The Global 100 debate – Decision time

Alex Novarese, Legal Business: Let’s get some observations on how people think their businesses are performing.

Charlie Jacobs, Linklaters: If you look at the last three years, conditions for law firms have been pretty benign. For a lot of our clients, it has been a tough environment, but the law firms have performed well. There are more people competing, yet the top law firms all seem to be performing well. Complexity is good for our business. But most would say it feels a little softer this year. On a global basis, given the various tensions, it feels there are fewer of the big, transformative deals we all love. This year looks slightly more challenging.

Guy Norman, Clifford Chance: I agree. The first half has been surprising in the sense it could have been worse. I am more concerned about the second half given where things look, not just in the UK but across the spectrum, whether the US/China trade wars or the other things we all know about.

Alex Novarese: How are people feeling about mainland Europe?

Jeremy Clay, Mayer Brown: For a firm like ours with a big US business and US component, it is hard not to be attracted to further investment in the US. That said, France and Germany are essential to our European business. Our offering in Paris is principally PE and corporate. Paris is a good market – not huge, a bit insular but a nice market.

Germany is harder – the rates model is challenging. Brexit or no Brexit, we will continue to develop our business there but are unlikely to grow a large-scale offering. For us, over the next five years, the US will be key, New York and the West Coast in particular. Looking in Europe, growth in London will remain a priority.

Alex Novarese: France has taken off again in recent years, which seems to be all about private equity.

Neel Sachdev, Kirkland & Ellis: We principally act for private equity and holders of private capital, and, outside of London, Germany and France are big markets. Our German team has been very busy with take-privates. In Paris, we’re flat out.

Jason Radford, Ashurst: I agree. We are seeing a lot of deal activity, particularly in infrastructure. Many investors are heavily exposed to the UK and have turned their focus to mainland Europe. France and Germany are the two countries that have benefited most from that influx of capital.

‘The firms around this table are positioned to withstand whatever Brexit brings.’
Pranav Trivedi, Skadden, Arps, Slate, Meagher & Flom

Jonathan Field, SSQ: That stacks up with what we see. Our Paris business has doubled in the last 12 to 18 months.

Charlie Jacobs: If you are talking heavy corporates, the German market is much deeper. You just have massive corporates, many of which are going through some fundamental changes. Look at the energy sector and automotive. It is big on corporate transactions and the spin-off work around them.

Charles Hayes, Freshfields Bruckhaus Deringer: You need to take a long view [in Germany]. Does that view lend itself to the strategies of all law firms? Not necessarily. Suddenly there is this revival in German industrials, leading to a resurgence in M&A activity. Does that of itself make it a place you want to invest? Not necessarily. But there is still a long game to be played there.

The City outlook

Jason Radford: One of the later questions is about English law. I do not see it being threatened as a choice of law and still see the London market as strong. We will be investing in London.

Martin Davies, Latham & Watkins: I do not think Brexit will cause us, as a law firm, fundamental problems. Contentious work could increase. Brexit can have an effect, though it does not necessarily have to be damaging.

Natasha Harrison, Boies Schiller Flexner: In the longer term, I have confidence our clients will continue to use English law, because they like the certainty and the process, and also to use the English courts. Ironically, New York will probably be more of a threat. One European country that is doing quite a job at dispute resolution – albeit in the narrow field of class actions – is the Netherlands.

Alex Novarese: I can see London standing up better in litigation, but in a transactional context, it is surely losing ground.

Pranav Trivedi, Skadden, Arps, Slate, Meagher & Flom: The firms around this table are positioned to withstand whatever Brexit brings. We are working on a transaction at the moment in which an Italian acquirer is looking to buy an asset in Africa financed by a US private equity house. We are doing the transaction entirely in the UK, even though there is no UK nexus per se.

Jonathan Field: The behaviour of international law firms does not suggest they think New York law will take over. Look at what the international law firms have done in London over the last three years. They have added $1bn of revenue. If they thought English law was on the decline, they would not be making this sort of game-changing investment.

