Global 100 Regional View – Emerging Powers

2014 is the first year since 2007 that western jurisdictions were not comprehensively outclassed by emerging markets. But Legal Business finds the siren call of eastern economies is still too hard to resist for most Global 100 firms.

‘Nothing appears to have changed in the way firms move in and out of markets,’ reflects Norton Rose Fulbright chief executive Peter Martyr. ‘When it’s good, the Wall Street firms come in sharp and fast with a big chequebook and withdraw quickly when it’s bad. The global firms, on the other hand, take the pain over a much longer period.’

The dynamic outlined by Martyr emphasises two clear themes from law firms over the last 12 months: continued investment by US law firms into London as a strategic hub and, more widely, a continued hunger by Western law firms to invest in emerging economies.

The determination comes despite many key emerging economies undershooting predictions over the last two years, notably China, India and Brazil, and a relative period of revival in the higher rate but lower growth markets of the US, UK and Europe.

This desire to move east comes despite a growing acknowledgement that a combination of tough competition, tougher regulation and fee sensitivity in Asia is making the much-touted region difficult for law firms to make money in. But if Asia has yet to live up entirely to managing partners’ hopes, Africa has established itself over the last three years as an increasingly tempting territory for law firms seeking new opportunities.

For Clifford Chance (CC) senior partner Malcolm Sweeting, the general economic factors that drive clients and law firms to Africa are compelling. ‘People talk about this being the Asia century. That may be right but I would query whether the latter part is the Africa century. If you look at the 7% growth club, there are more African economies growing than anywhere else in the world. It has tremendous potential as it exports nearly everything it has, including natural resources. If it achieves sustainable economic development, firms will have to work out how to position themselves. We will be looking to position ourselves around major projects.’

Having first launched itself in the region over 30 years ago, CC has since taken steps to augment its presence, including the opening of an office in Morocco in 2012. Since then, many others have followed suit in the last year. Dentons completed a tie-up with local associate firm KapdiTwala in April to establish a presence in Cape Town. It also plans to open an additional branch in Francophone Africa later this year. Five months earlier saw Hogan Lovells combine with South African law firm Routledge Modise, giving the transatlantic practice a Johannesburg arm with 120 lawyers, including 40 corporate partners. The firm reasoned that a physical presence in Africa became increasingly important as the majority of its top 200 clients had operations there.

Similarly, Eversheds pursued its African expansion strategy by signing a partnership agreement with existing relationship firm CWA Morocco, establishing new offices in Casablanca and Tangier in late March. Linklaters sealed an alliance with South African firm Webber Wentzel in December last year.

DLA Piper, meanwhile, in January added three new member firms to its now 14-country African network, Algerian firm B L & Associés, Rubeya & Co Advocates of Burundi and Namibian firm Ellis Shilengudwa, reflecting its active energy and project work in the region.

‘There’s a lot of interest [in Africa],’ says Hogan Lovells chief executive Steve Immelt. ‘The demand for infrastructure and resource is very high. There will be a lot of growth in particular regions, such as Southern Africa, as investment in education continues to increase and have an impact. [But] it’s too soon to tell. I wouldn’t move my chips off Asia quite yet.’

Global 100 Europe headcount (excl. London)
Rank	Firm	No. of lawyers in region	% of lawyers in region
1	CMS	1,970	77%
2	DLA Piper	1,767	42%
3	Garrigues	1,567	98%
4	Fidal	1,324	100%
5	Clifford Chance	1,261	43%
6	Baker & McKenzie	1,192	29%
7	Freshfields Bruckhaus Deringer	1,155	49%
8	Linklaters	1,040	41%
9	Allen & Overy	1,037	40%
10	Eversheds	929	69%
11	Pinsent Masons	840	56%
12	Hogan Lovells	782	31%
13	Loyens & Loeff	753	95%
14	White & Case	738	39%
15	Bird & Bird	726	66%
16	Squire Sanders	439	36%
17	Norton Rose Fulbright	417	12%
18	Cleary Gottlieb Steen & Hamilton	372	28%
19	Jones Day	330	13%
20	Latham & Watkins	320	15%
Global 100 London headcount
Rank	Firm	No. of lawyers in region	% of lawyers in region
1	Linklaters	989	39%
2	Allen & Overy	906	35%
3	Herbert Smith Freehills	864	36%
4	Clifford Chance	863	29%
5	Freshfields Bruckhaus Deringer	794	34%
6	Slaughter and May	635	90%
7	Hogan Lovells	633	25%
8	Berwin Leighton Paisner	600	79%
9	CMS	563	22%
10	Norton Rose Fulbright	547	15%
11	Ashurst	520	30%
12	Pinsent Masons	507	34%
13	Clyde & Co	494	42%
14	Simmons & Simmons	448	54%
15	DLA Piper	410	10%
16	Baker & McKenzie	374	9%
17	Reed Smith	340	21%
18	White & Case	322	19%
19	Eversheds	305	23%
20	Bird & Bird	286	26%

