Heavy hangs the crown – Can Latham remain the global firm to beat?

Early March 2018 looked like the best of times to be a lawyer at Latham & Watkins. At the end of February the Los Angeles-bred giant had become the first law firm to report revenues above $3bn. This distinction crowned two decades in which it had been the most upwardly mobile firm in BigLaw, smoothly transitioning from West Coast challenger to global trailblazer, upsetting established hierarchies in New York and London along the way.

But by the end of the month, its 700 partners spread across 30 offices throughout the world were to get an email summoning them to a conference call. Latham’s two vice-chairs Richard Trobman and Ora Fisher informed the global partnership that the firm’s executive committee had accepted the resignation of global chair and managing partner, William Voge. Only three years into his role, Voge was leaving with immediate effect following a series of ‘voluntary disclosures’ relating to personal conduct.

Two days later, Latham lost its spot as the world’s highest-grossing firm to Kirkland & Ellis, with the Chicago-based rival generating $3.165bn after a startling 19% revenue hike in 2017.

Step forward two years and the 2,958-lawyer firm’s position in the global legal industry has become more complex to articulate. Latham set its own benchmark sky high: Voge’s much-lauded predecessor Bob Dell had already taken the firm from the bottom of the pack of global law firms to one of the top players. The next step was to make it the dominant legal practice to the key money and economy centres globally.

Trobman, who defeated seven contenders to replace his former boss in June 2018, promises the best is yet to come: ‘I want the firm to recognise its full potential. We have invested so much and worked so hard to create a platform that is special.’

‘If you had asked me two years ago I would have said Latham are the standout PE practice in the City. They have now been kicked off the pedestal by Kirkland.’

But has Latham lost some of its momentum, as some argue? In over 40 interviews with partners inside and outside the firm, Legal Business searched for the answer.

The fall most unlikely

The title of our last analysis of Latham in 2015 summed up the prestige the firm had amassed globally: ‘The firm most likely’. As Dell handed the reins to Voge after 20 years, the advance of the firm founded in 1934 appeared unstoppable.

Entering New York in 1985 on the back of junk bond mandates dismissed by white-shoe firms, Latham initially rode the leveraged finance boom of the 1980s to become arguably the first out-of-towner to build a credible, high-end Manhattan arm (LA peer Gibson, Dunn & Crutcher being the only other potential contender).

Swinging into heavy international investment in 2000 after a protracted internal debate, Latham over the following one-and-a-half decades mounted a frontal attack to London’s Magic Circle in Europe, with a sustained run of recruitment initially focused on the UK, France and Germany.

Taking over as chair in 2015, Voge described Latham as about 70% of the way towards its goal of being the top global law firm. Key to the remaining 30% was winning a greater share of FTSE 100 and NYSE clients by expanding outside its finance heartlands into corporate and disputes, particularly in London and New York.

Yen Sum joining from Sidley Austin helped to put Latham’s restructuring practice on the map.

The down-to-earth Voge shared Dell’s global vision and saw his term as a transition to the firm’s next generation, highlighted by his promise to only take the managing partner role for one five-year term.

Except things went differently. A couple of days of ‘sexting’ in November 2017 with a woman he never met brought to a premature end his time at Latham (see box, below).

It was the peak of the #MeToo era and, arguably, the world’s top law firm had lost its leader amid controversy; in retrospect Latham was fortunate that the wider business media failed to appreciate the significance within the profession amid a wider stream of disclosures. The global trailblazer, ironically long famed for a collegiate yet energetic culture, had hit its first major public hurdle in recent memory.

Having taken eight months to select Voge, it took less than 12 weeks to find his successor. A succession committee led by Chicago-based partner Sean Berkowitz oversaw the process, with equity partners invited to come forward.

Eight were in the final list. Los Angeles-based projects head Jeffrey Greenberg stood for the second time after losing to Voge in 2014. Alongside him were three DC-based partners – white-collar specialist Alice Fisher, corporate partner Daniel Lennon and litigator Bob Steinberg – and two from New York – office head Michèle Penzer and corporate partner James Gorton.

