‘It’s a remarkable firm with a tremendous reputation, but it has to take note of the fact that the market is changing.’ So says one transatlantic law firm leader, summarising a view that has chimed throughout Legal Business’ numerous Global 100 interviews.
Arguably the most conservative of the City elite, Slaughter and May has long won plaudits for steadfastness, staying true to its London heartland of advising FTSE 100 and 350 clients, even as peers struck out to follow transatlantic ambitions. As the pace of change in the market amid globalisation and intense competition reaches giddying speeds, many commentators question whether the stalwart’s approach is underpinned by justified confidence or hubris.
A change in leadership and management structure this year has also piqued interest. Formidable banking and commercial litigator Deborah Finkler has been installed since May as the firm’s first managing partner, while the same month Simon Nicholls and Richard Smith succeeded Andy Ryde and Roland Turnill as heads of the corporate and M&A practice. Turnill, in an unusual display of forward planning from a City leader, has also been earmarked since September 2021 to succeed M&A luminary Steve Cooke as senior partner when he steps down in May 2024.
Now, as the firm has started making headlines for uncharacteristically radical policy changes, is the new leadership trying to steer the firm out of its comfortable niche?
If it ain’t broke
Perhaps telling of its stickler reputation, Slaughters is one of a small handful of firms that still keeps its financials extremely close to its chest. Finkler does not give much away, coyly noting that the firm is celebrating a second year of ‘record financial performance’ in 2021/22. However, LB’s informed estimates put Slaughters in 57th place in the Global 100 table, with revenue up 18% to $1.045bn and profit per equity partner (PEP) up 17% to $4.82m. A stellar showing which, despite its lack of expansive international flag planting (see ‘Slaughters International’, below), won it a solid 12th place by revenue in our recent LB100 report where it topped the table in PEP terms.
‘Five years ago, it really was the Magic Circle firms and no one else, except in niche areas. Now Latham and Kirkland, in some areas, are competing.’
Deborah Finkler, Slaughter and May
The cornerstone of its success is clearly its enduring dominance in UK public M&A. Slaughters takes pole position in Mergermarket’s most recent UK M&A league tables by value for Q1-Q3 2022, advising on $76.4bn of deals across 40 transactions, albeit the dearth of domestic big-ticket M&A deals has led to an 18% drop in deal value compared with the $93.2bn it acted on for the comparable timeframe in 2021. Nevertheless, the firm’s output places it comfortably ahead of closest UK peers Freshfields, which racked up $74.4bn across 44 deals and Linklaters, which accrued deal values of $53.2bn across 55 transactions.
A standout deal of the last year, advising GSK on the demerger of its consumer healthcare business to form Haleon saw Simon Nicholls lead on the deal, which valued Haleon at $36.4bn. Cleary Gottlieb advised GSK on the US aspects of the transaction, with a London team led by partner Sebastian Sperber and counsel Sarah Lewis.
Finkler is ebullient. ‘It was a perfect Slaughter and May job in that it was for a longstanding client, a massive transaction following the earlier Novartis and Pfizer joint ventures, and it drew in the skills of people all across the firm, including financing, tax, pensions, incentives as well as the corporate team.’
Inevitably, the US firm-shaped elephant in the room grows. Notes Finkler: ‘Five years ago, it really was the Magic Circle firms and no one else, except in niche areas. Now Latham and Kirkland, in some areas, are competing. We have big disputes and competition practices, which they’re not competing with, and the most FTSE 100 and 350 clients of any firm in London, so they are not taking our market share. But are they disruptors in the London market? Realistically, you have to say they are.’
Despite the firm’s bullishness, there is a disparity between the firm’s stellar standing on the domestic stage with its international public M&A reputation.
Slaughters slipped out of Mergermarket’s top 20 law firms by global deal value in 2020 and has yet to claw its way back into those hallowed ranks.
Unsurprisingly, the top 20 firms by deal value for Q1-Q3 2022 reflect the dominance of US rivals in the lucrative private equity (PE) market, in which Slaughters has struggled to make significant inroads.
