Crossing the pond

BUILDING A US LAW PRACTICE

TOP FIRMS IN THE UK ARE USING DIFFERENT METHODS TO DEVELOP INTERESTS IN THE US - FROM MERGER TO SETTING UP A FULL-SERVICE PRACTICE BY INVESTING IN AMERICAN LAWYERS, REPORTS PHILIP HOULT

UK firms are looking to compete with US firms not just for top-notch lateral hires but also for the cream of the talent in the junior ranks

For well over a decade, the UK's largest firms have had to compete head-on with an ever-increasing number of US law firms that offer advice on English law.

At the last count, there were more than 150 US firms with offices in London.

When it comes to practising US law themselves, the City firms competing at the top end of the international market have adopted vastly different strategies.

At one end of the spectrum is Clifford Chance, which in January 2000 secured a full-blown merger with New York firm Rogers & Wells.

But none of Clifford Chance's rivals has so far chosen or been able to follow suit, although Ashurst Morris Crisp appears tantalisingly close to pulling off a deal with Fried Frank Harris Shriver & Jacobson.

Allen & Overy (A&O), meanwhile, has been building a practice through lateral hires.

In the last month alone, the firm has launched a US litigation practice in its New York office by hiring partner Michael Feldberg from New York firm Schulte Roth & Zabel and senior litigation counsel Pamela Rogers Chepiga from Fordham University School of Law.

It has also recruited an asset finance partner, Barry Biggar, from Bingham McCutchen.

The new recruits mean that A&O can, unusually, now claim to have a full-service practice in the US.

They bring the number of partners in the firm's US law group to more than 40 and the number of lawyers to more than 215 - pretty much all of whom have been hired within the last decade.

To give an idea of the size of A&O's team, leading Wall Street firm Cravath Swaine & Moore only has just over 350 lawyers.

And it was from Cravath that A&O made the most headline-grabbing US lateral hire so far by a UK firm, that of mergers and acquisitions partner Dan Cunningham in April 2001.

Jeff Golden, co-head along with Mr Cunningham of the US law group, says A&O's growth strategy - along its global product lines - has been driven by the view that it simply could not wait until the right merger candidate came along.

'When we sat down to think about our strategy, we felt that at that point in time a merger would not give A&O what it needed,' he says.

This was for two reasons.

First, a merger would not supply good US-qualified lawyers where it wanted them - in places such as London, Frankfurt, Hong Kong and Tokyo.

Second, Mr Golden says, at that point in time it appeared that the cultural gap between US and UK firms was easy to underestimate, and that many top US firms were still some way off the idea of being in equal partnership with lawyers located around the world.

Mr Golden argues that far from being a hindrance to any future merger, should the firm decide that was the way forward, A&O's US law group would instead be a 'key selling point' to a leading US firm.

'It would give them quality US lawyers where they wanted them,' he says.

After A&O, the most active UK firms have been Freshfields Bruckhaus Deringer with 185 US-qualified lawyers and Linklaters with 85, substantial numbers of whom are based in the US itself.

Among other UK firms to have significant US offices with US-qualified lawyers are CMS Cameron McKenna, Lovells and Watson Farley & Williams, although these practices are based principally on firm-wide sector strengths such as, respectively, energy, reinsurance and international finance.

At the other of the spectrum to Clifford Chance lie the likes of Herbert Smith and Norton Rose, which have built mainly London-located teams of 35 and 12 US-qualified lawyers respectively but which have yet to open in the US, while Slaughter and May has no US law group.

Jim Wickenden, who in 1999 joined Herbert Smith from investment bank JP Morgan with colleague Allan Hanen to set up the US law group, says its approach reflects a different international strategy.

'What drives Herbert Smith is that, like Slaughter and May, we are very focused on profitability and trying to be at the top of the tree in certain practice areas,' he says.

'We have no presence on Wall Street by design.

It would be very difficult to get into New York and try and grab market share.'

As in Europe, the firm is committed to developing its network of 'best friends' relationships.

