 | | Wrigley: banks are running scared Nicholas Wrigley, Clifford Chance’s managing partner in Italy, says: ‘Major companies can’t access further debt financing at the moment. Banks are running scared and are not lending any money. Foreign investment is practically non-existent. The US used to be a heavy investor here but since the various recent scandals, investors are going elsewhere. Activity has really slowed down in the last three years.’
Massimiliano Danusso, Allen & Overy’s (A&O) managing partner in Italy, says that although the country’s depressed economy can be partly blamed on general uncertainty surrounding the international economy, structural problems within the country are also to blame.
He says: ‘A lot has to do with old structural problems of our country, such as few listed companies compared to the rest of Europe, family owned businesses even for very large corporations, and a sharp reduction in consumption given what is perceived as a very high inflation rate.
‘[This autumn] will be a key period to shed some light on economic expectations. The government will implement a controversial economic manoeuvre, unions will react and several collective labour contracts shall be reviewed. Political stability and timely implementation will be key.’
Gerardo Boniello, Baker & Mackenzie’s Milan managing partner, says proposed new labour laws should introduce more flexibility to the market.
‘The labour market was one of the big rigidities. New laws are being introduced which will hopefully introduce more flexibility and lower costs of professional goods and services. This should be a great improvement but things are not moving as quickly as we would like.’
Mr Wrigley says members of the country’s four-party coalition government ‘spend their time wrangling among themselves’ and have failed to tackle these structural problems. He says that – given the current climate – it is hardly surprising that some law firms in Italy are finding the going tough.
He says: ‘What has happened in the last three years is that activity has been concentrated in the top four or five law firms. These top firms – of which we are the only international law firm – are getting all the top work and are extremely busy at the moment.
‘Some of the firms lower down the ladder are teetering on the brink of disaster while others are busy wrangling with internal strife. We have been through this and have now come out the other side.’
Clifford Chance certainly has had its problems in Italy in the past, after merging in 2000 with Grimaldi e Associati. This effectively fell apart within two years after five Italian partners – including name partner Vittorio Grimaldi – as well as 26 fee-earners and eight other employees walked out to start a new firm.
A similar, if less dramatic, fate hit A&O earlier this year when it lost its Italian senior partner Roberto Casati – one of Italy’s most high-profile mergers and acquisitions lawyers and founder of Brosio Casati e Associati, with which A&O merged in 1998 – to US firm Cleary Gottlieb Steen & Hamilton.
Mr Casati was reportedly unhappy with A&O’s reorganisation of its Italian offices to suit the firm’s global practice model, rather than its previous regional framework.
Linklaters, meanwhile, was jilted earlier this year by Italian firm Gianni Origoni Grippo & Partners, with which the London giant has had an alliance for five years. The two European firms admitted that the goal of an eventual merger was ‘unlikely’.
Mr Wrigley says: ‘Other firms are capable of getting the top work but because of internal issues, they are spending an enormous amount of time fighting among themselves. They all want to be the leaders and can’t accept it when other people tell them what to do.
‘Italian firms used to be run very much like English barristers’ chambers – all working under one roof but separately. Now they have to work together, they clash. All the mergers that have been going on are a recipe for a time bomb.’
Federico Sutti, DLA’s regional managing partner for Italy, says that although initially – from 1995 to 2000 – UK law firms were welcomed by Italian clients, particularly in the banking sector, their star is on the wane.
He says: ‘Nowadays the main criticism is that the approach is too formal and standardised while, on the contrary, Italian law firms tend to work on a more personal basis and tailored manner. Moreover, top British firms are seen as quite expensive.’
Mr Boniello says: ‘They are seen very much as English law firms, not regarded as local or global law firms, because for good or worse, their English touch is very much there in their dealings with clients and other law firms. They are very much respected and regarded as being quality firms but they lack the personal touch which Italian clients still like to see.’
‘They have gone through a series of mergers and de-mergers, probably because the way they are structured means they are very much dominated from London with very little autonomy within the local office.’
Baker & Mackenzie was one of the first global law firms to open up in Italy, launching in Milan in 1962, Rome in 1968 and more recently in Bologna, three years ago. Mr Boniello says that although it benefits from Bakers’ global network, the Italian operation is effectively a local firm with predominantly Italian-trained lawyers. Although some are also members of the New York Bar, none has a dual English qualification.
His firm is one of the few which has so far taken advantage of the recent loosening of the rules which now allow lawyers to form full partnerships, rather than engage in de facto partnerships which is the traditional model in Italy.
‘The legal profession is very much at a crossroads at the moment. In 1997, the law which banned partnerships among lawyers was declared unconstitutional but this created a legal vacuum. In 2002, legislation was introduced implementing aspects of the Treaty of Rome which would allow foreign lawyers to set up shop here, and this also made it possible to create partnerships among lawyers.
‘Very few firms have taken advantage of this – probably because there are a number of aspects that are not fully clear in the legislation. However, the government has indicated that it intends to move forward with reform to come up with something more clearly defined.’
Mr Wrigley says that up to that point, the global law firm model looked like the best way forward. He adds, however: ‘That was until the Italian law firms realised they could make huge amounts of money and the three big domestic firms have grown massively and now have record profits.’
He says his firm operates fee-wise on the traditional lockstep model, while Italian firms generally operate on the premise that ‘when you hand in the bill, you get a percentage’. He adds: ‘With the lockstep model, partners get others involved in deals when the expertise is required. With the Italian model, if that means sharing some of the fees, they may not want to do that.’
Mr Sutti agrees competition among law firms in Italy is fierce. ‘The top three Italian firms have an average profit per equity partner of more than €1.5 million (£1 million) with some partners making up to €8 million. The major players are the three Italian top firms Bonelli Erede Pappalardo, Gianni Origoni Grippo & Partners and Chiomenti Studio Legale,’ he says.
However, the unstable market and the raft of strategic rows with local lawyers which have plagued the UK’s magic circle has not stopped DLA opening its new office in Rome from next month. And the last year has also seen US firm McDermott Will & Emery merging with Carnelutti, and City firm Bird & Bird and US firms Dewey Ballantine and Orrick Herrington & Sutcliffe all opening offices in Italy.
Mr Sutti says that despite the stagnant economy, the new office fits well into DLA’s strategy. ‘As the capital, all major governmental bodies and authorities (such as the Bank of Italy) are in Rome. Milan on the other hand is the finance capital of Italy, where most banking and M&A work is done.
‘The steps taken are the first ones on a path of improvement for our Italian practice and are fully consistent with the programme agreed with the board of DLA, which strongly believes in our national market and has undertaken to invest in it.’
However, he acknowledges the tenderness of the market at the moment, adding: ‘We continue to monitor the market with the utmost attention. At present, the economic situation is still stagnant and only private finance initiatives and the real estate market are doing reasonably well, while M&A and finance are quite low.’
Whatever the problems that UK firms have had with Italy in recent times, all the structure in the world cannot save a firm from a poor underlying economy, and that is what lawyers in Italy – as in most other European countries – will be watching keenly over the next year.
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