The Trials of Clifford Chance

Published in Chambers Magazine, Summer 2010

David Childs spent seven years quietly striving to modernise Clifford Chance and raise its profitability. Then Lehman Brothers collapsed.

David Childs recalls the moment Lehman Brothers collapsed like it was yesterday. “It was horrific seeing a house like Lehman go under. But then to realise that Morgan Stanley or Goldmans could be next – that’s when life got very scary.”

For the managing partner of Clifford Chance, the financial crisis that broke in September 2008 was a direct threat. Just over half of Clifford Chance’s business was done for financial institutions. The turmoil on Wall Street meant an immediate reduction in the firm’s business. “We had grown during the boom times, as our clients had grown,” says Childs. “After the demise of Lehmans, it was clear the firm was too big for the marketplace.”

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Africa: attracting attention

Published in Chambers Client Report, Summer 2010

African law firms got through the global downturn. Now the recovery brings a new challenge: increasing competition from international firms. 

As expected, Africa withstood the global downturn comparatively well. “Perhaps one of the least noticed aspects of the global downturn has been the resilience of the Sub-Saharan African region,” says the IMF’s World Economic Outlook: Sub-Saharan Africa 2010.

Taken as a whole, Africa avoided recession: Africa’s GDP growth slowed from 6.1% in 2007 to 5.4% in 2008 and 2.2% in 2009, but is expected to rebound to around 5.5% in 2010. Africa’s dislocation from global trade, often blamed for its underdevelopment, nevertheless protected it from the shocks of the financial crisis. “One advantage of being a backwater is that you don’t get hit by the problems affecting other countries,” admits David Mpanga, partner at Uganda’s AF Mpanga.

There was much variation around the continent, however. South Africa, the most developed economy in Africa and subsequently the most exposed to the financial crisis, experienced its first recession since the Apartheid era in the wake of the financial crisis. The result was a slowdown, if not a total stop, in transactions for South African law firms. “M&A in South Africa declined in value by around 60% between 2008 and 2009,” says Kevin Cron of Deneys Reitz. “We were fortunate enough to have a couple of large existing deals to keep us busy, but new instructions slowed substantially.”

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China: US firms on the rise

Published in Chambers Magazine, Summer 2010

The last few years have seen many US firms expand their presence in China. Could they overturn UK firms’ traditional dominance in the world’s fastest-growing legal market?

As the world reeled from the collapse of Lehman Brothers in October 2008, scant attention was paid to the news that a seven partner-team had quit Allen & Overy’s Hong Kong office for Latham & Watkins. But Latham’s bold move was indicative of a wider trend.

For years, US firms have been content to practice US law in China from small offices. But recently, they have gone for growth: establishing local law practices, opening new offices on the mainland, and raiding UK rivals.

The top British firms, who dominated the biggest deals in China for more than 20 years, now face serious competition. “In five or ten years’ time, there’s a very high chance that the majority of the leading international firms in China will be of US origin,” predicts Michael Liu, leader of the team who moved from A&O to Latham.

The American invasion

City firms had a head start in China. Hong Kong’s status as a British colony meant UK lawyers could easily obtain Hong Kong practising certificates. And its close trade ties with the UK made Hong Kong an attractive proposition.

Between 1974 and 1990, most top City firms established an office in Hong Kong. And from there they expanded onto the mainland. By 2002, all the magic circle firms, apart from Slaughter and May, had added Beijing and Shanghai to their networks.

US firms, for the most part, lagged behind. Though Baker & McKenzie and Shearman & Sterling may have entered Hong Kong in the 1970s, Skadden, Arps didn’t arrive until 1989, and Latham & Watkins until 1994.

In recent years, all this has changed. US law firms have poured into China. Forty-four of the top 50 US law firms now have a presence in the country. Seventeen of these opened their first Chinese office in the last five years (see tables, page 18). In 2000, 10 of the top 50 US firms had two offices in China; none had three. Now 12 have two offices and 16 have three.