Charlie Jacobs: I think about my practice and a lot of clients were foreign companies that decided to list in London, and then grow and internationalise. If those companies had that question today, would they be interested in coming to London? Existing listed companies will not disappear, but could London miss the SABMiller of tomorrow? That is not just a Brexit question, it is a question of politics, tax and everything.

London is a great place to live and work. There is a bunch of immigrants like me who came to the UK who like working here and making this our home. A threat to the UK would be the immigration rules changing, so we cannot all get the talent we want.

Guy Norman: We have seen a slowdown of inward investment, but a lot of it is due to the uncertainty. As soon as things become clearer, people will calibrate their investment decisions again and some of that activity will pick up, even in a more depressed environment.

I agree on immigration, but with an election coming, there are some other possible lurches we could have. There are things beyond Brexit we need to think about in the UK market.

Mark Rigotti, Herbert Smith Freehills: Brexit is not the issue; the future relationship is where the risk lies. That is a new set of rules that has not been written yet. I do not see London falling away. We did some data on this and the London market has grown by about three, 3.25%, compound annual growth rate, over the last five years. The question might be, what is going to change? Will it still grow at that rate?

‘International law firms have added $1bn of revenue in London in three years. If they thought English law was on the decline, they would not make this sort of investment.’
Jonathan Field, SSQ

Alex Novarese: In five years, will your offices be larger, smaller or the same size?

Neel Sachdev: We are north of 350 lawyers now. When I started in 2003, there were 15. We would love to grow. The cap is to identify the talent who fit with our platform.

Alex Novarese: In three to five years, how big would you expect Kirkland to be in London and firm wide? The question a lot of people have is how far that model can take the firm.

Neel Sachdev: It will likely flatten in terms of percentage growth. It would be tough to continue growing at that same rate.

Alex Novarese: You have made a lot of people relieved.

Martin Davies: Some of the US firms probably have not yet finished building what they anticipate being their final platform. Most assume they will get bigger.

The American question

Alex Novarese: General thoughts about O’Melveny and Allen & Overy? How significant would it have been had that deal happened?

Natasha Harrison: I thought it would be an odd combination of a West Coast litigation-driven firm with a Magic Circle firm. I would not have envied the person integrating the two. It would have sent a strong message a Magic Circle firm is capable of finding a US partner. The question is whether it is the right partner.

Julian Stait: It sums up a lot of the issues we see at the moment. Allen & Overy is a great firm and O’Melveny is well regarded, but they are not peer firms. A&O has consistently been one of the top four or five firms in the English law world and O’Melveny, despite its great strengths, has not been one of the top US firms. It is an indication the Magic Circle, these days, could not merge with a firm they regard as a peer. That may be an indication of why it took so long.

Alex Novarese: It was partly that A&O had a 90% partnership vote hurdle to go through.

Guy Norman: I thought it was a much cleverer move than many commentators appeared to think. It would enable A&O in one move to shed that English law label, which the Magic Circle as a whole finds is a burden in the US. Anyone looking at it as the finished article was missing the point. The subsequent five to ten years would have given A&O a much stronger platform on which to build.

Neel Sachdev: It would have given them a West Coast litigation business, which could then be built, but not New York. How will the English firms go into the US?

‘Brexit is not the issue; the future relationship is where the risk lies.’
Mark Rigotti, Herbert Smith Freehills

Alex Novarese: The only deal on the table for a top-tier London firm in America is a firm on the slide, which O’Melveny was. It was the worst-performing firm in the top 100 for a decade. Yet it was still generating about 25% higher fees-per-lawyer than A&O. What does that tell us about the loss of clout of London firms internationally?

Jonathan Field: It would have been a really good move. There were a bundle of transactional partners at A&O who were against the merger. If that had gone through, you would have seen departures. That does not get away from the fact that management at A&O took the view that a serious international firm has to have credibility and critical mass in the States.

Denise Gibson: I agree there will always be fallout when you make a transformative move. The reality is that you immediately gain a huge ability to put the cynicism to bed. Stop the English law firm title; we are really committed to this market. Your phase B build-out in New York then looks a lot stronger.

