Hoisting the flag

While firms from 40 different countries have offices in London, the global downturn has discouraged others from establishing a presence in the capital, reports Philip Hoult

Lawyers in the City have become accustomed over the past decade to a steady stream of news stories about teams of partners moving from one firm to another.

But the departure of four partners from the London office of US giant Sidley Austin Brown & Wood last month was different (see [2003] Gazette, 5 June, 5).

What made it intriguing was the team's destination - leading French firm Gide Loyrette Nouel.

At a stroke, Gide had a credible new London office staffed with US and UK expertise, and focused on the kind of top-level corporate and finance work that would complement its already strong domestic and international practice.

It was also a belated strike back against the voracious expansionism of the Anglo-Saxon firms, which during the 1990s raided many of the top French firms - including Gide - in a bid to build their own practices in Paris.

In hiring the Sidley Austin team, Gide joined the likes of fellow independent German firm Haarmann Hemmelrath as one of the few continental European firms to establish an English law practice in London with strength in depth.

When Haarmann opened its London office in May 2000, hiring corporate partners from Hammond Suddards and Taylor Joynson Garrett (as were) as well as a barrister specialising in tax, the market was similarly taken aback.

'The thinking behind opening the office was that we had an international strategy but that strategy was also to be independent,' says senior partner and founder Wilhelm Haarmann.

'We were not a truly international firm if we did not have a presence in London.'

Chief among the reasons for establishing a presence was London's importance as the largest banking and capital markets centre in Europe, and increasing demand within the firm's international network for the capacity to give English law advice to clients.

'Most of the offices we have opened have not been opened because a particular client or group of clients asked us to do it,' says Mr Haarmann.

'If you find the right people and put them in the right place, you will find the right clients.'

Mr Haarmann adds that the firm is now looking to add more partners in its core areas of corporate, finance and tax, such has been the success of the London office.

Gide's move and Haarmann's expansion plans raise the question as to whether other leading independent non-US foreign firms might follow in their path.

It seems unlikely.

The non-US firms already in London fall into four broad categories - those from European countries such as Italy, France, Spain, Ireland and the Benelux region; those from Commonwealth countries such as Australia, Canada and South Africa; those based in offshore jurisdictions such as the Cayman Islands, the Channel Islands and Panama; and finally those based in the Middle East.

There are firms from around 40 different countries with offices in London.

If anything, while US firms have flooded the City market in recent years, the number of foreign firms from these other jurisdictions has dwindled dramatically, despite the arrival of Haarmann and now Gide.

A combination of the global economic downturn and the strong pound, which exacerbates the relative cost of a London office, has been an important factor behind this downward trend, explaining in particular why the number of Canadian firms has fallen from eight to five over the past five years or so.

Mergers with top UK or US firms have also led to a significant fall in the number of European firms with London offices.

The end of the Alliance of European Lawyers, following the merger of several its constituent firms into Linklaters, was perhaps the most obvious example of this.

For now, few if any of the foreign firms in London are intent on following the example of Gide and Haarmann.

Stefano Sutti, a partner in Studio Legale Sutti, says that even though the Italian firm has English-qualified lawyers in its Milan head office and its eastern European offices in Bucharest and Sofia, it does not have any by design in the London office.

Indeed, it does not even second English-qualified lawyers to London.

'We have profited quite dramatically from the significant reduction in the number of Italian firms with London offices after the wave of mergers with UK or US firms.' he says.

'It is of the utmost importance to us not to be perceived to be even vaguely competing with our clients in the UK.'

Mr Sutti says that one of the main functions of Studio Legale Sutti's London office is to secure vital referrals from those UK and, to a lesser extent, US firms without Italian practices but advising their clients on transactions or cases involving Italy.

'English solicitors are one of our main marketing targets because right now probably 10% to 20% of our turnover is generated by instructions from English lawyers,' Mr Sutti says, describing the firm's London operation as a barrister-like service in that it does not directly deal with clients.

By having a London office, the firm also has a competitive advantage over the remaining independent firms back home, which are also looking to tap this sector of the market.

Of course, one of the factors that will continue to militate against foreign firms establishing a substantial foothold in London and going head to head with local firms, is the sheer cost of setting up such an operation in the UK.

Traditionally, European firms and firms with headquarters in Commonwealth countries have also enjoyed lower levels of profitability compared to their UK or US counterparts, and so being able to attract the quality of lawyers they would be interested in - and in any significant number - would be next to impossible.

The sheer expense of London is a problem for all firms, whether or not they are seeking to compete with the City firms.

In a bid to combat this, three of Scandinavia's leading practices - Sweden's Vinge, Norway's Thommessen Krefting Greve Lund and Denmark's Kromann Reumert - set up an alliance in the early 1990s.

Operating under the name of the Scandinavian Law Alliance, the firms share the costs of running an office in London and undergo a certain amount of joint training and marketing.

The three practices have a similar operation in Brussels.

'Because our firms are all based in fairly small jurisdictions, it makes sense to have a joint approach - it helps to pool resources,' says Maria-Pia Midenbck-Hope, a partner based in London.

Another strategy Ms Hope says her firm adopts to cope with London's cost is to staff for the troughs rather than the peaks.

If a big deal requiring extra hands or expertise comes in, the London office can call on the mother ships to send people over for short periods or to provide support from home via e-mail or over the phone.

In quieter periods, this approach means they do not have lawyers in London twiddling their fingers waiting for things to pick up.

For foreign firms in London, another challenge is the issue of passing on higher costs to domestic clients who may be unused to and appalled at the rates charged in the City.

Morten Lund Mathisen, resident partner at Norwegian firm Wikborg Rein's five-lawyer London office, says the rates charged in London depend largely on the case or transaction in question.

'Our rates are less than those generally in the City, I would imagine,' he says, adding that to make this work the firm runs London on a 'lean and mean' basis out of its offices near St Paul's and relies on the resources of its head office.

While many foreign firms have taken the view that it is not worth the bother and have upped sticks and gone home or been subsumed into one of the global giants, those remaining in London are wedded to maintaining their presence.

Canadian firm Stikeman Elliott has had a London office for 34 years now, making it one of the most established international firms, let alone Canadian firms.

The firm's international outlook is reflected by the fact that the London office was the firm's second after Montreal - before even Toronto.

According to office managing partner Shawna Miller, the firm remains committed to London, where it has a relatively high proportion of partners - five out of the ten lawyers here.

'Clients want someone here on the ground who can deal with issues immediately rather than have to wait five hours before asking someone on the phone in Toronto or Montreal,' she says.

'We have always been an international practice but accept that with that comes certain costs.

But we also do not underestimate the value of the London office when it comes to referrals.'

While trying to compete head on with UK and US firms in London may be off the agenda, there is no question of the firms wavering.

For firms such as Stikeman Elliott and Wikborg Rein that pride themselves on being truly international firms, then they simply have to be in London - almost whatever the cost.

Philip Hoult is a freelance journalist