‘Latham was always a big litigation firm, it’s just that the lead story was Latham taking over the world in the transactional space.’
Michele Johnson

But after a series of Q&As with partners and two rounds of voting, the election saw two key figures behind Latham’s success over the previous two decades make the final cut.

Charles Ruck was certainly a formidable opponent for Trobman. As one of America’s most prominent West Coast lawyers and one of Latham’s highest earners and top billers, partners speak of Ruck overseeing a business consistently worth more than $70m a year to the firm. His clients include pharma and life sciences companies, such as Amgen and Allergan, and major corporates T-Mobile, Starbucks and Quest Software, while he is currently leading Latham’s team for Aon on its $80bn merger with Willis Towers Watson.

His huge clout stateside was central to an election where partners’ votes were weighted by equity points and 75% of Latham’s equity resides in the US.

‘Charles was a super-strong candidate,’ says one ex-partner. ‘The reason he didn’t win is a lot of people thought he was too valuable – if he stepped down from the practice that would cost the firm.’ As a finance firm by heritage rather than a corporate shop, Latham remains highly sensitive to losing key public M&A figures, in contrast to its bullet-proof institutional links with key sponsor clients. Critics go further, claiming Latham remains far too reliant on Ruck for a firm of its weight class.

In contrast, the highly-rated high-yield specialist Trobman hailed from one of Latham’s key practice areas backed by a deep bench of talent and as vice-chair was already exclusively focused on management. The elevation to chair of the only non-US-based candidate in the race, announced on 20 June 2018, also strengthened the image of Latham as committed globalist.

Trobman’s humble roots and role in building out Latham’s European operations mirrored Voge’s background and experience. But there is not much else the two have in common.

‘Dynamic and fraternal’

Raised in a working-class neighbourhood of Philadelphia, Trobman was the first in his family to go to university. His first encounter with Latham was a magazine article in 1990 featuring an interview with one of Dell’s predecessors, Clint Stevenson.

Recalls Trobman: ‘What intrigued me were two words he used to describe the firm: dynamic and fraternal. The firm has always been forward-looking, with a special kind of ambition, drive and nimbleness. As for “fraternal”, he was capturing the sense of Latham being a place where colleagues have a deep commitment to one another that goes beyond economics. This commitment appealed to me when I joined Latham 30 years ago and it is still true today.’

Trobman joined Latham’s LA office as a summer associate that year. Three years later the firm asked him to move to New York to focus on the capital markets practice that would prove essential in cracking Manhattan.

In 2000, the year Trobman made partner, he was called to London by Voge, who was then overseeing the firm’s European expansion. Alongside veteran Bryant Edwards, Trobman built the firm’s high-yield operations in Europe, taking the lead on the project after Edwards was moved to Dubai in 2008.

A long list of management roles followed. Appointed London chair of corporate in 2008, in 2014 Trobman was elected to the executive committee.

As vice-chair since February 2017, he contributed to reorganising the firm’s 153-lawyer Asian practices alongside his long-time friend from New York, David Gordon, with the firm bringing the region’s six offices under a unified management structure after the realisation that they had operated without a common plan and were badly siloed.

‘Latham has an Asia strategy no one is comfortable with,’ notes one former partner. ‘If anyone at Latham tells you the firm is successful in Asia, they are lying. This is true of all US law firms in Asia.’

Even the most critical ex-partner says Trobman is ‘very good at dealing with people and making them feel special’ and ran the high-yield department ‘phenomenally’, taking full advantage as US-backed bond financing became increasingly central in European deal finance.

His intolerance to any behaviour perceived as damaging to the firm is praised by admirers but seen as ruthless by detractors.

‘Rich is pretty ruthless,’ says one former partner: ‘He sees himself in a dog fight with Kirkland and the firm is increasingly conforming to Kirkland rather than sticking to its model.’

Another former partner says Voge and Trobman are ‘night and day different’. Where the first was known for his charisma, fluency and social skills, the latter is praised for his strategic vision and the ability to get things done. Where critics describe 2020 Latham as more focused on numbers and dominated by an ‘investment banker mentality’, a larger group of admirers see a more driven operation emerging with a clear plan for the medium term.

