Global 100 – Letter from Silicon Valley

For reporters used to the profession’s usual cautious pronouncements, it is striking how enthusiastic California lawyers are about the outlook; in the Bay Area you can forget the caveats that still dominate in New York and London. ‘We are in this extraordinary period of extended boom,’ says Cooley’s San Francisco corporate partner Rachel Proffitt. ‘We see equal strength in capital markets and M&A and that’s because there is so much capital. All indicators point to a continued strong year.’

The list of bullish quotes collected in a dozen interviews with the West Coast legal elite is certainly lengthy. Many note the much-touted fact that if the state was a country, California would be the world’s fifth-largest economy (now larger than the UK). It is also America’s most populous state and third-largest by land mass, measuring 770 miles at its longest point. Others simply invite you to drive down the 101 route from San Jose to San Francisco and look around at the offices of the Sunshine State’s corporate titans like eBay, PayPal, Google, Visa, Intel, Oracle, Twitter… the full list of tech giants remaking multiple industries on a global level.

‘The entire global economy, whether you are selling apples or you are Apple, is being disrupted by technology,’ says Goodwin Procter managing partner-elect Mark Bettencourt. ‘Virtually every company is, or aims to be, a tech company.’

If the tech and life sciences sectors utterly define California’s economy, their impact on activity levels spans almost every practice area, from capital markets, venture capital and private equity through to litigation, regulatory, data privacy, tax and employment.

Not to mention the work those clients can feed into a law firm’s global network. ‘We represent many of the big companies – Facebook, HP, Apple, Amazon – and many of the gig economy-type businesses like Uber,’ says Gibson, Dunn & Crutcher chair and managing partner Kenneth Doran. ‘That’s created a lot of work for us, not only in California but [in several cases] globally because they are active in every part of the world.’

Indeed, the flurry of IPOs valuing loss-making companies at tens of billions (Uber was valued at $82.2bn but is set to lose $5.4bn this year) can draw uncomfortable comparisons with the dotcom bubble of the late Nineties. But these remain isolated suggestions. In contrast to the previous era of corporate excess, these tech leaders are already generating huge revenues and having a dramatic impact on their chosen sectors, even if it does not always translate into the bottom line yet.

Latham & Watkins’ Silicon Valley managing partner Tad Freese speaks for many when he says the region has largely ignored the issues affecting the world around it, including the Trump administration’s increasingly protectionist trade stance: ‘All those things could have a meaningful impact on the global economy, but at the moment we are not seeing people giving much thought to that.’

Even California-specific matters, such as the occasional company mulling a relocation to more benign tax regimes and cheaper locations such as Texas, are mostly dismissed in the context of overall boom. ‘The cost of living, particularly in the Bay Area, has been a concern for companies since the Gold Rush in the 19th century,’ quips Morrison & Foerster’s managing partner Craig Martin. ‘But when you look at the critical mass of educated workforce and financing sources, the Bay Area continues to be irresistible.’ The possible increase in regulation around data management is, if anything, seen as a source of more work for legal counsel.

Where opinions diverge is on how evenly spread the boom is across the state. The gap between the Bay Area and Southern California has increased in recent years, with fewer financial institutions and public companies based around Los Angeles compared to a decade ago and inevitable reverberations across the legal industry. One of the best regarded East Coast entrants, Skadden, Arps, Slate, Meagher & Flom, has reduced its LA headcount from 101 to 82 over the last three years and is planning to move to smaller premises when its current lease expires in 2021.

Some point to the growing strength of the media and entertainment scene around LA’s Century City district. Five years ago Latham hired 20 lawyers from O’Melveny & Myers to launch locally and has since more than doubled the team to around 50. Fellow LA-bred outfit Paul Hastings followed in March last year.

The burgeoning tech scene around the area ambitiously dubbed Silicon Beach, between LA and Santa Monica, is also getting more attention from investors, although there is still far to go to bridge the gap with the more established parent area. Goodwin is to open in Santa Monica later this year, after scaling back its Southern California presence in the early 2010s, shutting its Century City and San Diego offices.

