‘What defines Baker McKenzie over the last few years is the sheer amount of work that has gone into financial integration. This is a massive achievement but it has come at a cost. Now, establishing the differentiator to attract the next generation is important. It isn’t going to turn into Kirkland & Ellis, but what is going to drive that entrepreneurial aspect now Bakers looks more like other firms?’ So speaks one commentator of the quandary facing Baker McKenzie, a sentiment reprising a prevailing theme of our 2017 deep dive into the firm, ‘Waking the Giant’, which found a firm struggling to maintain its unique international selling point amid escalating globalisation of Big Law.
Then, the firm had just embarked on a new and ambitious phase, with the respected veteran intellectual property (IP) partner Paul Rawlinson instated as its first British chair in October 2016. The mandate? To implement the firm’s 2020 strategy, which focused on integrating Bakers across three profit pools, increasing profitability and growing the firm’s transactional practices in London, New York and China.
Of course, tragedy intervened in April 2019 with the shock death of Rawlinson, leaving innumerable peers and colleagues to feel keenly his loss still. Bakers lifer Milton Cheng took over the role the following September with the accolade of being its first Asian global chair. The Chicago-bred firm has also had to grapple with other global tragedies, with the coronavirus pandemic, Russia’s invasion of Ukraine and political and economic turmoil in the financial centres of the US and the UK all continuing to take their toll.
LB revisits Bakers to discover how the firm is faring as market pressures show little sign of letting up.
Déjà vu
In LB’s 2017 analysis, Rawlinson garnered much praise for articulating a clear strategy, emphasising three fundamental pillars: integration, innovation, and profitability. Cheng, whose term runs until October 2025, asserts: ‘We are still progressing with the same strategy – that is partly why I took on this role in the first place.’
However, he notes: ‘The strategy has certainly evolved due to changes in circumstances around the globe,’ and points to three factors. Namely, political protectionism worldwide, including changes in trade flows and supply chains, the digital transformation which has been felt by all sectors, as well as the firm’s push on its alignment efforts, both internally and externally with clients, with the aim of becoming a unified entity.
‘We have continued to combine our management structures and removed a lot of inefficiencies. We have made steady progress towards aligning our structures which is a change from the past.’
Colin Murray, Baker McKenzie
Underpinning the firm’s strategy are six distinct sector focuses: healthcare and life sciences; energy, mining, and infrastructure (EMI); financial institutions; TMT; consumer goods and retail; and industrials, manufacturing, and transformation.
As Cheng comments: ‘Over the last five years, we’ve consistently seen growth in healthcare and life sciences work, in part due to Covid. Technology-related work has been busy not only for tech sector companies but across all industries. In more recent times, work in energy, mining and infrastructure, particularly in relation to energy transition, has been consistently growing for us.’
And there is a list of weighty recent mandates to justify the investment. In 2021, a New York team advised US healthcare company and longstanding client Johnson & Johnson on its split into two public companies, involving partners specialising in M&A, tax, and IP.
Meanwhile in tech, 2022 saw a London team advise digital infrastructure company Colt Technology Services on its acquisition of Lumen Technologies’ Europe, Middle East and Africa business for $1.8bn. More recently, the firm’s global EMI partners advised Iberdrola on the $6bn sale of 8.4GW of combined gas cycle assets in Mexico.
While market observers acknowledge the firm’s strengths in tax, IP and EMI, one former partner is more scathing, noting: ‘Bakers has had success to a degree but it is probably not in the tier it aspires to be in for those sectors yet. Being in every jurisdiction means that ensuring the quality of those offices is a consistent challenge.’
The integration conundrum
In 2017, Rawlinson presented a vision for achieving full financial integration by 2020. The focus had been on uniting Bakers across three profit pools, albeit while recognising this would be an ongoing thorny issue, given that struggles to pull it off (veterans will recall) date back to the leadership of Christine Lagarde in the late 1990s.
These efforts have not all been in vain. In 2018 the firm marked a notable milestone by consolidating eight of its offices in Europe, the Middle East, and Africa (EMEA) into a unified profit pool. This move, viewed by many as a pivotal step towards achieving full financial integration in the region, went some way to addressing criticism of the firm’s decentralised ‘franchise model’.
However, the 2012 integration of the US business into a single profit pool is just one example of how fraught such processes can be, with the lucrative Dallas contingent securing a special deal before coming into the fold, while partners in Washington DC also held out for a deal before agreeing to join. The wrangling, needless to say, led to its fair share of resentment at the time.
Colin Murray, chief executive of North America, is sanguine: ‘We have continued to combine our management structures and removed a lot of inefficiencies through a combined talent programme, combined governance and a pricing committee that is now composed of members of different jurisdictions. We have made steady progress towards aligning our structures which is a change from the past.’