Jeremy Clay: Going to New York is as hard for a West Coast US firm as it is for an English firm. Freshfields looks like a good deal [with the recent recruitment of four M&A partners from Cleary Gottlieb Steen & Hamilton]. You can pull off those deals, but they are super hard to do. It is a long haul. This [proposed merger of A&O and O’Melveny] had the merit of giving A&O a go-forward in the US that it does not currently have.

Julian Stait: It is incredibly difficult to trade up in New York.

Alex Novarese: Difficult, but surely necessary for a top London firm. Leave aside A&O, you need a credible answer for America. There are three options: build yourself, a major merger or not to do US law in substantive terms.

Jason Radford: The build-yourself model is incredibly difficult.

Alex Novarese: What’s the alternative?

Pranav Trivedi: It is difficult to position yourself in the Global 100 elite, in that case.

Denise Gibson: That comes down to the question of what we think ‘global elite’ means today and what it will mean in ten years. If you consider elite entirely a function of your profit per point, I suspect global elite to have less of an expansive footprint and product coverage. If you consider the global elite being able to face every challenge your client may have, anywhere in the world, you have to consider it beyond just a financial metric.

In my view, being elite in the future also means thinking about whether we have done what everyone is saying they will do around [diversity and inclusion]. Have we found a way to engage associates beyond paying them in the salary wars? Five years down the track, you will not be ‘global elite’ unless you have vertically-integrated technology and advanced solutions into everything you do. It is a much bigger topic than whether you have cracked America and where you sit on profit per point.

‘None of us is going to nail every market. I do not want to be an accountancy firm with a flag in every country and, under my watch, Linklaters ain’t going to be that.’
Charlie Jacobs, Linklaters

Jonathan Field: When partners talk to us, they try to define global elite. There are some metrics that everyone looks to. I say these are the basics: strength in New York and the East Coast; strength in London; something in continental Europe and something in Asia; turnover of over $1bn; and profitability of X, whatever you want that to be. If you apply all those filters, there are not that many that tick all the boxes, but there about ten firms that tick every box and those firms, right now, are the global elite.

Charlie Jacobs: I just do not agree the global elite has to be in the West Coast, the East Coast and have something in London. I think of this the other way round by saying: ‘Who do you want to act for and what do you need to build to serve the clients?’ We all need to recognise that, in today’s world, you cannot act for everyone.

Take the States and China; we all have some big decisions to make as to which clients to act for. If I look at our business, over the years we have dialled up our scale and breadth in the UK and Europe. We have seen an easier market in Asia, in the last few years, with a lot of Americans pulling back. But the domestic US market remains hard. None of us is going to nail every market. I do not want to be an accountancy firm with a flag in every country and, under my watch, Linklaters ain’t going to be that.

Alex Novarese: With Linklaters, what are your three big bets?

Charlie Jacobs: It is like mining: build out where you are strong. Do not go green field over brown field. We are really strong in the UK, Europe and Asia. Those are our three brown fields we continue to build around our strong market position. I am not suddenly going to go to a green field, such as the West Coast, and buy 100 lawyers because I fancy it, without understanding that market. I recognise I am like a tourist. I am going to get mugged.

Alex Novarese: You are saying you see more opportunity for Linklaters’ in Asia than America. You just want solid US coverage.

Charlie Jacobs: The question is how much scale you want to serve your best clients. We have found it easier to hire top partners in Washington than New York, so have done a lot in Washington in the last three years.

Guy Norman: We are an interesting concept in the US, because we are a Magic Circle firm and did the first major US merger. It was a bumpy ride but if you put the history behind us, we are in a very good position today. I am not pretending we are one of the top US firms, but we have 77 partners and 300 lawyers in the US. We are building on the areas where we are strong and are Band 1 in many areas, but we are not going to oversell it. The message I always give internally is to keep building on what you have but be satisfied with who you are. Many international firms spend their lives agonising about why they are not one of the mainstream US law firms. But none of us is and we are not going to become so over night, if ever.

Alex Novarese: What does everybody think about the Cleary M&A team that went to Freshfields [in October]?

Charlie Jacobs: It looks a good move.