‘The cost of living has been a concern since the 19th century. But when you look at the critical mass of educated workforce and financing sources, the Bay Area continues to be irresistible.’
Craig Martin, Morrison & Foerster

But signs of increasing activity in the South pale when compared to capital-soaked North California. The area around Palo Alto is now seen as the place to be for lawyers in private practice and in-house, fielding everything from start-ups to mature companies with large legal teams and complex, cross-border needs.

Pushed by the Millennial preference for city life over the suburbs, tech companies are increasingly looking at San Francisco too. The building housing cloud-based software company Salesforce became the tallest skyscraper in town when it completed last year.

Looking for the sun

All good news for the global legal industry? The obvious caveat is that boom means competition; as the Bay Area cake grows, getting a slice is becoming more challenging.

The four dominant Northern California-born firms are currently all in rude health. Cooley and Wilson Sonsini Goodrich & Rosati remain the two most established brands globally. But the smaller Fenwick & West and celebrated boutique Gunderson Dettmer Stough Villeneuve Franklin & Hachigian have hugely successful and profitable practices too. The quartet built their success working with emerging companies throughout the different stages of their growth, from venture capital to IPOs and transactions… which over time has meant building relationships with the largest tech giants around the 101.

With 305 lawyers in Northern California, Cooley is now seen as the strongest of the four by many, upending the decades-long dominance of Wilson Sonsini. After joining the $1bn club in 2017, Cooley grew its global revenue by 14% to $1.23bn last year.

Yet Wilson Sonsini remains a formidable player. The firm’s turnover increased 8% to $857m in 2018, with around 60% of that generated directly from California. It remains the largest of the group, with 425 lawyers between Palo Alto and San Francisco. It has, however, had more partner exits than usual over the last couple of years, including former co-managing partner Jack Sheridan to Latham in March 2017 and veteran corporate partner David Segre to Cooley in April 2018. This July, the firm also lost senior M&A specialist Michael Ringler to Skadden. Some speak of an enduring reliance on founding partner and local legend, corporate lawyer Larry Sonsini. Managing partner Douglas Clark dismisses such suggestions, arguing that Sonsini has worked on succession planning for over a decade and pointing to corporate partner Rezwan Pavri and chair Katharine Martin.

And Wilson Sonsini is hardly the only major player facing generational challenges, as all local incumbents bar Cooley were formed between the 1960s and the 1990s, reflecting a youthful legal ecosystem. But they all have good reasons to be optimistic about their chances of extending their dominance. For one, very few out-of-towners have managed to make a meaningful impact on the California market, reflecting in part the huge cultural differences between conservative East Coast law firms and the local culture.

‘It’s a small ecosystem and relationships have been carried through many of the ups and downs,’ reflects Cooley’s Proffitt. ‘That makes it very challenging for new entrants.’

The flow of lawyers into in-house jobs as tech giants grow their legal teams also means local incumbents are placing alumni into decision-making roles. ‘When 18 out of 20 in-house lawyers have come from firms based here, guess who they are going to think about?’ says one local partner.

What has traditionally discouraged out-of-towners is also the difficulty of adopting the start-up mentality. Working with emerging companies means banking on the long-term reward of relationships with clients that may not be able to afford premium legal fees for years; Silicon Valley advisers pioneered the tactic of taking equity in start-up clients instead of fees.

Only a select handful of out-of-towners have bridged the gap. Boston’s Goodwin is broadly considered to be the only non-California-bred firm to have cracked the emerging company space. It entered San Francisco in 2006 and Silicon Valley in 2007 and has grown its teams to 93 and 76 lawyers respectively, with several laterals from the top Silicon Valley firms, including well-regarded tech co-chair Anthony McCusker from Gunderson in 2010.