And even former partners admit that the management has made strides on integration. One notes: ‘The firm has addressed the historical weakness of its lack of financial integration, which is a credit to leadership for doing a lot of hard work over the past decade.’
‘It’s been a satisfactory year. We have a natural hedge against volatility in any particular geography or practice area by being as globally diverse as we are.’
Milton Cheng, Baker McKenzie
Another commentator adds: ‘Most of the firm is now integrated by region, apart from a few offices that have to be independent due to local Bar rules,’ alluding to Germany and France, which faced tax and compliance obstacles that put paid to them joining that unified profit pool.
Elsewhere, as it stands, the firm’s 17 offices in Asia-Pacific are organised into five different profit centres, a testament to how onerous a task is still at hand.
One former partner notes: ‘The leadership of Bakers has been pushing the offices into profit pools but they are aware this isn’t something you can do overnight.’
Another enduring criticism is that of an unwieldy management arrangement, with teams having a local, regional and global head. One alumnus puts it bluntly: ‘It is still clunky, over-managed and expensive. You can really over-manage law firms and you need to slim down management.’
Another former partner asserts: ‘A by-product of financial integration is that the leadership of the regional profit pools are now very big voices of the firm. The challenge has moved from having distributed leadership to having a group of very powerful management partners.’
Historically, Bakers’ strength lay in its global coverage, surpassing its peers and boasting market-leading practices in numerous jurisdictions that few competitors were willing to explore.
Nevertheless, our 2017 feature exposed the firm’s struggle to uphold its distinctive international selling point, in the face of increasingly global competition. Commentators continue to echo this sentiment, asserting that Baker’s unique strength – an expansive international network – is no longer a distinctive feature, given the widespread adoption of a similar model by other firms, including DLA Piper, Dentons and Hogan Lovells.
As one ex-partner comments: ‘The global footprint was always a strength but I’m not sure it is the differentiator that it was, as lots of firms have that now.’
However, Adam Farlow, global chair of Bakers’ capital markets group, defends the firm’s position: ‘People who join Bakers are interested, almost without exception, in doing cross-border work. If you only wanted to work with other Brits for English companies, then there are other firms for that.’
Swings and roundabouts
There has been some progress too in the stated ambition of bolstering profitability, with profit per equity partner (PEP) increasing 38% from $1.3m in the 2016/17 financial year, to $1.8m for 2022/23. Nevertheless, this must be viewed in the context of a 7% decrease in the number of equity partners, dropping from 708 in 2016/17 to 665 partners in the most recent financial year.
Revenue growth has been more muted, increasing 24% on the same track from $2.7bn to $3.3bn. In the most recent financial year, Bakers’ PEP fell by 10%, while revenue was flat on the previous year. The unprepossessing year-on-year results will not have been helped by the firm’s unusual reporting period, which runs until 30 June, consequently encompassing a tricky spell in 2020 accounted for earlier by many firms, beleaguered by spinning off its Russia business, a nosedive in transactional work, not to mention currency and inflationary reversals.
Cheng insists he is satisfied with the firm’s position, considering. ‘We are reasonably happy when we look at all the things that have happened – inflation, interest rates, geopolitics, all of that affects almost all businesses. All in all, it’s been a satisfactory year. We have a natural hedge against volatility in any particular geography or practice area by being as globally diverse as we are.’
Securing fourth position on the Global 100 table, Baker McKenzie currently boasts 5,086 lawyers globally, including 665 equity partners and 828 non-equity partners. It has the highest number of lawyers at the top of the table, surpassing Kirkland, Latham & Watkins and DLA on headcount.
Over five years, the firm has added 232 partners globally, including 74 equity and 158 non-equity partners. Most recently, in December 2023, Bakers hired back Richard Needham as a partner in its corporate organisations group, who returned from KPMG after leaving Bakers in 2021. Back in 2019, Bakers managed to lure Allen & Overy’s former head of UK insolvency and litigation Marc Florent to its City office. In the usual fashion of law firm partner moves, last year Bakers’ London office saw the departure of partner Haden Henderson for Freshfields’ leveraged finance practice, and the year before Bakers’ IP partner Jason Raeburn left after 12 years to head up Paul Hastings’ London IP and technology litigation practice.
‘Our values around inclusion, diversity and equity are integral, not lip-service. Our firm holds those values dear as part of our culture.’
Samantha Mobley, Baker McKenzie
Under Rawlinson, the plan had been to recruit between ten and 20 transactional partners in London, and more than double the size of its New York practice to 250 lawyers. The strategy had also been to make substantive capital injections into its Shanghai, Beijing and Hong Kong transactions teams.