‘I have never viewed myself as the boss and I still don’t,’ reflects Trobman. ‘I view my role as helping others excel and as a team builder.’

In truth, even some supporters felt that Voge’s relatively late assumption of the top role and one-term commitment did not bring out the project veteran’s best, leaving him as more figurehead than the details-orientated chief executive of the Dell mould.

Voge was the ambassador, who saw himself as the bridge to the next generation of Latham partners and remembered (ironically) for pushing diversity up the firm’s agenda.

Trobman said from the beginning he was intent on staying at the helm for a decade; there would be no hint of caretaker over his candidacy and he was less interested in merely honouring Dell’s vision. His motto – ‘unlocking the platform’ – implicitly recognised that it was time for Latham to move up a gear in an increasingly competitive global market.

Trobman sums up his agenda: ‘As a firm we were more transactional – wonderful at handling a deal or high-stakes dispute and then moving on to the next as opposed to institutionalising relationships; we could have done a better job at that. We are now focused on serving our clients on more and more of their legal needs across practices and markets, assembling the right teams on every mandate, every issue, every time.’

In August 2019, he left London to relocate to the firm’s Manhattan arm – a better location to oversee the push in the three markets the firm has put at the centre of its strategy: the UK, New York and Northern California. Latham is changing.

From garage to Nasdaq

‘We have moved from a transactional relationship with our clients to one that supports them throughout their entire life cycle: from startup to initial public offerings to life as a public company, including M&A, financing transactions and litigation,’ says Latham’s New York-based corporate chair Marc Jaffe.

Partners sing the praises of the broad-service model. The three core transactional groups – M&A, capital markets and banking – bring in 45% of Latham’s revenue. Litigation accounts for just under 30% of global billings, with the remaining quarter made up of the firm’s specialist practices.

Latham’s party line is that its broad practice is the key to dominance in the world’s three most lucrative legal markets. Yet the sheer potency of the Latham brand can obscure the realities of where the firm currently sits.

Certainly, Latham’s progress in the City is impossible to ignore. Since Trobman moved to the UK in 2000, the office has grown from 60 to 450 lawyers, generating in the region of $450m.

Finance remains its greatest strength. The hire of Allen & Overy (A&O)’s former banking co-head Stephen Kensell in summer 2016 proved hugely successful. Yen Sum joining from Sidley Austin in 2018 helped to put its restructuring practice on the map and the firm has built a 20-lawyer financial regulatory business from scratch in three years following the hire of Rob Moulton from Ashurst in 2016.

‘One of the things that always struck me about Latham is how thoughtful it is in its expansion.’
David Walker

The push into private equity (PE) was led by a rainmaker for each of the three key European markets – German footballer turned French buyout star, Thomas Forschbach, in Paris since 2004; former Clifford Chance (CC) PE head David Walker in London since 2013; and fellow CC alumnus Oliver Felsenstein in Germany since 2015. Felsenstein’s election to Latham’s executive committee in 2018 reflects its position as probably the most successful US firm in continental Europe (see box, below).

Yet Kirkland’s dramatic inroads with private equity in the City combined with the resilience of Freshfields Bruckhaus Deringer’s sponsor practice have over the last three years made Latham’s path to dominance more complicated than some expected.

‘If you had asked me two years ago I would have said it is the standout PE practice in the City,’ says the PE head of a UK firm, summing up a common view. ‘It has now been kicked off the pedestal by Kirkland.’

Latham finished second in Mergermarket tables for deal volume and value in 2019, both in Europe and globally. Except for European deal count, the top spots of the tables were all occupied by Kirkland.

Other areas of its City practice also require work. The London litigation push launched under Simon Bushell in 2013 had to be reset when the former Herbert Smith Freehills partner quit for Signature Litigation in early 2017. The second attempt started with the hire that year of former Olswang and Quinn Emanuel Urquhart & Sullivan partner Martin Davies. Despite following up with well-respected names such as Olswang’s Ian Felstead, and Hogan Lovells’ Jon Holland and Andrea Monks, many peers remain unimpressed with the practice.

