LB100 Allen & Overy: Turnover Soars With Globalisation

Allen & Overy’s worldwide senior partner David Morley remembers doing his first deal for Goldman Sachs as a young partner in the banking group in 1992.

This was a time when the fact that an American investment bank was in London was still big news: the arrival of the US financial institutions, which began at the end of the eighties, shook up the City.

‘I remember a UK corporate client being asked about the difference that Goldman had made in London,’ recalls Morley. ‘He said he used to ring up his merchant bank about a deal and they said they’d come round tomorrow to talk to him. When he rang Goldman, they said they’d be round in half an hour, and they ran.’

For A&O, the challenge at the time was to diversify the client base and ensure it got a good slice of the action. ‘One of the first banking partner meetings I went to was all about fears that we were over-dependent on a few clients,’ says Morley. ‘We no doubt thought that the merger of Clifford Turner and Coward Chance, which had not long happened, had created a much bigger competitor and they were giving us a run for our money.’

In many ways, those two memories of 20 years ago exemplify what has driven A&O through the last two decades: the globalisation of the client base, and the globalisation of the competition. In 1992, the firm was the sixth largest firm in London by turnover, behind its Magic Circle rivals and Lovell White Durrant (now Hogan Lovells).

The firm had performed well during the recession between 1988 to 1991, thanks to the hire of an insolvency team comprising Gordon Stewart, Nick Segal and Peter Totty from Cameron Markby Hewitt (now CMS Cameron McKenna) just before the markets turned. This move transformed the market as it was the first combination of a pre-eminent banking practice and a top-notch insolvency team.

But in 1992 A&O wasn’t global and had little aspiration to be. ‘I think we had five or six offices but we thought of ourselves as a London firm doing work for international clients,’ he says. ‘We hadn’t yet even started the debate about whether we needed to be international, and I doubt we even had any non-English lawyers as partners.’

It wasn’t until 2000 that A&O merged with Benelux firm Loeff Claeys Verbeke, adding significant capability in Belgium, the Netherlands and Luxembourg. ‘That was a massive catalyst for us to go global,’ says Morley. ‘That was when we started thinking of ourselves as an international firm, having to take into account the views of partners in other markets. That was the making of the modern firm.’ One direct consequence was the acquisition of a young corporate star in Belgium– one Wim Dejonghe – who became managing partner of the firm in 2008.

Much of the credit for the firm’s global transformation goes to then senior partner Bill Tudor John, who saw what had to be done and carried the partners with him as he made it a reality. Oh, and Clifford Chance. ‘We definitely looked very closely at what our competitors were doing,’ says Morley. ‘To give them their due, Clifford Chance did transform the landscape and articulate a very clear view of what they wanted to be as an international firm, and that did wake up the rest of us.’

‘I think that’s one reason the big City firms have become so dominant internationally,’ he adds. ‘It was because of the intensity of the competition between us, because we were operating in a relatively small market, and because London work was always so international it was only natural for us to go after those clients.’

A&O’s revenues have followed an almost faultless upward trajectory as the LB100 has charted its history, growing more than ten times over, from £112m then to £1.18bn today. But there was a blip in 2010, when turnover fell back £40m from 2009’s £1.09bn. It followed the decision to lay off about 10% of partners and staff, taken under Morley’s watch. ‘It was a big thing for the firm; we’d never done something like that,’ he says. ‘But I think most people would agree looking back that it was the right thing to do and it was well executed. It was done as well as it could have been.’

As the impact of 2007’s credit crisis became a reality, the firm needed not only to downsize, but to re-evaluate its commitment to markets such as securitisation and leveraged finance. ‘We couldn’t predict what the new banking environment was going to look like,’ he says, ‘but we knew that we were going to have to be lean and fit in order to deal with it.’

It wasn’t the first time the firm had taken tough calls, however, with Tudor John having decided around 1993 to tackle performance in what was then called Project Alpha. As the firm emerged from a recession and didn’t immediately pick up its share of transactional work, it asked some of the partners to leave. ‘In those days that was considered really dramatic,’ says Morley. ‘I remember being fascinated by the debates going on about what a partnership is and what our duties were to each other. For some of the older partners it was a real shock.’

It kick-started an era of intense growth. In 2012, A&O ranks fourth in the LB100, edging ahead of Freshfields Bruckhaus Deringer for the first time. But the competition is one thing that’s been constant. ‘I think if you had asked me in 1992 to name our main competitors, I would have said Clifford Chance, Linklaters, Freshfields and Slaughter and May,’ says Morley. ‘That was before the concept of the Magic Circle, but it’s interesting that the pecking order hasn’t really changed.’

What has transformed is the work. ‘At that stage we had more work than we could handle. We basically had to turn up and answer the phone, and then get on with the deals,’ he says.

Morley believes the next 20 years will be about further internationalisation – ‘we are in 29 countries and there are about 195 in the world’ – and structural change of the profession as resourcing necessarily becomes more fluid. On resourcing the firm has already fired the starting gun, with the launch last year of a support services ce-ntre in Belfast that it expects to employ 250 support staff and 50 fee-earners by 2014.

Morley says there will be more structural change ahead: ‘At the moment?the industry model, with roughly one partner to every three and a half associates, is broken. Our clients don’t like it, because they don’t want to carry the cost of training our lawyers or for us to maintain that fixed resource. Our people don’t like it either. It’s too inflexible. Either they are being overworked, which is exhausting, or under-used, which is unsettling. There’s pressure on the model from all sides.’

Now the firm is examining a new approach, which could mean fewer associate lawyers in ten years’ time, not more. And for today’s young banking partners, an entirely different outlook. ‘It won’t be long before we see four generations in the workforce for the first time,’ Morley predicts. ‘Fixed career structures and fixed ages of making partner and retiring are all going to change. We have just abolished our retirement age and that’s an early sign of an increasing trend.’

Innovation and growth remain firmly on the agenda.