In the City at least, there has been some headway. Since the start of 2018, the firm has hired 27 transactional partners in London, including capital markets partners Rob Mathews and David Becker from White & Case in 2019.
Progress in New York has been more sluggish, with Manhattan now housing only 140 lawyers, an increase of just 20 lawyers since 2017 and well shy of the target. However, Murray points to significant hires in New York, including former Manhattan District Attorney Cyrus Vance joining in 2022 as global chair of the firm’s cyber security practice. More recently in August 2023, Steven Sandretto, previously a shareholder at Greenberg Traurig, joined as a capital markets partner in the same office.
Asia has seen notable developments, as last year Bakers launched its joint venture with Korean law firm KL Partners. Cheng reiterates the commitment to the money centres of London, New York and China, while also placing increased emphasis on Asia, with an eye on the Singapore market.
Taking it on the chin
For her part, Samantha Mobley, co-head of the EMEA competition practice, stresses imperatives around equity, diversity and inclusion (ED&I), stating: ‘Our values around inclusion, diversity and equity are integral, not lip-service. Our firm holds those values dear as part of our culture.’
Palpable examples of management putting its money where its mouth is on that score are the decision to cease operating in Russia in 2022 after Putin’s invasion of Ukraine and the termination of a UAE alliance with member firm Habib Al Mulla & Partners after partner Dr Habib Al Mulla posted a series of homophobic tweets the same year.
Cheng’s response suggests that he believes the firm has recovered from the unedifying episode. ‘Just a few months ago, I was in the UAE visiting our new Dubai office and morale is good and people are happy.’ He notes that Bakers has re-established its presence in the region by opening an office in Dubai and Abu Dhabi since the controversy.
However, Bakers experienced another setback last year when Belgium managing partner and Bakers lifer, Daniel Fesler, left the firm under a cloud following a review into racism accusations made by a former associate in the Brussels office.
Cheng is candid: ‘We haven’t tried to shy away, we’ve taken it on the chin ourselves by clearly asking what we need to do to uphold our values, and we acted quickly and decisively. Likewise, I visited Brussels during the second half of last year. We regret what happened to that ex-colleague, and that should not happen to anybody. We’ve done a thorough investigation and followed through on the recommendations.’
Making shockwaves at the time, the firm’s London head, Gary Senior was found to have committed serious professional misconduct by the Solicitors Disciplinary Tribunal in 2020, dating back to an incident in 2012 where he tried to drunkenly kiss a junior associate in his hotel room.
‘What is going to make the firm attractive for the next generation of partners who want to drive it forward? That is what Bakers needs to address.’
A former Baker McKenzie partner
Cheng claims: ‘We’ve spent a lot of time and effort on improving the channels within the firm through which people can reach out if they’re feeling uncomfortable about things. On top of that, we make it part of our leadership assessment for leaders to take responsibility for these things. We’ve learned many lessons from it.’
One former partner defends their erstwhile firm: ‘Bakers has been a bit unfortunate, as it’s not as if other big firms don’t have these issues. The firm has actually dealt with them, which is a credit to management there.’
Cheng receives praise from current and former partners, describing himself as ‘a good listener, balanced and someone who has invested the time to understand the different pieces that make up [the] firm’s value proposition’.
He comments: ‘One similarity among all of our firm chairs is that we all want to bring out the best Baker McKenzie to serve our clients, even though our leadership styles may vary.
Paul [Rawlinson] was very charismatic, John [Conroy] was very methodical and meticulous. My way of getting things done is different to some of my predecessors but I believe, and the partners tell me, that it’s suitable for what we need at this time.’
One market commentator damns with faint praise: ‘There’s hardly any egos – if I asked you to name the top five Bakers partners in London, no-one knows, which is amazing considering its turnover. It has achieved this kind of brand over the individual business style, which I think reflects a lot of the changes that have been made.’
It could be argued that a merger with a Wall Street firm with transactional clout would be the ideal solution for a firm in need of bolstering its New York capabilities substantively. Of course, the difficulties of sealing such a mandate are well-documented, let alone of finding a willing firm with the right profile for starters.
For now, Bakers’ best bet – arguably as good as any – many well be to focus on the next generation of partners coming through.
As one former partner concludes: ‘What is going to make the firm attractive for the next generation of partners who want to drive it forward? That is what Bakers needs to address.’
And, while Cheng has done a creditable job in leading Bakers through some of the most trying conditions in modern history, the firm he will potentially hand over to a successor in 2025 is far from the finished product. Maybe it is best to let sleeping giants lie.
With additional reporting by Ayesha Ellis.