And US firm offices in China have been growing not just in number, but in size. Since 2005, Skadden has expanded its Chinese presence from 29 lawyers to 55; Simpson Thacher & Bartlett has increased from 16 lawyers to 42, and Latham and Watkins from 16 lawyers to 56.

Some of the newer arrivals, too, have been growing quickly.Weil Gotshal & Manges only opened its first Chinese office, in Shanghai, in 2004. Now it has offices in all three major cities with 30 lawyers between them. “We expect that figure to increase to 50 in the next two years,” says Akiko Mikumo, the firm’s Asia managing partner.

UK strengths targeted

In many cases, particularly in Hong Kong, US firms have achieved their growth by raiding UK firms. Latham & Watkins’ swoop on A&O was the latest in a stream of eye-catching raids by US firms on British rivals in China.

Skadden kicked off the trend in 2005, poaching partners from Linklaters and Simmons & Simmons. The following year, Freshfields China chief Michael Moser quit for O’Melveny & Myers; a year after, his replacement Doug Markel jumped ship for Simpson Thacher.

Then came the Latham move. “It’s totally changed the landscape for our China practice,” says Joe Bevash, a partner in Latham’s Hong Kong office. “It more than doubled our partnership overnight.” The move left A&O with just four corporate partners in their biggest Asian office.

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The New Scramble For Markets

Published in Chambers Client Report, Autumn 2008

Client Report’s first Emerging Markets Survey reveals the progress being made by the world’s leading law firms – and the secrets to survival

For Rick Burdick, head of international corporate transactions at Akin Gump, 2008 got off to a bad start. On 1st January, he learnt that his firm’s Dubai office – its sole Middle East base – was moving to Dewey & LeBoeuf. “It was not how we envisioned our Middle East practice developing,” he deadpans. Instead of trying to rebuild the office, Akin Gump abandoned Dubai altogether, opening instead in Abu Dhabi a few months later.

The Washington, DC firm is not alone in its misfortune. These are not easy markets in which to thrive – or even survive. Client Report asked leading practitioners in the most exciting emerging markets about the keys to success on this frontier of law.

A gold rush?

Of the 36 firms who responded to our survey, 24 have opened a new office in at least one of our four main jurisdictions – Brazil, China, Russia and the UAE – since 2005. With the slowdown in Western corporate activity, these markets have become even more attractive. Some firms have a clear-eyed plan to establish themselves in response to client needs. Others, as one practitioner in Dubai put it, “think they can dump their under-utilised associates here and they’ll
magically pick up work.”

In fact, building a presence in these markets is difficult and demanding. On pages 38-50, we look at each jurisdiction in detail. Certain challenges, we found, are common across emerging markets.

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The Sector Specialisation Survey

Published in Chambers Client Report, Summer 2008

Lawyers nowadays claim to specialise in particular industries almost as often as in particular practice areas. But are firms really taking this strategy seriously? And what are the risks – and rewards – of industry specialisms?

A wag once said that a specialist is “someone who knows more and more about less and less.” The law firms who responded to our Sector Specialisation Survey would beg to differ. All but two of the 55 responding firms claim to have implemented a strategy of industry specialisation, bringing lawyers together across practice areas to focus on
particular client industries.

It’s a recent occurrence. As table 2 shows, most firms have introduced formalised industry sectors only in the last five years. “A fair few firms tried this approach in the 1990s, but didn’t get much traction, because often the investment wasn’t there,” comments consultant David Temporal, of Temporal Tanja Consulting. “But gradually, people have begun to realise this is a way for firms to differentiate themselves in an increasingly crowded marketplace.” The downturn of the early 2000s, which forced many firms to think about their place in the market, surely helped spur the spread of the practice.

So with the majority of the UK’s leading law firms pursuing this approach, who is taking it seriously and who is just, as one observer puts it, “paying lip service to the idea?” And with the market rushing to implement this strategy, are there any risks firms should be aware of?

‘Clients see the world through an industry perspective’

The most common reason cited by firms for pursuing a sector approach is that modern clients demand detailed industry knowledge. “Clients see the world through an industry, rather than a practice area perspective,” points out Michael Frawley, UK managing partner of Taylor Wessing. “We need to see the legal landscape through our clients’ eyes.” Firms mentioned a host of areas where industry knowledge can be of use, from identifying potential future opportunities to understanding clients’ reasons for engaging in a transaction.