Notwithstanding Smith and Finkler’s protestations that the PE offering has grown significantly over the last two years, Slaughters’ practice – led by partners Harry Bacon and Filippo de Falco – only sits in Tier 5 of The Legal 500’s 2022 rankings for high-value PE deals.
Still, Smith shares Finkler’s optimism on that score. ‘Looking at our practice, we haven’t seen any erosion. Some US firms have developed significant practices for private equity clients in London, and that’s been the case for a number of years, but there are many parts of our corporate practice where we rarely see the US firms in principal roles.’
The corporate heads are confident about their ability to grow and retain talent amid an unforgiving recruitment market. Nicholls points to the majority of Slaughters’ partners being homegrown, while Smith notes that the strength of its junior partners makes him confident about the long-term corporate pipeline.
Despite the departures of the highly sought-after deal star Murray Cox to Weil in April 2021 and insurance and M&A partner Robert Chaplin, who joined Skadden in October 2022, partner defections remain relatively rare.
‘We’ve been just as focused on making sure that associates have got a balanced existence as we have been on compensation.’
Simon Nicholls, Slaughter and May
While several partners interviewed for this piece insist that the stability of the partnership can be largely attributed to the firm’s commitment to a pure lockstep compensation model, detractors are cynical, to put it mildly. One managing partner at a US competitor puts it bluntly: ‘In many respects [Slaughters’] saving grace is the thing that is creating them a problem from a private equity performance perspective. Most of their people are public M&A people and US firms don’t have a massive desire to do that.’
If market predictions about a resurgence of UK public M&A (amid currency fluctuations attracting foreign investment into UK companies) prove correct, this too could put the firm at risk of deep-pocketed US firms taking advantage of a favourable exchange rate. Recent moves, such as Cleary’s hire of Linklaters’ public M&A star Nick Rumsby, could be early indicators of this trend.
Ultimately, this exposes a long-term conundrum for Slaughters, as the global head of another US competitor observes: ‘To some extent, success obfuscates strategic thinking. Slaughters is very successful, but how will that play out in ten or 15 years? Do they think that Kirkland and Latham aren’t going to be able to compete for those M&A transactions over time? If those, and others, can compete for those transactions in this market, and Slaughters can’t compete for transactions in their home markets, how does that trend line continue?’
Dog days
Unlike some Magic Circle peers, Slaughters has long drawn a line in the sand when it comes to competing at the top end of salary inflation. However, recent news of the firm’s wellbeing and work-life balance initiatives have raised eyebrows around the market, given its reputation as an unrelenting training ground for producing deal machines (one alumnus recently joked that firm reunions were akin to group therapy sessions for people talking about their deal-related PTSD).
Nicholls defends the position. ‘We’ve been just as focused on making sure that associates have got a balanced existence as we have been on compensation. Once firms decide that someone that’s just qualified is worth the kind of numbers that are being paid in some quarters, what you have to then get out of those people when they’re relatively inexperienced is very significant in terms of time and responsibility. And that might not be sustainable in career or platform terms. That’s the bigger challenge, not just for us, but for the market generally.’
Showing its fluffier side, the firm in June piloted a ‘bring your dog to work day’, strongly backed by Finkler. More substantially in October, it unveiled a 37-point ‘working practices code’, which combined guidelines on working norms with salary changes. Included was an increase in newly qualified (NQ) pay from £107,500 to £115,000 (more than 50% less than Akin Gump’s £179,000 NQ pay at the top of the market) along with amendments to widen the spread between the top and bottom PQE ranges.
The code was drafted in response to employee satisfaction survey results that highlighted work-life balance as a main concern, exacerbated by remote working during the pandemic. Among the heavily caveated guidelines, lawyers will not be required to check their emails between 10pm and 8am or ‘more than once on a Friday evening and more than a couple of times on each of Saturday and Sunday… unless you are working on a matter/s that requires you to do so.’