Apart from a well-publicised relationship with Cravaths, which paid off when Herbert Smith was brought in to work on the AOL-Time Warner merger in 2000, Mr Wickenden says the firm has strong cross-border relationships with some 50 US practices, including the likes of Chicago's Kirkland & Ellis and Houston-based energy specialists Fulbright & Jaworski.

The measured development of Herbert Smith's group, which concentrates on mergers and acquisitions and capital markets but with some project finance specialists as well, does not represent a threat to these links, Mr Wickenden claims.

'The relationships are very important to us,' he says.

'The other firms have developed a practice that competes with them and increasingly these referrals come to us.'

The global slump in transactional activity has led to significant speculation about whether UK firms can continue to invest so heavily in well-remunerated US-qualified lawyers.

Although this has been offset to an extent by demand for regulatory advice following the introduction in the US of the Sarbanes-Oxley anti-fraud legislation - in the aftermath of Enron and other financial scandals - there is still sensitivity on the issue.

'In some firms, building a US law practice can be a very big investment that will take time to pay off to get the big-ticket deals,' says Mr Wickenden.

'You need staying power to make it work.'

According to Joe McCullough, managing partner and co-founder of Lovells' north American practice, which focuses on areas that are not affected by the downturn, such as reinsurance and cross-border insolvency, it was important from day one - in 1996 - for the group to be profitable or, as he describes it, 'that we should wash our faces'.

Lovells' Chicago and New York offices are now among the most profitable parts of the firm, he says.

The closure last month of Lovells' small Washington office, following the decision of its resident partner to move to Virginia firm Hudson Cook, was not a setback, Mr McCullough adds, because the practice there was mainly domestic in its focus and Lovells' strategy is to target international work.

Lovells plans to expand, but Mr McCullough insists that this will be 'strategic growth, not unfettered growth'.

He is confident that in areas where Lovells has established itself in the US, it is now much easier to sell the firm to would-be partners and associates.

Recent changes in the way Lovells is governed - he now has a seat on the firm's international executive - also mean that he can assure potential hires that the group has an influential voice in the running of the firm.

Like Lovells, other leading UK firms remain committed - at least publicly - to growing their US law practices.

Norton Rose partner Rich Baumann says both the firm and the partners in the US law group would like to see it expand.

He says: 'The firm sees us in part as support for the core UK, Frankfurt and Asian practices and also as a stand-alone practice.

We would like a balanced portfolio.

'A global firm needs the capability to get access to deals or to get into areas it would not have been able to otherwise.

'The general attitude of the firm and the group is that you have to ride out the current uncertain times.'

Al Yudes, managing partner at Watson Farley & Williams' New York office, says the firm plans to add two or three more lawyers to its ten-strong US law practice over the coming months.

'At the moment we are focusing on building our cross-border leasing practice,' he says, with the firm recently appointing a tax partner who specialises in this area.

Increasingly, however, UK firms are looking to compete with US firms not just for top-notch lateral hires but also for the cream of the talent in the junior ranks.

Allen & Overy's Mr Golden says the firm has specifically concentrated on entry-level recruitment in part through an active summer programme.

'We want to get the brightest and best out of law school,' he says.

'Fortunately for us, when we started we were perceived to be much more international in focus than the firms that historically had appealed to those students.'

Whether organic growth remains a viable option in the long term remains to be seen.

Many, including Alan Hodgart, management consultant at Hildebrandt International, are yet to be convinced and maintain that the top UK firms will have to come to the same conclusion as Clifford Chance.

'My sense is that merger will be the way forward and it is a few years away before the New York firms come to realise it as well,' he says.

Mr Hodgart expects a

re-alignment of the New York market in the coming years, similar to that which took place in the UK in the 1990s, and he says this will present more merger opportunities.

Only then, he argues, will the top UK firms properly obtain the substantial US law capability and, importantly, client base they need to secure their place in the market for the big transactions.

Clifford Chance has already taken this view - and whether the others will also, or whether they will successfully prove the theory wrong, has still to pan out.

Philip Hoult is a freelance journalist