Rounding Asia

Africa’s popularity may be rising but the rush into Asia hasn’t much abated. A host of international law firms sought to enhance their footprint on the continent since last year. Obviously the most prominent move since our Global 100 special last year was the tie-up of London’s SJ Berwin with Asia-Pacific giant King & Wood Mallesons (KWM), creating Asia’s largest Global 100 firm with combined revenues of over $1bn and 2,700 lawyers, including 550 partners. Having gone live on 1 November 2013, the deal gave SJ Berwin significant access within the Asia-Pacific market as KWM operates three separate partnerships in China, Hong Kong and Australia, though views remain sharply divided among peers regarding the union.

Meanwhile, in February Bird & Bird entered South Korea, Asia’s fourth largest economy, through a tie-up with local firm Hwang Mok Park. Baker & McKenzie made a further strategic push into Asia that same month and launched an office in Myanmar. Located in the city of Yangon, the latter’s venture is led by infrastructure and corporate partner Chris Hughes, who was previously based in Sydney.

Meanwhile, Singapore’s development as a regional hub for commercial law and arbitration in particular has continued despite ongoing tensions between international law firms and the local Ministry of Law, which has pressed foreign advisers to maintain a certain level of practice.

In February Allen & Overy (A&O), CC, Latham & Watkins, Norton Rose, and White & Case all successfully renewed their Qualifying Foreign Law Practice (QFLP) licences. Herbert Smith Freehills (HSF) decided not to re-apply.

Most senior lawyers contacted for this article felt that Asia represented a key investment priority despite claims that it has become over-crowded as firms compete to hire a small pool of experienced commercial associates. They did, however, concede that the region is very much a long-term proposition.

Hogan Lovells’ outgoing joint-chief executive David Harris told Legal Business: ‘Asia is a massive growth market with huge potential.

‘The challenge in Asia is how to achieve greater market penetration, operate efficiently and profitably, and retain your good people. Suitably experienced lawyers, particularly Western educated, are in high demand.’

Norton Rose’s Martyr maintains that Asia is a crucial market for City-bred advisers. ‘It’s an integral part and incredibly important to London. Would London be as successful without Asia? Asia is a very important part of London.’

Evidence of such demand was illustrated in January when Magic Circle firm Slaughter and May took the unprecedented step of making a lateral hire, recruiting US securities partner John Moore from Morrison & Foerster into its Hong Kong office.

Global 100 Asia and Australia headcount
Rank	Firm	No. of lawyers in region	% of lawyers in region
1	King & Wood Mallesons	1,925	79%
2	Herbert Smith Freehills	1,456	52%
3	Baker & McKenzie	1,049	26%
4	Ashurst	873	50%
5	Clayton Utz	823	100%
6	Minter Ellison	746	99%
7	Norton Rose Fulbright	740	21%
8	DLA Piper	681	16%
9	Clifford Chance	463	16%
10	K&L Gates	391	19%
11	Allen & Overy	390	15%
12	Linklaters	330	13%
13	Jones Day	237	10%
14	Hogan Lovells	214	8%
15	Freshfields Bruckhaus Deringer	210	9%
16	Morrison & Foerster	179	17%
17	White & Case	166	9%
18	Squire Sanders	137	11%
19	Sidley Austin	137	8%
20	Reed Smith	128	8%
Global 100 US headcount
Rank	Firm	No. of lawyers in region	% of lawyers in region
1	Jones Day	1,672	68%
2	Greenberg Traurig	1,521	90%
3	Sidley Austin	1,485	87%
4	Latham & Watkins	1,416	69%
5	Kirkland & Ellis	1,355	87%
6	Skadden, Arps, Slate, Meagher & Flom	1,317	79%
7	K&L Gates	1,315	67%
8	DLA Piper	1,312	33%
9	Morgan, Lewis & Bockius	1,210	89%
10	Reed Smith	1,059	68%
11	Gibson, Dunn & Crutcher	1,017	88%
12	Littler Mendelson	952	95%
13	Holland & Knight	939	98%
14	Bryan Cave	935	95%
15	Wilmer Cutler Pickering Hale and Dorr	889	90%
16	McGuireWoods	884	95%
17	Ropes & Gray	873	87%
18	Hogan Lovells	870	38%
19	Cleary Gottlieb Steen & Hamilton	834	70%
20	Morrison & Foerster	811	80%

Euro bonds

In Europe, the most talked about trend is the continued drive by US law firms to recruit London partners. Our Global London survey in April indicated that a growing number of US firms are now not only making major investments in the City but also generating substantial profits and achieving growth rates beyond that of their home market.

