Does firm's hire of a US partner in HK suggest its referral network is under threat? Gavriel Hollander reports

One can't, so the old saying goes, choose one's family. Friends, on the other hand, are a different matter.

The maxim has clearly resonated over the years with Slaughter and May. When it comes to its foreign policy, the City's most profitable – not to mention most idiosyncratic – firm has famously eschewed the option of settling down to raise little partnerships of its own. Instead, it has carefully cultivated a network of alliances: its illustrious 'best friends'.

But as the legal market becomes ever-more internationalised, how sustainable is Slaughters' model?

The addition of US-qualified capital markets partner John Moore in Hong Kong – the firm's debut dip into the lateral partner market – suggests that traditions are currently there to be broken at the conservative outfit. 

Although Hong Kong has always been the exception that proves the isolationist rule for Slaughters, Moore's hire from Morrison & Foerster, revealed by Legal Week last month, is evidence of a wider and ongoing trend for firms to acquire dual capability in English and US law. In terms of Slaughters' best friends network, the threat is that some of its erstwhile US allies may turn into competitors.

Questions began being asked in early 2012, when Davis Polk & Wardwell shocked the market with the hire of Freshfields Bruckhaus Deringer partner Simon Witty to add English law capability to a London outpost that had previously been little more than an adjunct to its US practice. The firm has since recruited a further three English law-practising partners.

From a firm regularly named as one of Slaughters' favoured transatlantic bedfellows, such a move was a clear sign that things can change. While the referral tap in this instance has not been turned off over night, deal flow does seem to have slowed. According to research by Mergermarket, the two firms have worked together on 20 deals in the last three years, but eight of those came in the first nine months of 2011, well before the hire of Witty.

"If [US] firms start developing practices in London, the relationship is going to become strained," says one former Slaughters lawyer, now a partner at another City firm. "If the reciprocity breaks down, that best friends system will break down too."

Not so, insists Slaughters senior partner Chris Saul. "That doesn't resonate with me at all," he tells Legal Week. "I have seen nothing to suggest that our different way of doing things is under threat."

Saul points to three Wall Street institutions – Paul Weiss Rifkind Wharton & Garrison, Wachtell Lipton Rosen & Katz and Cravath Swaine & Moore – as the heart of its US best friends network, along with more niche players such as West Coast firm Wilson Sonsini Goodrich & Rosati. None of these firms have English law capability or, it seems, any desire to develop it.

For Saul, the growth in English law capability among US law firms, Davis Polk included, does not mean a narrowing of its pool of referral partners, so much as a reshuffle."We work less with Davis Polk now that they have taken up English law, but our referral relationships with Cravath, Paul Weiss and Wachtell are certainly stronger than they were five years ago," he says.

"While one door may close somewhat, opportunities to build even closer relationships with other firms naturally develop."

An English-qualified partner at a US firm in London agrees: "I think it [the network] was always more diverse than people would ever have thought."

So what of its European allies? Slaughters has tended to partner with those firms on the continent widely seen as the best in each jurisdiction. But M&A dealflow to and from these firms has also slowed.

According to Mergermarket, Slaughters has worked with France's Bredin Prat on eight deals in the past three years, with De Brauw Blackstone Westbroek in the Benelux countries on seven, and with German outfit Hengeler Mueller on just five (click here for more details).

Saul concedes that there have been fewer transactions, but says this can simply be explained by the fact that the M&A market has been depressed generally. He insists Slaughters' best friends network continues to function successfully and cites the firm's work with Hengeler for Deutsche Bank on the European Commission's investigation into the bank's part in the Libor scandal as a case in point.

And therein lies the rub: whatever else its rivals do, when clients are faced with their biggest challenges they are as likely as ever to turn to the likes of Slaughters or that most Slaughters-like of its US counterparts, Wachtell.

In fact, of the 10 biggest deals the firm has acted on over the past three years, six have involved Wachtell on the same side.

While the legal market continues to shift on both sides of the Atlantic, some best friends really do seem to be forever.

For more, see Lateral thinking – why Slaughters has finally hired a partner after 125 years, and click here for a breakdown of Slaughters' 2011-13 M&A work.

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