Hotter Competition In Global Law Race

The US law firm invasion of London cont- inues apace. Last week Cadwalader Wickersham &Taft,Wall Streets oldest law firm, announced that it will open a London office in September. The office will practice both English and US law and will be staffed mainly by British lawyers.

By itself the news that another New York law firm is targeting London is unremarkable. But there were also signs last week of the beginning of a sea change in international legal practice that in five years time will have produced a markedly different legal services industry from todays.

Until comparatively recently, US law firms had by and large chosen to ignore overseas markets in favour of building strength and depth at home. Of those firms that did venture internationally, most stuck to practising US law. Some followed a deliberate policy of hiring local lawyers and practising local law, but they were the exception.

 

The globalisation of commerce and the increasing importance of US capital markets has forced a change of strategy, however. Significant numbers of US firms with offices in London have begun to add English law capacity by hiring English qualified specialists.

A few of the top UK law firms have reciprocated. Freshfields, Allen & Overy, Linklaters & Paines and Clifford Chance have all hired US lawyers at partner level. After several false starts, the race to establish truly global law firms has begun in earnest.

Leading figures from two US international law firms, Stephen Volk, senior partner of New Yorks Shearman & Sterling, and Walter Mondale, former US vice-president and partner of Minneapolis firm Dorsey & Whitney, were in London last week preaching change.

Although the firms are different in many respects Shearman is one of New Yorks elite, Dorsey is the leading commercial law firm between the Great Lakes and the Pacific Northwest their message was much the same: in shaping a strategy to meet the demands of a global economy it is no longer sufficient for law firms to rely on exporting legal expertise. To compete, firms must develop dual capability in the jurisdiction in which they practice.

Dorsey has, like others, built up its international markets. It opened in London, for example, because its client, First Bank System of Minnesota (recently merged with Oregon-based, US Bancorp), opened here after Big Bang.

Recently, however, it has become clear to the firm that to meet the changing needs of international clients it has to add non-US legal expertise. In its New York office 80 per cent of the lawyers are now international, albeit that many are dual qualified. In Brussels, the firm has added German, Belgian and Irish lawyers. Its Hong Kong office is headed by a US/China dual-qualified lawyer from Beijing.

In London the firm is beginning to add English lawyers and will bring a Portuguese lawyer over from New York shortly to handle an increasing volume of work from Spanish and Portuguese banks.

Mr Mondale, who rejoined the firm last year after three years as US ambassador to Japan, will concentrate on building up Dorseys Asia practice. He is convinced of the need to become a truly global practise to meet the changing demands of clients, but has no illusions about the size of the task.

Shearman has been an international firm for some time. Its first overseas base was opened in Paris 36 years ago and last week saw the twenty-fifth birthday of the London office.

It has also followed a policy of hiring local lawyers since taking on French lawyers in Paris in the early seventies. Its German offices established in 1991 are staffed principally by German lawyers, and London recently completed the picture by poaching the projects finance team led by English solicitors Mr Kenneth MacRitchie and Nick Buckworth from US rivals Milbank Tweed.

For Mr Volk, the key to establishing a successful global practice is to forge a truly multinational law firm and so it has begun to establish a management structure which cedes unprecedented power to non US lawyers.

The Paris office is run by a Frenchman, Germany is run by Georg Thoma, who is also overall head of European operations, London is headed by Canadian Ms Pamela Gibson, and 50 of its 100 lawyers in Europe are admitted to practise in either France, Germany or the UK.

This strategy sets it apart from its immediate US competitors, which generally take the view that you only need to be expert in US law and that you can ally with other nationals on an ad hoc basis to do deals.

The strategy appears to be paying dividends. Over the last 10 years, the percentage of Shearmans revenues generated by non-US offices, or done in the US corporations, has risen from 30 to 40 per cent.

In the last four years the percentage of total billings from clients outside North America has risen from 28 to 42 per cent and the revenues of the European offices have more than doubled in the last five years.

In Germany its appointment as lead counsel to the Treuhandanstalt, the privatisation office, led to its involvement in the privatisation of the former East German chemical, mining and energy sectors. That in turn led to its involvement in several of the largest German deals of recent years, such as the Krupp Hoesch/Thyssen carbon steel merger.

In 1996 Shearman was ranked top legal adviser in M&A worldwide based on the value of deals by Securities Data Corp. It was involved in five of the 25 largest deals of 1996 including the $21billion BT/MCI merger.

To meet the increasing demands of its global clients Shearman will have to grow substantially. But Mr Volk is determined not to allow the firm to become so big that it loses the partnership ethos and culture.

In time he expects half the firms lawyers will be based outside New York. Recruiting the best legal talent to fuel that growth is his biggest challenge and that is where the battle for the global legal services market will be won and lost.

Merger is not the solution, he says. A merger with a UK law firm would give Shearman more English lawyers than it needs, upsetting the balance of its multinational approach.

Nevertheless, Mr Volk is ready to up the pace of global expansion and it is a measure of the support his strategy enjoys within the firm that he has just been re-elected to a second term as senior partner.