International firms continued to carve swathes of partners out of their UK counterparts in 2013. Alex Newman analyses who is winning in the battle for London's talent

The Olympic stadium wasn't the only venue for record setting in London in 2012. A few miles away – but admittedly attracting far less attention – partner hiring across the City arms of the largest US and international law firms surged to unprecedented levels. 

To some extent the hiring of 127 partners by this group of firms was driven by a flood of senior exits from collapsing New York outfit Dewey & LeBoeuf. But even without the largest law firm failure in history, lateral recruitment would have been up more than 10% on the previous year, according to Legal Week research.

In contrast, while the latter part of 2013 may have seen the high-end recruitment market start to come back, our research shows that lateral partner hiring by international firms in London over the year as a whole was down for the first time since the financial crisis – to just 77 moves. Notably, even taking Dewey departures out of the equation there were still more hires by international firms in 2012 than 2013.

Of the 44 firms responding to Legal Week's international firms survey – which comprises primarily US firms alongside a handful of global names without an obvious headquarters such as Baker & McKenzie and Dentons – only 13 made more lateral hires last year than they did in 2012. The survey also found that overall partner headcount at the firms was flat, although non-partner lawyer headcount was marginally up.

The reduction in hiring across the group was particularly apparent in the first six months of the year, when transactional work – often the engine for international firms operating in London – was particularly slim. Since then, market optimism has been a lot easier to find. So too has evidence of a pick-up in recruitment.

But given market uncertainties were present throughout the lateral hiring boom period of 2012, what prompted the decline in recruitment in 2013? 

One possible explanation is greater caution among law firm management to ensure that they are making the right lateral hires – especially as the financial packages on offer are clearly a strong pulling factor. 

While this caution may have been increased by Dewey's failure, given part of the reason for the firm's collapse stemmed from its extremely active recruitment policy – albeit alongside hefty guarantees – the sheer amount of movement between international firms suggests it is justified on the part of those recruiting. When someone has moved once they appear to be more likely to move again.

Of the 77 hires last year 39% were partners moving from one global firm to another. Only 10% of all the hires in London represented the kind of marquee magic circle departures leading US outfits were initially synonymous with in the City.

"One trend we have noticed is how popular due diligence services have become in the last 18 months," comments Syed Nasser, senior consultant at Fox Rodney Search. "Essentially law firms are kicking the tires a lot harder these days and are keen to go beyond the usual referencing process to really test the business case before making an investment. Particularly for hires into the equity it has become extremely popular."

For reference, our survey includes the largest international firms in London that are not headquartered in the UK capital or jointly headquartered there, thereby excluding DLA Piper, Norton Rose Fulbright and Hogan Lovells. A number of firms that would have made the ranking did not take part in the survey, while several of the 2013 London launchers – such as Boies Schiller & Flexner, Bracewell & Giuliani and Butler Snow – were too small to feature in the rankings, which comprise the biggest global firms in London by partner count. 

The trends

Given the disparity in size between most US law firms in the capital and their contemporaries at leading UK law firms, regardless of concerns and due diligence, most have little choice but to make hires if they want to cultivate new practice areas or client relationships. 

But our research found that 2013 was less about smaller international firms hiring in to staff new practice groups – instead it was some of the largest City offerings that upped their recruitment efforts. 

Notably, Latham & Watkins, White & Case and Mayer Brown were responsible for many of the year's headline hires – including several of the relatively elusive examples of big-hitting magic circle partners quitting for bigger dollar-denominated pay cheques (see boxout, below).

"The magic circle firms need to look very carefully at their profitability and so do the silver circle firms," was one US firm's London managing partner's take on the year's hiring. "You only need to look at the continuing traffic of top-level lateral partners leaving very good UK law firms to go to top-tier international firms here to work that out."

Outside of those drawing their hires from the magic circle it should come as no surprise that some big US firms have benefitted from fallout at other firms in the UK rankings. For example, Jones Day picked up Raymond McKeeve and a string of other names from Berwin Leighton Paisner. The US firm, which has made opportunistic lateral hiring a central plank of its London strategy in recent years, brought in six partners last year, following seven external partner-level additions in 2012 and five in 2011.

It is a policy that has also been pursued by Reed Smith, on average the most active recruiter at partner level in London over the last five years. The energy and natural resources and financial institutions groups in particular have been engines of growth, with the office continuing to add partners to both practices.