The firm has also gone through considerable chopping and changing in striving to get its restructuring practice match fit – a striking contrast to Kirkland’s highly-productive City team.

The picture is similarly complex in the firm’s largest office. The growth of the firm’s Manhattan base is striking, from 360 lawyers at the beginning of 2015 to 511 today. The office generates roughly 20-25% of the firm’s annual billings and in 2019 turned over more than $750m.

‘What makes us unique is our global platform,’ says office head Penzer. ‘Many New York firms have not grown significantly beyond their Manhattan roots, very few of them are truly global law firms.’

Its strength in high yield is old news and the East Coast reputation of banking partners such as Daniel Seale well established. The firm has also made notable inroads in the Manhattan disputes scene, with practice head Michele Johnson adamant that Latham was ‘always a major litigation firm, it’s just that the lead story was Latham taking over the world in the transactional space. It is remarkable that we have grown at the same pace as the transactional practice.’

But the loss of New York-based PE co-head and Kohlberg Kravis Roberts & Co adviser Jennifer Perkins to Kirkland in 2018 signalled that even Latham can have challenges in retaining talent in the most money-driven practice areas.

In Northern California, meanwhile, Latham’s 216-lawyer operation across Silicon Valley and San Francisco is notable as one of the small group of out-of-towners that managed to build a credible emerging companies practice. This was partly due to Latham’s flexibility on fee arrangements with start-ups, partly thanks to the firm’s ability to manage a robust veteran hired from Cooley, Alan Mendelson and his colleague Patrick Pohlen.

Silicon Valley legal circles are full of stories around the duo, including one about Mendelson once throwing a plate of spaghetti against the wall in rage. Yet they proved pivotal in Latham’s advance in the Bay Area. Although critics maintain that Latham lacks younger partners with the reputation to drive forward the practice, partners point to Silicon Valley head Tad Freese as one of the rising stars who will take over from Mendelson when the 70-year-old finally retires.

Combined with its strong local litigation practice, the Northern California offices contributed to making Facebook one of Latham’s largest clients in 2019.

Yet Latham’s biggest challenge across New York, London and Silicon Valley is public M&A. Ruck is Latham’s only M&A partner that could be classed alongside America’s top lawyers. After finding an unlikely breeding ground for a US-wide plc practice in Latham’s Orange County branch, Ruck is now called in wherever in the US Latham needs an M&A heavyweight, especially in New York.

While in the Bay Area the firm has if anything lost ground after the retirement of Christopher Kaufman in 2017, in London the hire of well-liked A&O M&A partner Ed Barnett in 2017 was meant to kick off the assault to the last bastion of Magic Circle firms.

‘We are hiring talented people in their early 40s, people who have a lot of energy and drive. We bring them in and see them thrive on our platform.’
Charles Ruck

But despite notable successes with UK clients including now-defunct travel group Thomas Cook, pharma group GlaxoSmithKline and German giant Siemens, Latham’s plc practice in the City still has a long way to go.

Even in leveraged finance the firm faces some challenges, given the progressive shift in power from regulated banks to sponsors, an issue for a firm that built its brand on a superb underwriter client list. Latham rejects, however, the critique that it has failed to foster a strong enough sponsor profile to its deal finance business, arguing that its practice has already considerably repositioned in recent years.

Comments Kensell: ‘The majority of the work we do continues to be bank side. It is 70%/30% or 60%/40%. We represent all the major banks and many of the most active sponsors. I expect we’ll continue to have a very healthy balance between creditors and sponsors, and we’ll continue to be unique at that.’

Latham currently has 14 banking partners in London: eight focused on the lender side, four dedicated to sponsors and two straddling both bases (including Conrad Andersen, hired from A&O in 2018).

The long haul

In a global legal market increasingly defined by Kirkland, Latham partners invite industry observers to gauge it against the bigger picture. Where the Chicago firm’s new-found status as a global leader has yet to prove its resilience, Latham can be said to have stood numerous tests, among them the 2008/09 financial crisis and the 1990 implosion of its biggest client, controversial junk bond house Drexel Burnham Lambert.

