With the exception of a small band of white shoe practices, US law firms have taken big strides on the global stage in recent years. But given the recovery in their domestic economy and the increasing preference for English law in cross-border deals, Grant Murgatroyd asks whether New York's finest remain committed to the international game

In 1989 only seven million Americans owned a passport – a derisory 3% of the US population and a figure that was oft-brandished by scornful Europeans. Since then the situation has improved markedly, with a far more respectable 110 million of the country's 313 million citizens holding a valid passport at the last count. That still lags the 70% of British passport holders, but the change shows a US that has taken up full residence in the global village – an unavoidable response to the emergence of rival economic powerhouses such as China.

Speaking to many leading US law firms, it is clear that their partners have been similarly shaken from their international torpor over the past decade or so, with the globalising trend continuing in recent years – though not always smoothly. Some members of New York's gilded club of 'white shoe' firms are still cushioned by their ties to the best Wall Street clients and their fearsomely profitable litigation practices.

This means that Cravath Swaine & Moore and Wachtell Lipton Rosen & Katz, for example, have stuck to their lucrative Wall Street guns. But others such as Sullivan & Cromwell have felt compelled to respond to the increasing internationalisation of the legal market, not least by taking on the British firms in their own European backyard.

One US firm that has been pursuing an aggressive international policy is Latham & Watkins. "We made the decision in 2000 to become a global law firm," recalls Bob Dell, global chair and managing partner. '"It was one of the most important strategic decisions we ever made and we made it with a deep understanding that it would take a lot of investment and that we needed to be in it for the long-run. We felt it was the future.

"We saw that our clients – banks, investment banks, private equity – in some of our major practice areas were globalising and we wanted to be at their side. It is almost a territorial thing. You don't want to see your best client go to a British or an Asian firm because you are not on the ground.

"The big questions were: can we do it? Can we do it successfully? How do we do it? We had to work through all that and get a reasonable level of comfort before we embarked on it, and we have never looked back."

As a result, the firm has expanded rapidly, doubling in size since the launch of its global strategy. In 2000 Latham had 16 offices and 1,100 lawyers, predominately in the US. Today, it employs about 2,100 lawyers in 32 offices around the world. 

Financially, it says the expansion has paid off, with revenues rising from $960m (£613.55m) in 2002 to $2.23bn (£1.43bn) in 2012. "Over a five-six-seven-year period we grew our footprint substantially; we did it without incurring debt and the returns happened more quickly than we expected," says Dell (pictured). 

"The benefits to our US practice have been greater than we anticipated. Those US-based lawyers who thought this strategy made sense but didn't think it would impact their practices directly have found that they are being brought into transactions, litigation or regulatory matters that are being generated outside the US."

Latham considered mergers and looked closely at a number of large opportunities before backing away and pursuing an organic growth strategy, mixing lateral hires with internal moves. That strategy continues today. In London, for example, in the past few months the firm has hired David Walker, former global head of private equity at Clifford Chance; Simon Bushell, former co-chair of corporate fraud at Herbert Smith Freehills; and Dean Naumowicz, former head of the derivatives group in London at Norton Rose Fulbright.

Client pull

Some historic Manhattan practices have even started baulking at the suggestion that they are American law firms. 

"We are not a US firm – we are a global firm," says Dave Beveridge, global managing partner of Shearman & Sterling. "More than half our lawyers are outside New York and 40% are outside the US, and it has been that way for at least five years. Most of our clients are global and are looking at opportunities and challenges all over the world. It is much better to be able to address clients' issues globally than have to tell them that you don't know the answer. This truly global mindset is what differentiates us."

Beveridge says its strategy is driven by the all-important nature of client relationships and an eagerness to work with corporates when they move into a new territory, even on smaller pieces of work. "If a client said it's a 'slip and fall' case and we have a local firm we use for that, we'd say 'OK, that doesn't make sense for us'. But if they have anything on the corporate side, we would be willing to work with them on it because it helps us understand the client better and build the relationship. So as long as we are adding value, we are happy to help."

Sullivan & Cromwell, another of New York's oldest firms, has had offices in Europe since the 1920s but began making serious inroads into the continent's UK-dominated market for corporate advice over the past decade and a half. 