Many have criticised Slaughters for a perceived attempt to pass itself off as a so-called ‘lifestyle firm’, though M&A partner Sally Wokes, who was one of the four partners on the committee that drafted the bill, insists this is not the case: ‘We are not a lifestyle firm but we are trying to prioritise work-life balance as an essential element of continuation in this job. Some people are really good at doing that for themselves, adding boundaries, being able to switch off and that kind of thing, while others need some more assistance, which is where the code comes in.
‘Do we expect people to be willing to work hard? Absolutely we do – as do all Magic Circle firms. Do we expect people to be working when they don’t absolutely need to? No. That’s the big difference.’
‘We are not a lifestyle firm but we are trying to prioritise work-life balance as an essential element of continuation in this job.’
Sally Wokes, Slaughter and May
Among the other principles, the code requires partners to take a more active role in managing associates’ workloads, both by prioritising delegation of tasks early in the day and by ‘arranging full cover for any holiday of a week or more or for shorter holidays taken to attend important events’. As part of the code partners are also encouraged to, ‘where appropriate, challenge tight timescales set by clients’.
Though one former Slaughters associate, who left private practice for a career in-house due to the gruelling hours, is doubtful that this will inspire a change in culture: ‘My impression is that that’s not really the firm’s model. Slaughters pushes for people to work as hard as they can, then a proportion of them drop out of the system. That’s kind of what the firm needs, because once they get to the top there’s a few left who know how to manage it and are happy working those crazy hours. It strikes me that the industry is going to have to go through a monumental shift to change that.’
The in-house leader adds: ‘From my perspective, if I’ve got something big that I need to get done and I’m under a lot of pressure internally, you are paying so much for external lawyers and you need to be able to justify that internally. The idea that that isn’t what they are providing, or that they are going to be able to change that, is absurd.’
Slaughters International
While Slaughter and May has a well-defined European network through its ‘Best Friends’ relationship with leading independent practices (Italian firm BonelliErede, Parisian practice Bredin Prat, Amsterdam-headquartered De Brauw Blackstone Westbroek, German firm Hengeler Mueller and Spain’s Uría Menéndez), its lack of comparable US coverage is seen as a sticking point.
The firm has no exclusive relationships in the US but maintains close ties with several firms on both the East and West Coast, working regularly with Cravath, Swaine & Moore, Wachtell, Lipton, Rosen & Katz, Paul, Weiss, Rifkind, Wharton & Garrison and Fenwick & West.
Though, as Slaughters learned when traditional Wall Street referral partners Davis Polk & Wardwell and Sullivan & Cromwell became competitors following investments in local law capabilities in Hong Kong and London, these relationships can shift as firms give in to the pressures of globalisation.
Despite the difficulties, managing partner Deborah Finkler maintains that there are clear benefits to the firm’s approach: ‘Our model extends far beyond the European “Best Friends” group; we work with the world’s best firms internationally, in whichever country or region our clients need us to cover, and we do this without the need to cross-sell any fixed network of branch or satellite offices. In addition to being able to introduce clients to our key contacts, we can also work with their established preferred adviser, a flexibility which is highly valued by our clients.
‘Slaughter and May benefits from being able to work with most of the elite US law firms, including Wachtell, Cravath and Paul Weiss, allowing us to lead unified, handpicked teams of the smartest lawyers in the market – including on matters with unique local state, industry or regulatory specialist requirements (eg, CFIUS). Every US-related matter carries its own challenges and sensitivities and our international model has been built to reflect this.’
Recent cross-border US work includes:
- London-based corporate co-head Richard Smith led a team which advised Zuora on UK aspects of its $44m acquisition of Zephr alongside co-counsel Fenwick & West.
- An integrated Slaughters and Cravath team advised Yell on its restructuring. London-based finance partner Ed Fife led for Slaughters.
- Paul Dickson, Harry Hecht and David Johnson led a team which advised Micro Focus International on a £1.8bn recommended cash acquisition of the entire issued and to be issued share capital of Micro Focus by Canadian company OpenText Corporation.
Recent European cross-border work includes:
- London-based tax partner Mike Lane and Brussels-based competition co-chair Claire Jeffs advised Siemens on tax and UK foreign direct investment control aspects of the sale of Yunex to Atlantia as part of an integrated team with Best Friend firm Hengeler Mueller.
