The New York legal market offers huge opportunities to UK law firms, both as a leading financial capital and a gateway to the rest of the US – but it is not for the faint-hearted.
English law firms may have been spreading their wings to far-flung corners of the world, but few of them can afford to ignore New York, both as a leading financial and business capital, and as gateway to the world’s largest legal market worth hundreds of billions of dollars.
As the rebound in the world’s largest economy accelerates, firms are being lured to New York for a raft of reasons: booming M&A and capital markets; a thriving insurance sector; transatlantic regulatory and white-collar criminal investigations; and US immigration advice for British SMEs.
But New York is not for the faint-hearted. The UK firms of all sizes, whether magic circle or boutique, that have established a presence in the US’s largest city, vie for clients and lawyers against deep-pocketed Wall Street firms such as Cravath, Swaine & Moore; Skadden, Arps, Slate, Meagher & Flom; Davis Polk; and Sullivan & Cromwell.
‘The New York legal market is arguably the most competitive legal market in the world,’ says Linklaters’ US co-managing partner Conrado Tenaglia, who adds that the key to success is finding a ‘unique selling proposition’.
Clyde & Co, which opened a New York office in 2006, has positioned itself as a one-stop shop for insurance and reinsurance advice. New York managing partner Michael Knoerzer says: ‘The firm was referring millions of dollars of work a year to US firms, and clients were asking “why do we have to have two law firms, why can’t we have one law firm to handle insurance matters?”.’
Its New York office has now grown to number 45 attorneys, including 10 partners.
Knoerzer says opportunities for the top-50 firm arose following the financial crisis of 2007/08, which saw a number of US firms fold or reduce their activities.
Among Clyde & Co’s recent recruits are insurance specialists Paul Koepff from O’Melveny & Myers and John Woods from the now defunct New York firm Thacher Proffitt & Wood. Knoerzer, who has more than 20 years’ experience in insurance and reinsurance litigation and arbitration, hails from insurance and energy firm LeBoeuf, Lamb, Greene & MacRae, which went on to merge with Dewey Ballantine to form Dewey & LeBoeuf, the Manhattan-based firm that filed for bankruptcy in June 2012.
‘We have been able to offer a home to many lawyers who are willing to come here because they are looking for a firm where insurance is not a second-class citizen,’ Knoerzer says.
It is not just the focus on insurance that is behind the success of Clyde & Co’s foray into New York, where average profit-per-partner at some of the top-tier firms is reportedly $3m or more.
‘No one joins Clyde & Co having to sacrifice either the scope or quality of their practice or the compensation for that practice,’ Knoerzer says. The firm employs 125 lawyers in the US, in locations including San Francisco and New Jersey, and is adding an office in Newport Beach, Southern California. The firm’s global revenues grew by 9% to £365m and profits by 11% for the year ending 30 April 2014.
Clyde & Co does not publish a local breakdown of results, but Knoerzer says: ‘The New York office has been profitable since it opened and meaningfully so. For the last five years the US has been the fastest-growing part of Clyde & Co, and it has always been profitable.’
Watson, Farley & Williams was among the earlier English law firms to set up in New York. Opening in 1990, the office has a focus on shipping finance, which relies on an international network of 110 lawyers, and maritime litigation and arbitration. Over the past year, Watson, Farley & Williams has seen rapid expansion in commodities, negotiating and drafting sales and purchase contracts for clients such as Japan-based international trader Sojitz Corporation of America.
Real estate is another fast-growing practice, which has more than doubled in size since the beginning of the year. The firm now has two dedicated real estate partners and five associates, with a senior associate soon to join. Work is mostly inbound to the US, with clients ranging from New York-based developers to multinational corporations investing in real estate on a joint venture basis, says managing partner Dan Rodgers.
But in the US size matters. ‘One of the main challenges we have is that we are relatively small,’ says Rodgers. Watson, Farley & Williams has 26 attorneys in New York, compared with 100 or more at the larger, UK-based international law firms in the city. ‘Our practice areas are focused and we are very good within those areas – we can compete with anybody – but with transactions that have a broader scope it becomes difficult for us to compete with larger firms,’ he says.
