Learning the ropes - reflections on entering the London legal market
Ropes & Gray's Maurice Allen reflects on how the London legal market has changed since the firm's entry
June 14, 2012 at 07:03 PM
5 minute read
Ropes & Gray's Maurice Allen reflects on how the London legal market has changed since the firm's entry
When Ropes & Gray opened in London in late 2009 it was the 98th of the Am Law 100 firms to establish an office in the City. Some suggested that the firm had missed the boat. But were they right? Was it a good boat to have missed?
The global financial crisis heralds a new era for the legal profession in London. The boom in law firm expansion which commenced in the mid to late 1980s leaves us with an ageing partner population and firms that look outsized for the market they serve.
The pan-European and subsequent global expansion of the London-headquartered law firms came about almost by accident in 1987, the spark being the ingenious exploitation of the former Clifford Turner European network by the newly-formed Clifford Chance (CC). The rest followed, but the ensuing expansion of UK law firms was defensive as much as offensive. Bulking up in London and Europe generally created barriers to entry for the US law firms.
The US challenge to the established English firms took time coming and only really started in the mid to late 1990s with the likes of Milbank Tweed Hadley & McCloy, Shearman & Sterling, Weil Gotshal & Manges, White & Case and Latham & Watkins establishing significant UK practices. Others have followed, but pre-2007 limited inroads were made into the hegemony of the top UK law firms.
The 'new normal' in the post-2007 era has arguably changed the London legal landscape forever, with real implications for the respective strategies of the UK and US law firms here.
Clients
The crisis impacted all firms, but the leading UK law firms have suffered more than most. The dependence on the banks was, in retrospect, astonishing. It is often said that well in excess of 50% of CC's business emanated from this sector.
Since 2007 we have seen the rise of 'alternative finance providers' in the London market. They do not automatically seek out the traditional law firm suppliers and the strength of the US headquartered funds in this sector makes US law firms in London, offering US-style lawyering, an attractive choice. These clients are less panel-driven and choices are more about individuals.
Partner compensation
Lockstep, good: eat-what-you-kill, bad was a traditional mindset. Lockstep encouraged co-operation, a one-firm ethos. How the world has changed. The pressures of lockstep are encouraging the worst sort of turf protection, sharp elbows and silos. It has become, in effect, a means of justifying regular trimmings of partnership numbers. Add the encouragement for more senior partners to step down in their 50s, and you have the perfect recipe for gifting US law firms talent they simply could not get pre-credit crunch.
Battle for talent
Law firm strategy is nothing without the talent to execute it. That is partly about management but is a lot about getting the best and nurturing talent. US law firms always paid more for associates but the perceived price extracted in return was felt to be unattractive to many. With the route to partnership almost obliterated for UK associates and workloads which are comparable, increasing numbers now see the opportunity for career development and more client involvement with the US firms.
Partnership ethos
Balancing profitability and a happy partnership is increasingly hard to maintain. Management sometimes seem to obsess about trying to achieve the impossible in an over-lawyered market with compensation systems which impose their own pressures. Maintaining partner culture and a sense of stewardship was a perceived UK law firm strength pre-credit crunch. Even allowing for the sad situation at Dewey & LeBoeuf, the US firms seem cohesive and less likely to lose their talent in these challenging times.
Conclusion
So where does that leave US and UK law firms in London in 2012? There is no doubt the last two years have seen the US firms begin to flex their financial muscle. The US firms are beginning to claim some core businesses as their own or at least ones where they compete with UK firms on an equal footing. The league tables for private equity and acquisition finance are populated equally by the top US law firms as well as the UK incumbents. An even more obvious statement has been made by the way the US has grabbed funds formation over the last two years. When Davis Polk & Wardwell starts to practise English law with magic circle hires, the sense of a shift in the market is palpable.
Mergers and alliances are finally starting to happen – and it's about time, too. The US firms will undoubtedly continue to expand into core business areas previously largely populated by the UK firms. For the UK firms, a more realistic acceptance of the economic realities will lead to further downsizing, with mergers often being a catalyst for this. Certainly, with the bank market not coming back any time soon, there will be a critical need to develop a focus on the new clients and business products.
Nonetheless, while the magic circle has not pulled away from the pack as once imagined, they still maintain a dominant position in the market. But the real threat to the magic circle may now finally be those US firms that continue to build critical mass in a market that is starting to move in their direction.
Maurice Allen is co-managing partner of Ropes & Gray's London office.
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