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"This year will be no different," comments Europe, Middle East and Asia managing partner Roger Parker, who also expects to make further lateral hires in the funds, litigation, arbitration, shipping and transactional practices. But despite being – in the words of global managing partner Sandy Thomas – "something of a centre of gravity for the firm", London has still struggled to attract some of the legal talent it is after.

"Unfortunately, what hasn't caught up with our growth is the external perception of us and the reality of our business today," adds Parker. "There are considerable opportunities at Reed Smith to build business collectively and individually and what we need is for new talent to be more aware of the strength of our business and what we offer."

The hire of a further four laterals in 2013 – including Clifford Chance finance partner Claude Brown and Dentons trade finance partner Jonathan Solomon – shows certain quarters are listening.

Meanwhile at Mayer Brown, the London office's busiest year for lateral recruiting since 2008 may go some way towards cultivating the image of an office rebounding from a well-documented difficult patch. Last autumn seven new senior lateral appointments in seven weeks were added to the trophy hires of Ashurst real estate partner Martin Wright and White & Case litigator Alistair Graham earlier in the year.

London managing partner Sean Connolly says the run of recruits was the product of a strategic push that began in 2012, a year in which office partner headcount fell by seven to 87. One of the accusations levelled against Mayer Brown at the time was that a reliance on big lateral recruits hadn't produced a collegiate, collaborative environment. It is one that Connolly and his team have sought to address this time round. 

"You learn a lot through your lateral hiring over the years," he says. "We've learned that the people who work best are those who make use of the global platform and augment those relationships, and in the last two or three years we've implemented a programme to identify those kinds of lawyers as best as we can."  

Headcount fluctuations

In contrast to the above examples of growth, 2013 saw several international firms significantly scaling back City recruitment after fairly heavy periods of investment. One such firm is K&L Gates, where the London partnership shrank by 17% last year to 50. Between 2007 and 2012, the office brought in an average of five senior laterals a year. This dropped to two in 2013 in the shape of White & Case projects partner Anthony Fine and energy disputes specialist Mike Stewart, who joined from Pinsent Masons. To the office's credit, unaudited revenues for the year were up 23% to £40.5m, suggesting some of the exits and previous lateral recruits may have underperformed.

The second firm to shrink its partnership is Weil Gotshal & Manges, which saw at least six partner departures – or some 20% of the partnership – from its London office in 2013, though the additional lateral hiring of three partners and internal promotions meant headcount only fell by three to 28 partners. Again, the firm averaged just over five partner hires a year in 2011 and 2012. The office also managed to boost its revenue despite the exits – by 4% to £73m in 2013.

Consolidation

Perhaps it is unsurprising given the large number of very different international firms – the overwhelming majority of which are clearly US – now operating in the City that 2013, if anything, best demonstrated the differences in strategy across them. 

Despite a handful of standout performers, looking at the figures as a whole, 2013 was a year of retrenchment and consolidation. Even those firms that did increase their lateral partner recruitment activity are keen to avoid giving the impression that lateral hiring guarantees success. 

The message from Baker & McKenzie's London managing partner, Paul Rawlinson, is that senior lawyer recruitment doesn't guarantee market reputation. "Our experience is that the primary drivers behind a growing UK market profile are the quality of your client relationships and deal profile," he says. "With more than 400 fee earners in London, we have the bench strength and capability for most types of high-value work needed by our clients, except perhaps when it comes to those rare mandates that would devour the resources of even the biggest firms."

Dechert has also sought to bed down following a period of expansion. In 2012 the firm hired eight partners – including three from Dewey – helping to grow London revenues by 12% last year. "You need consolidation after a year of such rapid growth," says London managing partner Jason Butwick. "We needed to take this year to adapt to the new shape and for each practice group to determine what growth they might need in 2014. But the early signs are positive: we saw a huge amount of activity from all practice groups, and a significant increase in the international profile of our work."

Whether recruitment partners and management are starting to think harder about the way they build their practices and offices is a moot point. The view that short-term revenue gain in marquee practices such as M&A or private equity is best achieved by bringing in the big guns is still held by some, while for others there is still paranoia that a lack of hiring could be perceived as stagnation. 

However, it is no longer the case that firms believe that lateral hiring will always improve profitability. Several of the most profitable international firms in London – Skadden Arps Slate Meagher & Flom, Simpson Thacher & Bartlett, Cleary Gottlieb Steen & Hamilton among them – did not hire last year, and notably hardly ever do so. While bringing in the type of lawyers that would fit in well at these firms is a worthy goal, it is now more apparent than ever that achieving this needs to be more of a marathon than a sprint.