‘One of the things that distinguishes Goodwin from other firms is that we have been committed to the tech and life sciences industries for a long time,’ notes Bettencourt. ‘There is something very unique about these industries. You cannot just jump into the innovation lifecycle at a late stage and expect to have the knowledge and expertise required.’ He concedes it took time for the investment to pay off, but says that the two Northern California offices are now among Goodwin’s top-performing branches, with above-average revenue per lawyer.

Mandates showing the payoff include representing the underwriters in the $2.34bn IPO of Uber challenger Lyft and software company Qualtrics in the $8bn acquisition by SAP. When it comes to big-ticket M&A and private equity, a group of New York firms has also made inroads and claims to be better equipped than locals when it comes to representing buyers wanting to acquire valuable tech assets (the four leading indigenous firms are unsurprisingly generally more active with vendors). But their focus on large transactions has meant such Wall Street firms have kept local teams small.

Top of the pack in tech M&A is Skadden’s 72-lawyer outpost, thanks to another legend in the California legal scene, corporate partner Kenton King, and a well-established collaboration with Gunderson. But Palo Alto headcount has remained static over the last five years and San Francisco shut in 2010.

Simpson Thacher & Bartlett’s Palo Alto arm, launched in 1999, is well regarded for private equity thanks to local star Richard Capelouto. As is Kirkland & Ellis, which launched in San Francisco in 2003 and Palo Alto in 2008.

The longest standing Wall Street firm in the market, Weil, Gotshal & Manges, has a profitable, 28-year-old Silicon Valley operation led by well-regarded managing partner Craig Adas. But it only fields around 50 lawyers and has no appetite for laterals to replace the five-partner tech M&A team led by former Cooley and Dewey & LeBoeuf veteran Richard Climan that decamped to Hogan Lovells two years ago.

That investment made Hogan Lovells the only transatlantic player to get some attention within the California legal elite. The team is said to have billed around $40m in 2018, well beyond expectations. Growing its 35-strong Bay Area operation is now a top priority, with a focus on a local litigation practice.

‘It’s a small ecosystem and relationships have been carried through many of the ups and downs. That makes it very challenging for new entrants.’
Rachel Proffitt, Cooley

Southern California firms have larger teams and a longer history, with Latham’s 225-lawyer Bay Area team seen as the strongest broad-service player. Freese is bullish: ‘We are the only firm people see as a competitor [in every area], from the two guys in a garage to big-ticket corporate [work].’

Mid-tier, tech-focused UK players have had some success securing outbound work, but their small teams do not practise US law, working instead on fostering relationships with local clients and firms. Osborne Clarke (OC) was the first entrant, opening a branch in Silicon Valley as far back as 2000 followed by San Francisco in 2014, and is the best-known brand in local legal circles despite only fielding four lawyers. Office head Emily Jones says OC has worked with more than 800 local clients, including Facebook.

Those following OC include Fieldfisher in 2012 and Bird & Bird last year. Taylor Wessing, which launched in the Valley in 2014, made headlines earlier this year for announcing a deal to co-operate with Wilson Sonsini on transatlantic tech and life sciences transactions. What is striking is the absence of elite London firms.

Not that they have not tried. Clifford Chance’s headline-grabbing foray into the state’s legal market between 2002 and 2007 proved notoriously disastrous. Freshfields Bruckhaus Deringer considered recruiting Climan’s team in 2012 but still looks far from a local launch. Allen & Overy is, at the time of writing, well over a year into merger talks with O’Melveny, historically one of Los Angeles’ leading broad service firms but one that has seen marked decline over the last 15 years.