Latham & Watkins, for instance, is an increasingly envied example. Since January, the Los Angeles-bred giant has made five lateral hires to its London office. In June it hired Macfarlanes environmental specialist Paul Davies as a partner in its environment, land and resources group. It also appointed Nick Benson from Weil, Gotshal & Manges; Kem Ihenacho from CC; Lucy Oddy from Berwin Leighton Paisner; and Tom Alabaster from The Carlyle Group. The office now has over 250 fee-earners, including 65 partners.

It is easy to see the advance made by top American firms with private equity and leverage finance proving a resurgent area alongside the increased presence of US advisers in London’s litigation scene. Other firms to maintain senior recruitment in 2013/14 include Reed Smith, which made five lateral hires since April 2013; Jones Day, which recruited five partners since last March; and Mayer Brown, which boosted its headcount by six since last September.

The overall outlook for Europe, however, remains uneven. There has generally been a more confident mood across major western markets, including powerhouse economies of France and Germany but also hard-hit southern European markets. However, Europe remains a choppy market and there is little sign of revival in the central and eastern European region.

In the spring, Norton Rose Fulbright and Hogan Lovells both announced they were pulling out of Prague following strategic reviews. It was the second time legacy City firm Norton Rose had exited the Czech capital, having previously closed its doors in the region in 1996.

Germany, likewise, remains a market of contrasting fortunes – profitable for many firms, but challenging for others. Hogan Lovells had to close its Berlin office after a nine-partner team led by M&A regulatory lawyer Christoph Wagner defected to US law firm Morrison & Foerster in September 2013, constituting Hogan Lovells’ entire partnership ranks in Berlin. Then in March, King & Wood Mallesons SJ Berwin shut its operations in the German capital followed by Sidley Austin, which confirmed it was closing its doors in Frankfurt in early June, leaving it without a German base.

During 2013 Shearman & Sterling closed two German offices to refocus its practice in Frankfurt after prolonged problems and losses in Europe’s largest economy.

Those feeling more positive about the prospects of Europe’s growing economies include CMS, Pinsent Masons and Edwards Wildman Palmer, which all established a presence in the fast-growing economy of Turkey, which is attracting increased interest from international companies and investors.

Sweeting says that CC’s improved financial performance was connected to the EMEA region. ‘The idea that growth is dead in the original key markets is wrong,’ he says. ‘Europe has stabilised. It faced an existential threat – that has disappeared and now there’s confidence about investment. Before no one wanted to do anything major. But it’s still a large chunk of our business.’

Global 100 Lawyers by Region

The ultimate prize

However significant the opportunities are in Europe and Asia, there is no doubt that for many leading UK firms the ultimate prize is to build a credible US practice.

Dentons global chief executive Elliott Portnoy, for example, argues that his firm is relatively undersized in the region and since its tripartite merger with Paris-based Salans and Canada’s Fraser Milner Casgrain, has attempted two more tie-ups with domestic US law firms: McKenna Long & Aldridge, and, more recently, Patton Boggs. Talks broke down with the former towards the end of last year while Patton Boggs went on to accept the merger offer of Squire Sanders in early June. But for Dentons, domestic expansion is still high on the agenda.

Portnoy comments: ‘We believe we are competitively undersized within the US. We’re the fifth largest in Europe and the sixth largest in Canada. But in the US we don’t have the headcount. In the coming months there will be more strategic growth in the US.’

Another case in point is the Magic Circle quartet Freshfields Bruckhaus Deringer, CC, Linklaters and A&O. The big four struggle to compete with leading US players and maintain a foothold of key clients in the region.

‘The US remains a big challenge for all Magic Circle firms,’ concedes A&O’s managing partner Wim Dejonghe. ‘We have seen improvement in business but we need to improve our market position compared to the domestic firms there. [While there has been] substantial progress in project finance, litigation, and antitrust, [it is] harder on domestic M&A and traditional banking – our product could be bigger and have more impact on the market.’

Linklaters is also gearing up for a renewed push in the US market. ‘China and India are long-term opportunities but the immediate opportunity from a revenue perspective is clearly the US, which has the most scope to grow,’ says Linklaters managing partner Simon Davies.

But the tough reality is that – even for firms with Linklaters’ resources and global credibility – there are no quick fixes for the US, while the last five years have seen US leaders advance globally at the expense of top London players.

One response has been the run of transatlantic tie-ups – such as last year’s union between Norton Rose and Fulbright & Jaworski and the creation of Hogan Lovells and Dentons. But the question remains whether top-tier City players have the stomach to attempt an audacious move in the US.

Martyr sums up the challenge: ‘Any movement in a big economy generates a lot of business, but there’s huge competition. Then you have the traditional legal phenomenon – the lemming approach – where firms say: “Oh, God, everybody has moved there, I better get out there too!” [But] the legal profession is undergoing significant change. It’s a different paradigm to the past when the economy boomed and everybody boomed with it. The boom cycle will have less of an impact.’ LB

sarah.downey@legalease.co.uk