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Magic circle partner hires by international firms in 2013

White & Case – Ian Bagshaw and Richard Youle, Linklaters
Latham & Watkins – David Walker and Tom Evans, Clifford Chance
Reed Smith – Claude Brown, Clifford Chance
Mayer Brown – Stefan Martin, Allen & Overy
Jones Day – Sumesh Sawhney, Clifford Chance
Sullivan & Cromwell – Chris Howard, Linklaters
Bracewell & Giuliani – Tracy London, Clifford Chance (did not respond to survey)

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Top hirers 2013

Mayer Brown – 7
Dentons – 6
Reed Smith – 4
White & Case – 4
Latham & Watkins – 4

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The standout performers

Latham & Watkins

For a firm that prides itself on a deliberative, patient approach to management and partner hiring, Latham & Watkins was one of the most active and acquisitive outfits in London last year.

The poaching of Clifford Chance's (CC) global head of private equity David Walker – one of the most prominent moves of 2013 – was a case in point. Often, a move's significance is synonymous with the gossip it generates. Speaking to Legal Week last autumn, Walker denied the market rumour that he had moved at the behest of key client Carlyle, which supposedly wanted to see Latham become its sole go-to external counsel for English and US law. 

What is clear though, is that the hire is bearing fruit for the office. Latham insiders refer to the 'David Walker effect' to describe his impact on the corporate team since his arrival. The fact that CC private equity partners Tom Evans and Kem Ihenacho have subsequently followed Walker's trail to Latham (the latter this year) also indicates the firm's intent. 

In total, Latham brought in four senior laterals in London last year, including Herbert Smith Freehills litigation partner Simon Bushell and Norton Rose Fulbright's Dean Naumowicz. "We hired some pretty great partners in 2013," says London managing partner Nick Cline, who is nonetheless keen to downplay the office's expansion rate.

"To be candid, it's a really exciting time for us," he says. "We are finding it easy to distinguish ourselves in a very competitive market; we've built here slowly and steadily, but the right elements are now there to make sure it all comes together."

On the financing side, Cline states the office is unique in the UK market in possessing both "top-ranked bank and bond practices". Where future lateral growth is likely to come is in the office's ambitions to become a truly major player for London M&A work, and to make good on 

Cline's desire to become "an attractive alternative or addition to major UK corporates that historically had a panel of major magic circle firms".

White & Case

As White & Case can testify it is not just UK firms that have felt the pain of Latham's ambitions in London. If Latham's finance credentials in the City are assured, it is in part down to the 12 White & Case partners – including six in London – who joined the firm in 2010. 

Three years on and White & Case, which has arguably struggled to win many positive headlines in London in recent years, made a bold statement of its own when in October last year it distinguished itself from a host of rival suitors by finally securing the signatures of Linklaters private equity co-heads Ian Bagshaw (pictured) and Richard Youle.

Their hires, like Walkers', exemplify a trend last year for international firms to try to bulk up their private equity practices in London ahead of a long-trailed bounce-back in sponsor side mandates. For UK firm partners involved in these moves, the motivation often cited is the opportunity to work with more flexible and sophisticated US financing teams. But with Bagshaw and Youle each rumoured to be on packages far above average PEP for magic circle partners, money clearly remains a key motivator. 

With great reward, however, comes great pressure. Both Bagshaw and Youle will be aware of the weight of expectation from the firm and their fellow partners to fit in quickly, deliver the work and justify their reported guarantees. White & Case will also have to manage any disgruntlement within the London office over the headline-grabbing move. But given the buyout pair is already credited with rebuilding Linklaters' private equity practice following Kirkland & Ellis' hire of Graham White and Raymond McKeeve in 2006, there is room for optimism.

"We already had a very good continental reach in terms of our private equity practice," comments EMEA M&A corporate group head Jan Matejcek, who says the hires were the firm's "missing jigsaw piece in London… given the location of the private equity houses and the increasing use of English law on deals".

Separately, another major international firm to hire from Linklaters last year was Sullivan & Cromwell, which swooped for restructuring and finance partner Chris Howard last May in a rare foray into the lateral market. 

Other eye-catching moves last year included top-ranked litigator Ted Greeno, who left Herbert Smith Freehills for Quinn Emanuel Urquhart & Sullivan, and Weil Gotshal & Manges private equity partner Mark Soundy and tax partner Sarah Priestley, who moved to Shearman & Sterling.