Despite some predicting more serious attempts in future, it is hard to imagine the barriers to entry lowering any time soon. Local firms, meanwhile, have plenty of reasons to remain enthusiastic: another three years of this ‘extended boom’ and the gap with the more cost-conscious New York will have further closed. For the Global 100 law firms, California remains that most curious of prospects. A market that is utterly local, but has forced the global village to adapt to it rather than the other way around. It is hard to see true Global Elite status enduring without a credible plot in the Californian sun.

marco.cillario@legalease.co.uk
Return to the Global 100 menu

Global 100 Lawyers by region

* Percentage includes 7,103 lawyers at China firm Yingke. Discounting that firm, Asia would account for 16% of the Global 100 lawyer headcount

Global 100 UK headcount

Rank	Firm	No. of lawyers	% of lawyers in region
1	CMS	1,419	35
2	Pinsent Masons	1,361	78
3	Eversheds Sutherland	1,287	43
4	Linklaters	1,084	39
5	Allen & Overy	1,003	36
6	Clyde & Co	973	51
7	DLA Piper	911	22
8	Herbert Smith Freehills	907	36
9	Clifford Chance	878	30
10	Freshfields Bruckhaus Deringer	659	30
11	Dentons	648	7
12	Hogan Lovells	627	21
13	Norton Rose Fulbright	623	17
14	Slaughter and May	620	88
15	Gowling WLG	594	44
16	Ashurst	564	34
17	Baker McKenzie	548	10
18	Simmons & Simmons	474	48
19	Bryan Cave Leighton Paisner	467	31
20	Womble Bond Dickinson	431	45

Global 100 Europe headcount (excluding UK)

Rank	Firm	No. of lawyers	% of lawyers in region
1	CMS	2,279	57
2	Baker McKenzie	1,615	30
3	DLA Piper	1,376	33
4	Dentons	1,280	13
5	Clifford Chance	1,157	40
6	Linklaters	1,112	40
7	Freshfields Bruckhaus Deringer	1,099	50
8	Allen & Overy	1,030	37
9	Hogan Lovells	959	33
10	Bird & Bird	801	63
11	White & Case	656	29
12	Taylor Wessing	568	54
13	Norton Rose Fulbright	410	11
14	Simmons & Simmons	391	39
15	Cleary Gottlieb Steen & Hamilton	379	28
16	Latham & Watkins	378	14
17	Herbert Smith Freehills	323	13
18	Jones Day	312	12
19	Ashurst	236	14
20	Squire Patton Boggs	224	15

Global 100 US headcount

Rank	Firm	No. of lawyers	% of lawyers in region
1	Kirkland & Ellis	1,932	82
2	Morgan, Lewis & Bockius	1,712	84
3	Latham & Watkins	1,684	64
4	Greenberg Traurig	1,642	83
5	Jones Day	1,618	64
6	Sidley Austin	1,563	80
7	Skadden, Arps, Slate, Meagher & Flom	1,385	79
8	Lewis Brisbois Bisgaard & Smith	1,308	100
9	DLA Piper	1,294	31
10	Perkins Coie	1,119	100
11	K&L Gates	1,107	61
12	Reed Smith	1,096	63
13	Gibson, Dunn & Crutcher	1,078	82
14	Holland & Knight	1,069	94
15	McGuireWoods	973	96
16	Paul, Weiss, Rifkind, Wharton & Garrison	946	92
17	Hogan Lovells	934	32
18	Fox Rothschild	926	100
19	Goodwin Procter	924	84
20	Dentons	890	9

Global 100 Asia and Australia headcount

Rank	Firm	No. of lawyers	% of lawyers in region
1	Yingke	7,103	100
2	Dentons	5,899	60
3	King & Wood Mallesons	2,412	97
4	Baker McKenzie	1,411	26
5	Herbert Smith Freehills	1,153	46
6	Ashurst	806	48
7	Norton Rose Fulbright	717	20
8	Clifford Chance	528	18
9	DLA Piper	490	12
10	Allen & Overy	430	15
11	Linklaters	361	13
12	Clyde & Co	254	13
13	Jones Day	252	10
14	Hogan Lovells	244	8
15	Mayer Brown	225	14
16	Freshfields Bruckhaus Deringer	220	10
17	White & Case	179	8
18	Morrison & Foerster	177	18
19	Squire Patton Boggs	176	12
20	Morgan, Lewis & Bockius	168	8