"We have always believed that the 'world is flat', that there is increasing connectivity and global trade," says chairman Joe Shenker. "We thought that in the early 1900s – it has always been true. Think about England's history, Spain's history. Our job is to facilitate global transactions and global trade and those are the most interesting transactions."

Centre of gravity

Davis Polk & Wardwell has a serious, financially successful global practice but remains proud to call itself a New Yorker. For managing partner Tom Reid (pictured), it comes down to the quality of work that the firm does in Manhattan and whether or not that work can be replicated elsewhere. 

"The US remains the single largest and most sophisticated market for legal services. This is not to say it has a monopoly on good, creative lawyering, but just given its size and complexity, the number of ideas that start here is very significant."

He says that, internationally, the firm tries to concentrate on big multi-jurisdictional work to avoid heavy investments in extensive networks of offices, or getting caught up in too many highly competitive mandates for local work where fees are driven down. It does this by focusing on New York, London and Hong Kong, with satellite offices in Menlo Park, Washington, Sao Paulo, Paris, Madrid, Beijing and Tokyo. 

"We are not trying to do everything for everybody in Asia and in Europe," Reid says. "We are concentrating on the financial centres of London and Hong Kong and to do core products of capital markets, M&A, enforcement and litigation. We try to do the truly complex cross-border critical client assignments and that helps soften the fee pressure."

White & Case differs sharply from that strategy – and indeed that of most firms with a New York heritage – in that it has never been heavily weighted on the US city and has tried to establish large presences in important markets such as London, which can challenge the leading local firms on their own turf.

"When White & Case went global it went global in a style where it set out to be both an international law firm and a strong law firm in the local markets," says partner Oliver Brettle. "It wasn't a hub and spoke type operation. That said, we have always been a single LLP with a strong culture and big identity."

Brettle believes his firm's strategy makes sense because having genuine strength-in-depth within a range of key legal jurisdictions is becoming increasingly important as more global trade flows directly between 'growth markets' rather than via established financial centres.

But he says that even a resolutely global firm such as White & Case needs to up its game to meet the needs of demanding clients in the BRIC economies. 

"In the 1980s, if you were an international company looking to expand, there was a good chance you were going into an 'unknown jurisdiction' and wanted really strong advice on the ground," he says.

"In that period there were only a handful of firms able to provide unified, global and market-led legal advice. Today, nobody would pretend that, for example, Moscow is anything other than a very strong legal market in its own right.

"Companies in Moscow will want legal expertise from lawyers truly rooted in that jurisdiction and who can, if the need arises, link up seamlessly with lawyers deeply rooted in, say, Brazil if that Russian company wants to invest in Brazil."

He adds that clients in places such as Moscow also want to buy their legal advice from lawyers who are "deeply rooted" in their home jurisdiction while being equally well-established in any foreign market where they are doing business, something that he says favours his own firm.

The final frontiers

But White & Case's business model is obviously not suitable for everyone. Deciding how far to take internationalisation is a huge strategic issue for firms. "We're always looking at new markets, but that doesn't necessarily mean we have to put an office there," says Beveridge at Shearman, which has 18 offices around the world.

"For example, we are very active in Africa, but we are not currently contemplating opening an office there. Looking back, we were one of the first firms into Sao Paulo, an early entrant to Abu Dhabi and one of the first firms into China. We have a long record of being first movers into key markets and are generally correct on the moves."

The firm has, however, suffered from one recent international mis-step, when it decided to close its offices in Munich and Duesseldorf and to do all of its German business from Frankfurt. Some rivals say the closures highlight broader difficulties for US firms expanding abroad and are a signal of Shearman's reduced ambitions. 

But Beveridge defends the decision: "We consolidated in Germany. Law is like any other business – you have to make judgements about market conditions as they change and what makes sense for the firm. This was the right decision at the right time for us."

The pace of global growth may have slowed somewhat from the heady days of the early to mid-2000s – particularly in the wake of the Lehman Brothers collapse in 2008 – but US firms are continuing to fill the gaps in their global networks. 