The firm wants to boost its headcount (to 30 by year end), but this again comes back to money, and reputation. A first-year salary for associates at the largest firms normally start at $160,000, increasing yearly by $10,000 or more; bonuses for associates range from $10,000 to $60,000, based on experience. Bonuses are paid at Christmas, which is part way through English firms’ financial year.
‘It is very difficult for us to compete with leading firms in New York in terms of salaries and bonuses,’ Rodgers says. ‘We also encounter a mentality among junior lawyers who find themselves attracted to what they would think of as big-name firms here in New York. If they are considering an offer from us and White & Case, they may be taken with the allure of saying “I worked for White & Case”.’
Attorneys resident and active in New York State
Attorneys in the US
New York State Bar Association membership (oldest and largest voluntary bar association in the US)
American Bar Association members
Average market share for voluntary state bars
Average market share for local bars with over 2,000 members
Average market share for local bars with less than 2,000 members
Source: American Bar Association, 2013 data
But in a market where associates can be expected to bill 2,500 hours a year or more, the firm does have something different to offer new recruits.
‘What we are offering is highly competitive, in part because the hours we expect from our associates are not the same as what is expected at these giant law firms,’ says Neil Quartaro, an attorney at the firm.
Rodgers adds: ‘I wouldn’t call us a lifestyle firm by any stretch of the imagination, but we are realistic and we don’t want to have people just ghosting around in the office late at night waiting for some partner who might call at midnight.’
Another English firm confident it has found its unique selling point in New York is boutique immigration practice Laura Devine Solicitors. Anastasia Tonello, managing partner of the firm’s US arm, Laura Devine Attorneys LLC, says: ‘Our real niche is helping small to medium-sized British businesses enter the US market. That is where we differentiate ourselves from our competitors.’
The firm, which works closely with the New York office of UK Trade & Investment (UKTI), advises individual and corporate clients in sectors such as technology, entertainment and fashion on all aspects of immigration to the UK and the US. The US team comprises seven lawyers, including four solicitors, and recently advised Lisson Gallery on an O-1 visa (for individuals who possess extraordinary ability in the arts) for the gallery’s international director who is establishing a new space for the London-based gallery in New York.
Notwithstanding the firm’s success, it too has to work hard to find English solicitors willing to commit to a career in New York. ‘Everyone wants to work in New York for six months, but it’s hard to find people who are willing to commit for longer,’
Tonello, a dual-qualified English solicitor and New York attorney, says. This is partly because of concerns about keeping up to date with CPD requirements. The costs associated with relocation are also a factor, especially because ex-pats tend to expect to live in expensive Manhattan, even though in London they may be residing in the city’s outer zones.
For UK-based international firms a key selling point is also their global reach.
‘English law firms have a larger international network, on average, than similarly situated US counterparts,’ Rodgers says. London-based Watson, Farley & Williams has 12 offices outside the UK, including in Germany, Greece and Italy.
But if you take the largest UK firms, typically they have between 45% and 65% of lawyers outside the UK, according to a recent TheCityUK report, compared with most US law firms among the top 100 that have less than a quarter of their lawyers outside the country. US firms Skadden and Latham & Watkins have 15 and 21 offices outside the US, respectively; by comparison, Clifford Chance has a network of 36 offices in 26 countries.
So how have the UK-based international law firms fared in New York and, through the city, the US domestic market, estimated to be worth $240bn-$270bn?
Adam Siegel, Freshfields Bruckhaus Deringer US regional managing partner, says: ‘The principal challenge is getting clients, who think of Freshfields as a firm that can help in places such as Europe, Asia or the Middle East, to realise and understand that we can now help them with US legal issues as well.
‘We also know that the way we differentiate ourselves is in the cross-border context. We tell potential US clients: “I understand that you have never used us before in the US, but for a multi-jurisdictional piece of work, why don’t you give us a try?”.’
The magic circle firm has been in New York since 1972, although it did not start offering US law advice until 1998. Over the past five-and-a-half years Freshfields has focused on building its US litigation practice, which launched in January 2009 with three partners, including Siegel, and now has 67 attorneys, including 11 partners, in New York and Washington DC.