Says one Latham veteran: ‘The story is not that Kirkland was behind Latham five years ago and now it’s $4bn+. They are within a 10% band. The story should be, how did Latham and Kirkland become the two giants in the last 15 years? How did two non-NY based firms go down a different strategy 20 years ago and today every single NY firm would say the shock to Big Law is how they overtook them?’

Whatever criticism can be levelled at Latham – and admiration for the firm has often meant the brand runs ahead of its reality – it is far more than the sum of a handful of star partners or the result of chasing hot sectors. ‘One of the things that always struck me about Latham is how thoughtful it is in its expansion,’ notes David Walker. He points to work with European client CVC Capital Partners in the Bay Area on one side, and the hire of London emerging companies partners Mike Turner from Taylor Wessing and Shing Lo from Bird & Bird in January on the other: ‘The links between the Bay Area, London and New York will be very powerful.’

Ruck, who has since 2015 been leading the ten-year push to build out the firm’s New York M&A practice, echoes the point: ‘While we continue to focus on building out our M&A practice on the ground in New York, when you look at our teams in California, Chicago, Houston, Boston, DC as well as New York and put that group in a room, it’s a different story.’

Similarly touted is the firm’s focus on bulking up its specialist practice areas. ‘If you talk with significant corporates, they want firms to be able to help them with difficult technical issues,’ says Walker. ‘To do a complex healthcare carve-out, you need to have the specialists. Just saying you have the top M&A lawyers does not work for the big M&A deals.’

The slow progress with the M&A practice is partly thanks to Latham’s preference for young rising stars rather than established names. ‘We are hiring talented people in their early 40s, people who have a lot of energy and drive. We bring them in and see them thrive on our platform,’ adds Ruck, pointing to the hire of Justin Hamill from Paul, Weiss, Rifkind, Wharton & Garrison in New York last year and the much-tipped Sam Newhouse from Freshfields in London this year. ‘When hiring, it is important to consider room to grow, ability to develop the practice and culture fit. If you don’t, there’s transplant risk.’

Latham’s approach of focusing on the longer term has certainly become more difficult to sell at a time when $10m cheques are increasingly common even in the City.

But then Latham’s governance and remuneration systems have the advantage of being flexible enough to allow the firm to invest in top rainmakers while avoiding too large gaps in its core partnership (see box, below). Earnings in the core equity ladder ranged between $1.5m and $4.5m in 2019, but with bonuses the firm is able to offer $10m packages to a select few.

The firm also strikes a delicate balance between a powerful partnership and effective decision making, a balance that has in recent years eluded the Magic Circle from which Latham learned more than a few tricks during the Dell years.

Decisions on strategy, promotions, remuneration, office and practice head appointments all fall to the executive committee, whose nine members are elected by the partners for a maximum of four consecutive years.

Except for the chair and the two vice-chairs, none of whom retain billing roles, no committee members get discounts on billable-hour targets, and all management roles are rotational and temporary, with office heads’ terms normally capped at five years.

Even if it has met a few hurdles along the way, Latham is still in the 2020s the firm most likely to manage to build a broad-service, international institution that combines wide coverage with profitability, sizeable footprint with fast growth, a huge structure with lean management and collegiality with decisiveness.

And not only has Latham survived Voge’s departure largely unscathed, year-on-year growth has progressively improved over the last four years, with Latham hiking revenue by 11% in both 2018 and 2019 to hit $3.768bn, while profit per equity partner has risen by 6% and 9.5% reaching $3.78m.

Trobman predicts the firm will keep on growing revenue and profits at an equal or higher pace moving forward. A leaner, and possible somewhat meaner, incarnation is set to emerge.

Concludes its leader: ‘Of course, if there is a massive slowdown, it will have an impact. But I want to make sure we don’t make bets on one particular area, we don’t rely on results from one particular practice. No matter what is going on in the world, we are building a platform that is going to enable us to thrive.’

Providing it doesn’t fall for its own legend, Latham still looks like the safest horse to back in global law. LB

marco.cillario@legalease.co.uk

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