- London-based Paul Mudie and Filippo de Falco led advice to Corsair Capital on the sale of Milan-headquartered RGI, a leading independent provider of software solutions to the European insurance industry, to CVC Capital Partners as part of an integrated team with independent German firm Ego Humrich Wyen and Best Friends BonelliErede and Bredin Prat.
- A Slaughters team led by Filippo de Falco and Uría Menéndez’s Madrid-based partner Alex Bircham advised Banco Bilbao Vizcaya Argentaria (BBVA) on its $300m Series D investment in Neon, a Brazilian digital bank founded in 2016.
One M&A partner at a rival firm defends the firm’s approach in glowing terms: ‘I have a crush on Slaughters. It is the lawyer’s law firm. Say what you like about the lawyers being hard-nosed – and they can be – but they have integrity. It is not the kind of firm to do dodgy deals behind the bike sheds. If something is technically legal but not quite right, Slaughters would turn it down where other firms wouldn’t think twice. It is a firm where people have manners and integrity.’
However, Melissa Fogarty, co-head of Clifford Chance’s corporate practice, shares the former Slaughters associate’s scepticism: ‘I would love to see a shift in how we work. The last ten years has been intense in terms of the use of technology, meaning that the incursion into life outside the office is too great. So, I’m philosophically very much in favour of shifting that agenda forward, but the reality of the job then hits me, and systemically it’s difficult to achieve.’
A partner at a different Magic Circle competitor takes a more cynical view: ‘They are just repackaging what other firms have already been doing and shouting to the market about it, when they could be looking for better ways to improve wellbeing and diversity at the firm.’
‘I would love to see a shift in how we work. But the reality of the job then hits me, and systemically it’s difficult to achieve.’
Melissa Fogarty, Clifford Chance
Responding to the criticisms following the release of the guidelines, Wokes notes: ‘I have sympathy for scepticism as to whether or not this is actually going to make a difference in our world because it’s such a demanding job, but I think if people give it time to bed in it will make a difference even to small things, such as opening lines of communication. As a partner, people have already said things to me that they wouldn’t have said previously, and it’s only been in operation for two weeks.’
She adds: ‘This is the first iteration of something that will develop over time. We recognise that this is quite a novel, innovative thing to do and that there will be elements that people don’t think have achieved their aim or have in fact had a more negative impact than a positive one, but we’re not shy about that and we can update it over time, but you’ve got to start somewhere.’
One partner at a competitor is dubious: ‘I’m not sure it’s realistic to try to create a model at this level of the market that tries to differentiate to people based on wellbeing and work-life balance, because until the client changes, it’s very difficult for us to make that change. Efforts like the Slaughter and May one actually backfire because they don’t read as benefits or as causing a significant change in how they do their work.’
Full circle
While it’s early days under the firm’s new management structure, Finkler is sanguine about the firm’s future, even if the market is unlikely to see wholesale changes to its strategy.
Finkler sets out her goals for the next year. ‘We are setting ourselves the normal goals of increasing our turnover and our profitability year-on-year, which is going to be hard to do because, for the most part, both of the last two years were record years. We also have sustainability targets and partner promotions targets for women and for people from ethnic minority backgrounds and we are making sure all of that happens.’
She is particularly upbeat about the firm’s position as the market enters a countercyclical environment. ‘It really plays to the strengths of our model, which is for all of our lawyers to have a fairly wide field of expertise compared to lawyers in other firms – so for example our financing lawyers will be happy to turn their hand to restructuring so we can suddenly field really big teams to do restructuring work if that is what our clients need.’
She also notes the firm’s London and Brussels-based competition teams — which have handled large mandates for the likes of Google and Facebook — and its disputes team, which has adjusted from its legacy investigations niche to take on high value litigation and arbitration mandates, as areas of strength.
She concludes: ‘The economy generally feels like it’s teetering on a cliff edge, but we’re pretty confident that there will be work around. It might just be that we’re doing slightly different types of work from the last two years and we’ll be well placed to do whatever there is.’ LB