In this area, Freshfields has achieved ‘significant’ expansion by representing financial institutions and corporations in regulatory and white-collar criminal investigations, where big probes such as Libor and Forex have enabled the firm to deploy its multi-jurisdictional regulatory capabilities.
‘What we have tried to do in the US is grow in ways that complement the strengths of the firm in other parts of the world,’ Siegel says. ‘We recognise that, when a client has an objective or a problem, they don’t think of it as geographically limited.’
The firm is beefing up its 20-attorney New York-based corporate practice in a similar fashion, and has already had ‘a remarkable 2014’, representing clients on cross-border M&A transactions totalling $60bn. Mandates have included advising US-listed engineering company Foster Wheeler on its $3.2bn merger with the UK’s Amec.
London is the most preferred and widely used seat of arbitration, favoured by 30% of arbitrators, compared with 6% for New York, according to the latest international arbitration survey undertaken by Queen Mary University of London. Furthermore, English is the governing law in 40% of all global corporate arbitrations, while New York state law accounts for just 17%. To close this gap, the New York International Arbitration Centre (NYIAC) opened in July last year.
NYIAC is an independent non-profit organisation, formed with the support of the largest law firms in New York, including DLA Piper, Latham & Watkins, Sullivan & Cromwell and White & Case. The New York State Bar Association’s dispute resolution and international sections also backed the NYIAC.
‘There are two primary dominant bodies of law in the international context: English law and New York law,’ says Neil Quartaro, secretary and vice-chair for committees in the international section of the NYSBA. ‘A number of English-law jurisdictions have well-regarded and well-established arbitration centres such as SIAC in Singapore and HKIAC in Hong Kong, and the London [Court of International] Arbitration has been well regarded for some time. So NYIAC is an effort to create a comparable venue here in New York.’
The state-of-the art centre located at 150 East 42nd Street in Manhattan provides a venue for arbitration and mediation sessions conducted by independent entities. However, unlike the international arbitration centres in Hong Kong, Singapore and London, NYIAC does not administer arbitrations, appoint arbitrators or have its own rules.
‘NYIAC comes out of a broader effort to increase the attractiveness of New York law in international transactions,’ Quartaro says. For example, in June the New York State Supreme Court Commercial Division, which handles complex commercial disputes, introduced an ‘accelerated adjudication’ process that shortens the standard discovery and pre-trial process to nine months from the date of the filing of a request for judicial intervention.
Likewise, Linklaters is selling itself to US clients as a firm with global reach. Tenaglia says: ‘While we certainly handle a share of domestic work and see it as a growing area, we believe that one of our major strengths is to be ideally suited to supporting clients in both inbound and outbound cross-border mandates involving US entities.’ Linklaters recently represented Citi and Santander in the establishment of a multi-bank securitisation programme, Trade MAPS, and in the $1bn inaugural issue under the programme.
Linklaters has been in New York since 1972 and employs 120 lawyers. The New York office works with the firm’s global US team to advise corporate and financial institutions on antitrust, capital markets, structured products and derivatives, among other services.
‘Tax has been a major growth area for our US operation and one we’ve recently invested heavily in through the appointment of three partners,’ Tenaglia notes. These are head of US and global tax Gordon Warnke from Dewey & LeBoeuf, and David Brockway and Jasper Howard from Boston-based Bingham McCutchen.
For Evan Cohen, Americas regional managing partner at Clifford Chance, there is only one challenge ahead, and that is size – or the lack of it. ‘We are a little underweight; we just need to be bigger,’ he says. The firm has 250 lawyers in the US; 200 in New York and 50 in Washington DC.
The plan is eventually to grow to 350-400 lawyers to match the size of Clifford Chance’s main New York rivals, among which are Simpson Thacher & Bartlett and Latham & Watkins. The Americas contributes 11%, or £152m, of Clifford Chance’s total revenue of £1.36bn in the 2013/14 financial year, but the target is for it to expand the share to 20%-25%.
Clifford Chance suffered several departures after its 2000 merger with Manhattan firm Rogers & Wells. ‘It took a while to bed down but we have had many years of success and growth and I see that continuing,’ Cohen says. ‘The work we are doing is very high quality, and we are getting paid for it.’ Revenue per lawyer was $1m in the US in 2013/14.
