Page 102 - MASTER COPY LEADERS BOOK 9editedJKK (24)_Neat
P. 102
Leaders in Legal Business
more international footprint (which will seek to work for the client abroad and then bring the relationship home)
has left many firms with little choice but to consider some level of international development.
Unfortunately, the cost of developing an international practice, especially in mature and competitive
markets like those in Europe and Asia, is high. Many international firms have been established in locations such
as Hong Kong and Singapore for more than 30 years. They are now an established part of the local business
community. A new entrant will often struggle to hire the right quality talent, and to demonstrate a service offering
that is credible in the market and positively differentiated from incumbent firms. Given the subdued recovery in
Western markets with PEP still, in real terms, below its 2007 and 2008 highs, any investments inevitably receive
close scrutiny by partners. Accordingly, the investment pot is limited and needs to be spent wisely and
strategically. It is for this reason that firms have increasingly been considering mergers or large team hires as a
quicker, potentially cheaper and more effective means of achieving a credible international presence in a relatively
short period of time.
While a merger may have certain advantages, it is not an easy or risk-free option. The number of firms in
a particular market with the right client mix, practice profile, compatible culture and comparable economies will
be limited. Care and time will be needed to achieve the right deal. Law firm mergers are not for speed daters.
It is against this context, where firms see the need for an international platform but find the range of
compatible firms for a full merger limited, that the use of the Swiss verein and similar structures has emerged.
With this structure, the firms come together under a global brand; however, the member firms, their management
and financial performance are independent. Some firms appear to be using this structure on a short-term basis
before achieving de facto full financial, management, and practice integration, as in the case of Hogan Lovells,
while others appear to be using this structure as a long-term business model, as in the case of Dentons and Norton
Rose Fulbright. Whatever the structural choice, the challenge is for any firm to integrate its offering so that it can
present the right level of capability to its clients where it is needed, provide an efficient and effectively coordinated
service while meeting the client’s expectations as to pricing, and delivering a credible return to the firm’s partners.
This is a tall order.
The Development of a U.S. and U.K. Law Capability
Despite the emergence of other new business and financial centers, English and New York law currently
govern an overwhelming majority of cross-border transactions, financings, and disputes. Any firm seriously
wanting to work on higher-value international transactions will need to demonstrate either a credible capability to
work under English or New York law firms, or choose an effective relationship with other law firms so that the
client receives as seamless a service as possible. This has been the key driver for U.S. firms to develop in London.
In the U.K., more than 5,000 lawyers work in U.S.-headquartered law firms, which is a clear demonstration of the
impact of U.S. firms in the market. Some U.S. firms have performed extremely well in London and have developed
top-tier practices, but others have struggled to make an impact in what is one of the most competitive legal markets
in the world. The progress of U.K. firms in the U.S. had been more mixed, with Clifford Chance’s troubled merger
with Rogers & Wells in 2000 probably being the most high-profile move into New York.
However, the big four U.K. firms — Allen & Overy, Clifford Chance, Freshfields, and Linklaters — now
seem to be making effective progress in the U.S., although they now recognize that this will be a difficult market
to crack. The Hogan & Hartson and Lovells merger in 2010 to create Hogan Lovells appears to be working well,
although Hogan & Hartson was not a primarily New York-focused firm.
Building out a U.S. Practice
The U.S. is the world’s biggest, most diverse, and most profitable market for legal services. Various
estimates attribute between 40 percent and 50 percent of external legal spend occurring in the U.S. Even the
financial crisis and the emergence of developing markets does not appear to be threatening the primacy of the
U.S. legal market. Indeed, the litigious nature of U.S. society and the new, post-crisis assertiveness (or rapacity,
depending on your views) of U.S. regulators has helped U.S. firms to exceed pre-crisis levels of revenue (although
95
more international footprint (which will seek to work for the client abroad and then bring the relationship home)
has left many firms with little choice but to consider some level of international development.
Unfortunately, the cost of developing an international practice, especially in mature and competitive
markets like those in Europe and Asia, is high. Many international firms have been established in locations such
as Hong Kong and Singapore for more than 30 years. They are now an established part of the local business
community. A new entrant will often struggle to hire the right quality talent, and to demonstrate a service offering
that is credible in the market and positively differentiated from incumbent firms. Given the subdued recovery in
Western markets with PEP still, in real terms, below its 2007 and 2008 highs, any investments inevitably receive
close scrutiny by partners. Accordingly, the investment pot is limited and needs to be spent wisely and
strategically. It is for this reason that firms have increasingly been considering mergers or large team hires as a
quicker, potentially cheaper and more effective means of achieving a credible international presence in a relatively
short period of time.
While a merger may have certain advantages, it is not an easy or risk-free option. The number of firms in
a particular market with the right client mix, practice profile, compatible culture and comparable economies will
be limited. Care and time will be needed to achieve the right deal. Law firm mergers are not for speed daters.
It is against this context, where firms see the need for an international platform but find the range of
compatible firms for a full merger limited, that the use of the Swiss verein and similar structures has emerged.
With this structure, the firms come together under a global brand; however, the member firms, their management
and financial performance are independent. Some firms appear to be using this structure on a short-term basis
before achieving de facto full financial, management, and practice integration, as in the case of Hogan Lovells,
while others appear to be using this structure as a long-term business model, as in the case of Dentons and Norton
Rose Fulbright. Whatever the structural choice, the challenge is for any firm to integrate its offering so that it can
present the right level of capability to its clients where it is needed, provide an efficient and effectively coordinated
service while meeting the client’s expectations as to pricing, and delivering a credible return to the firm’s partners.
This is a tall order.
The Development of a U.S. and U.K. Law Capability
Despite the emergence of other new business and financial centers, English and New York law currently
govern an overwhelming majority of cross-border transactions, financings, and disputes. Any firm seriously
wanting to work on higher-value international transactions will need to demonstrate either a credible capability to
work under English or New York law firms, or choose an effective relationship with other law firms so that the
client receives as seamless a service as possible. This has been the key driver for U.S. firms to develop in London.
In the U.K., more than 5,000 lawyers work in U.S.-headquartered law firms, which is a clear demonstration of the
impact of U.S. firms in the market. Some U.S. firms have performed extremely well in London and have developed
top-tier practices, but others have struggled to make an impact in what is one of the most competitive legal markets
in the world. The progress of U.K. firms in the U.S. had been more mixed, with Clifford Chance’s troubled merger
with Rogers & Wells in 2000 probably being the most high-profile move into New York.
However, the big four U.K. firms — Allen & Overy, Clifford Chance, Freshfields, and Linklaters — now
seem to be making effective progress in the U.S., although they now recognize that this will be a difficult market
to crack. The Hogan & Hartson and Lovells merger in 2010 to create Hogan Lovells appears to be working well,
although Hogan & Hartson was not a primarily New York-focused firm.
Building out a U.S. Practice
The U.S. is the world’s biggest, most diverse, and most profitable market for legal services. Various
estimates attribute between 40 percent and 50 percent of external legal spend occurring in the U.S. Even the
financial crisis and the emergence of developing markets does not appear to be threatening the primacy of the
U.S. legal market. Indeed, the litigious nature of U.S. society and the new, post-crisis assertiveness (or rapacity,
depending on your views) of U.S. regulators has helped U.S. firms to exceed pre-crisis levels of revenue (although
95
