a stir back in 2003 when it launched in London with the hire of four partners from US outfit Sidley Austin. With 50 lawyers in London, including seven equity partners, and revenue last year of e15m (£12m), the French firm – which has strong ties to the major French banks and financial institutions – now has a significant presence here. This is underlined by the fact that it has a trainee programme, a policy that its London managing partner, Colin Mercer, describes as "crucial in terms of organic growth and associated teambuilding". For each of the last three years the firm has taken on four English trainees (although from this year that number will fall to two).

However, last month Gide was hit by the departures of finance partners Michael Doran and Chris Czarnocki to White & Case, which itself was restocking following a four-partner walkout to Latham & Watkins. But Mercer remains bullish about Gide's prospects in the UK: "We still have a fantastic book of business here, we will regroup, and there is no sense that the Gide story in London has been de-railed."

• Click here for the full table of results from Legal Week's International firms in London survey