Clifford Chance recently added to its New York corporate and M&A team with five partners from Dewey & LeBeouf, and three litigators to its white collar, regulatory enforcement and government investigations practice. The firm is representing the Royal Bank of Scotland in the ongoing Libor investigation and ‘one of the main players’ in the $6.2bn ‘London Whale’ trading scandal.
In addition to a steady workflow for its top-tier asset finance team in the US, Clifford Chance has capitalised on a busy M&A market over the past 12-18 months. Recent mandates have included advising US cable TV broadcaster AMC Networks on the $1bn acquisition of Chellomedia; and Pernod Ricard USA on its purchase of California wine brand Kenwood and related assets from F. Korbel & Bros.
The US financial services regulatory group, meanwhile, ‘has gone through the roof’, Cohen says. The team is led by partner Nick O’Neill, who recently transferred from the firm’s London office to New York, and provides US-based clients with comparative, non-contentious advice on banking and investment services regulations in the EU and the US.
But for Scott Smith, the New York-based partner who leads the M&A and private equity practice of US firm Covington & Burling, the problem remains that magic circle firms ‘have a much tougher time cracking the New York market for US deals.’
In common with Chicago-based Kirkland & Ellis, Washington DC-based Covington is a relative newcomer to New York after it merged in 1999 with New York firm Howard, Smith & Levin. But, Smith says: ‘We are a US firm and we don’t have the same struggle they have. On large US corporate matters, US firms’ New York practices are well-developed and there are a lot of players. US companies do not take UK law firms to their boards, they take US law firms.’
Covington’s 140 attorneys in New York specialise in litigation and corporate matters. The firm’s New York capital markets practice – and in particular equity capital markets – has been growing over the last 12 months, with the firm advising on 10 US IPOs since January. Among them are life sciences companies uniQure, based in Amsterdam, and US Kite Pharma, which reportedly raised $128m on Nasdaq.
Some argue that magic circle firms’ expansion in the US has also been hampered by their strict lockstep system, whereby partners are paid on length of service rather than on individual value, and this is viewed as an anachronistic British tradition that is out of sync with the US’s more meritocratic system.
But Cohen, who notes that elite New York firms such as Cravath, Swaine & Moore and Sullivan & Cromwell also use ‘a rigid magic circle-type lockstep’, disagrees, adding that the system fosters collegiality among partners. ‘Firms that used to have lockstep and moved away from it have regretted it,’ he says, referring to Dewey & LeBeouf, among others. With liabilities of more than $300m, the bankrupt firm is understood to have overpaid for partners.
Clifford Chance remains wedded to the strict lockstep. Average profit per partner in 2013/14 was up by 16% to £1.14m. ‘We cannot pay the most money in New York, but you can attract a lot of good people at that level of compensation,’ Cohen says.
Some argue that this traditional reward system for partners helps international firms attract US clients. ‘I often tell clients that we are one global lockstep firm,’ says Siegel. ‘It is an enormous advantage in terms of our ability to explain ourselves. It is something clients really understand. It works to their benefit because every partner’s incentive is to make every client, wherever they are globally, as happy as they can.
‘Clients find it very comforting to know that those partners are sharing economically in the same way. That means that every partner is aligned in terms of providing the same level of performance to the client.’
Winning in New York is also about going native. Cohen, an American, like the vast majority of partners and lawyers in the New York offices of UK-origin firms, says: ‘The strategy is to be competitive, ambitious and to grow and be successful in the US, with US lawyers doing US work for US clients. Some of those clients obviously take us overseas, so we do feed a lot of work into other offices around the network, which is the benefit of a global brand. The strategy is not just to be a satellite office of a London firm and pick up the phone when London calls.’
Knoerzer says: ‘The approach of Clyde & Co has been to give the US operations a wider latitude than other London firms have done.’ For example, the firm’s US management board comprises five partners: three from the US, including Knoerzer, and two from the UK.
‘Together we make decisions consensually, but the focus is what the three American managing partners believe is the best approach of how American lawyers would want to see things done.’
Marialuisa Taddia is a freelance journalist
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