Of course, not all clients want their lawyers to be all-round business advisers. But deep sector knowledge can help a firm deal with purely legal instructions, too. “Some clients do say, I’m the businessman, you’re the lawyer, just stick to the law, and leave the commercial decisions to me,” admits Howard Morris, chief executive of Denton Wilde Sapte. “But those same clients may run out of patience very quickly if their lawyers don’t understand the reasons why they want to do a deal or handle a case a certain way.” As a result, clients have become more and more expectant of deep industry expertise from their law firms: one firm estimated that 80% of their clients prefer this approach.

Of course, with knowledge comes opportunity. A proper understanding of a client’s industry can help firms identify potential work to pitch for. The aim, as one firm neatly put it, is to know “what are the six things that keep CEOs in this industry awake at night? And how can we help them sleep better?”

In addition, several firms noted, detailed industry knowledge provides a useful opportunity for differentiation in a crowded marketplace. It’s a particularly attractive proposition for the large City firms that have struggled in recent years to carve out a space in the market between the magic circle and the often-cheaper nationals.

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Energy: special report

Published in Chambers Client Report, Spring 2008

The precipitous rise in the price of oil has meant a bumper crop of activity for energy lawyers. Back in 2005, when Client Report last looked at the energy industry indepth, the world was just adjusting to the age of the $60 barrel, and one industry general counsel admitted he’d “never been busier.” Since then the activity levels in the industry – and the workload for its lawyers – have increased. Our feature on page 70 looks at the opportunities, and challenges, the current high levels of activity present for energy lawyers.

Although the oil industry is celebrating, though, fossil fuels have never been so unfashionable. Massive government support means a boom in renewables and new business opportunities all over Europe. Our feature on page 84 offers an introduction.

At the same time, the European electricity and gas markets face upheaval thanks to the EU’s plans to break up its power station-to-plug-socket utility giants. But the utilities – and the governments that support them – aren’t giving up without a fight. Our feature on page 94 has the details.

In addition, partners in five leading energy firms from across Europe offer their perspective on the latest issues in energy in their jurisdictions.

Read the report…

Walking the line: Lovells' battle to balance collegiality with competitiveness

Published in Chambers Client Report, Spring 2008

How can law firms raise their standards and profits without sacrificing their partnership culture? Renowned for its friendliness but prone to financial underperformance, Lovells has battled to strike the balance.

One challenge is common to all ambitious law firms: to raise profits and stay competitive while retaining collegiality and their own distinct partnership culture. It is a high-stakes game. Take too much pride in a partnership approach, and a firm can struggle to deal with underperforming partners. High-billing star partners will soon head for the exit. But push too hard for increased performance, and you risk destroying the very working environment that retains talented people.

The recent troubles at Heller Ehrman, the medium-sized California firm, illustrate the risks. The firm was known and admired for its partnership spirit. But – determined to retain and attract big-billing rainmakers – the firm demoted several partners in non-core areas, and adjusted its compensation to a more eat-what-you- kill model. Rather than attracting big names, though, the firm has lost several well-regarded partners who felt the new model undermined the firm’s egalitarian culture. As one former partner said: “Now that they have made money [their] number-one [priority], I don’t know why they are surprised when people leave to make more money.” Only the tiny handful of firms which can offer more earnings than anyone else can afford to sacrifice culture for performance.

Equally, though, history is filled with once-stellar firms who have slipped into the mid-market as a result of a cosy culture. Stephenson Harwood, once a member of the UK’s elite group of nine, now languishes in the London mid-market. Of course, if a firm is happy to enjoy a relaxed culture at the expense of its position in the market, fair enough. But such a firm can hardly be surprised if it struggles to attract talented young lawyers. Stephenson Harwood has woken up to this, and has run a tighter ship in recent years.

For most large firms, the answer lies in finding the right balance between these two extremes. Perhaps no UK firm has faced this challenge more acutely than Lovells.

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