Cleary Gottlieb Steen & Hamilton, which was founded in 1946 and opened its Paris office in 1949, says it has always had an internationalist approach but it has clearly picked up the pace recently. "We have a very conservative approach and a very strong dedication to growing organically and internally, so we have always focused on slow growth and steady performance," says Jim Bromley, partner and chair of Cleary's business development group. 

But this apparently slow and steady style has nonetheless led the firm to open offices in Abu Dhabi, Sao Paulo, Buenos Aires and Seoul in quick succession over the past three years.

You say tomato…

Meanwhile, as the world at large appears to be adopting an Americanised version of English as its native tongue, the world of business has been turning to English law as a kind of legal lingua franca. It is another factor adding pressure on conservative Wall Street firms to internationalise.

"With an increasing amount of cross border work, people are looking for not just the law for each applicable country, but more and more we are seeing that English law can be a convenient choice of law for multi-jurisdictional deals," says Brettle at White & Case.

"English Law is widely accepted and widely trusted. The overwhelming majority of significant transactions in Russia are governed by English Law, whether or not they have anything to do with the UK. Similarly, finance transactions in China are being done under English Law."

Like other US law firms, White & Case has been strengthening its English law capability and has 67 partners and 250 lawyers in London. Davis Polk says its international growth has picked up in the past couple of years as it has expanded its English, French and Hong Kong law capabilities.

Shenker (pictured, above) acknowledges the recent preference for English law. But in a final stirring defence of the virtues of his fellow countrymen, he insists that the pendulum may be swinging back towards US law for international deals, in part because of the strength of US lawyers and their entrepreneurial approach to hunting big-ticket transactional work. "We have always done deals that don't have any nexus to the US – deals between Europe and China; deals between Asia and Latin America that have no nexus to the United States. They are using our services because we have a creative sense of how to achieve commercial transactions."

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The patient perks up

When the US sneezes, the rest of the world catches a cold. If the world's economic superpower has been curled up in bed for much of the past five years, there are clear signs it is beginning to feel a little better. That should be good news for the world economy and for New York's law firms, which have been feeling the effects of a stagnant economy.

When Ben Bernanke, chairman of the Federal Reserve, said in June that he was ready to begin "tapering" the Fed's huge quantitative easing (QE) programme – which currently runs at $85bn (£54.29bn) of asset purchases every month – global stock markets finally caught that cold, with markets losing trillions in value in September and bond yields spiking.

But even though markets may see it otherwise, the limiting of QE is the clearest possible sign that the patient is recovering. "The economy is certainly better than at times in the recent past, but you do get the occasional piece of economic data on the downside, like the labour market statistics," says Tom Reid, managing partner of Davis Polk & Wardwell.

"As the picture becomes a bit clearer, the confidence of CEOs and deal decision-makers is increasing, and we are seeing more inclination to do the deal based upon a bit more confidence that the risks – and there are risks in every deal – are now a bit more visible and knowable.

"We aren't near the edge of the precipice the way we have been. But there are areas where visibility is in short supply, such as what are the capital, leverage and liquidity requirements that the major banks are going to have to deal with, so there are still some sectors where there is great uncertainty.

"But even in those sectors, the participants are getting ahead of the regulators. They know the general direction of trend towards more capital, less leverage and more liquidity and they are adjusting their balance sheets accordingly."

That has yet to translate into a flood of cross-border deals of the kind that New York lawyers crave, though Verizon's $130bn (£83.08bn) bid to buy Vodafone's stake in its mobile business will certainly cheer up many corporate advisers. According to Thomson Reuters, a surprisingly high 75% of US deals by value in the year to date – before taking into account Verizon-Vodafone – were domestic-only. 

But practitioners say the pipeline is starting to flow. "Right now, our offices in the US are busy and look like they are getting busier," says Jim Bromley, partner and chair of the business development group at Cleary Gottlieb Steen & Hamilton. "The change in the economic footprint of the world since the financial crisis has been pretty substantial and economic growth coming out of the crisis has been slower than expected. Are we a couple of years ahead of Europe? I suspect so, but that still puts pressure on law firms. Law firms are a cost and we have to prove on a daily basis that we are adding value."

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