Guy Norman: The question in these situations is less about whether they are a good or a bad team but more about their long-term commitment to a Magic Circle firm. In three years, do you move to the next firm? But it could be a fantastic move.

Jeremy Clay: It is an important signal. A UK firm prepared to pay those kinds of dollars is very significant. You will have to do it again and again in a way that moves the needle, but it was an impressive deal.

‘We turn young lawyers into mercenaries. We told them their hours are worth the same as the person next door. We have created our own dilemma.’
Tamara Box, Reed Smith

Denise Gibson: They must also have been compelled by the story. It is a great headline, and I agree with Jeremy that everybody, whether a US or UK firm, looked at that and went: ‘Well played! I am paying attention now.’

Charlie Hayes: Denise’s point on the A&O potential merger is equally valid here. It’s a great opportunity to build out on these hires. This gives us an opportunity, as part of the story and the strategy. It may be expensive, as Jeremy says, but the point is it shows real commitment.

The talent

Alex Novarese: Let us move to talent. Tamara, this is a good time to bring you in.

Tamara Box, Reed Smith: It is one of the biggest challenges we face as an industry, because we have built our entire model on linear careers, in a hierarchical environment. That is not what a lot of talent is looking for. We turn young lawyers into mercenaries. We have told them their hours are fungible. It is worth the same as the hour of the person next door. If you are selling your hours, would you not do it for the highest price? We have created our own dilemma.

On diversity, we have done even worse by ourselves, because we have looked at the cohort of people coming out of universities and limited ourselves to the ten, 15%, prepared to tell us what we want to hear. ‘Yes, I want to do the X number of hours. Yes, I want to wait 15 years before I get whatever carrot you are holding out.’ We call it a talent war and use the one tool in our toolkit to go after them: money.

We are going to learn how to deal with attrition at vastly different rates than we have ever had and we are going to incorporate skillsets that are totally different from those traditionally looked for. All those things are within our gift but not our business models, so we are struggling. We are at an inflection point. The real talent war is not what lawyers we are hiring, it is whether they are becoming lawyers at all.

Martin Davies: We have two schemes a year, in which summer students come in and stay for X number of weeks. At the end, there is an interview. In the last 12, 24 months, the nature of questions put to us is now very different. We used to hear exactly what we thought we wanted, which is that this is exactly what they want to do. Now, not as much. The questions are more searching. The first question I was asked is: ‘Why is it good to want to be a partner, bearing in mind the sacrifices you have to make?’ That was a summer-scheme student.

Neel Sachdev: We have improved our hiring through clarity of message. We say: ‘Come here if you want to be a partner.’ We give our young lawyers accelerated paths to partnership. They can be a partner in six years’ PQE. Then they have a four-year window to equity, to assimilate becoming a partner, learning all the skills, going out and building a personal franchise, and helping us develop our franchise. I feel good about that model, because it has integrity and transparency, and it is meritocratic. I did 150 interviews last year of young banking associates, partners, etc, and one of the common themes is a lot of other firms are very opaque about career paths. Our strategy is winning. That is not for the marquee hires; that is the young lawyers, coming out of other firms, who are going to be the partners of the future.

Alex Novarese: When people ask me about Kirkland – which is every time I talk to anybody – they ask about the accelerated promotion structure. It has been, as close as I can tell, Kirkland’s secret sauce. I have never worked out what the problem is supposed to be. Lawyer/equity partner leverage at Kirkland is about the same as Freshfields. This supposedly highly leveraged firm isn’t even highly leveraged.

‘We have improved our hiring through clarity of message. We say: “Come here if you want to be a partner.” Our strategy is winning.’
Neel Sachdev, Kirkland & Ellis

To pick up Tamara’s point, is there not an issue with disengaged juniors that you are asking them now to wait ten, 15 years to be a partner? That’s a tough sell.

Jason Radford: The optionality you provide is more important. Not everybody wants to be a partner anymore.

Alex Novarese: Does it not become more important to create that range of options precisely because you are making partnership more remote? The firm – Kirkland – with the strongest growth around the table is the one making partnership available earlier. Certain firms have delayed partnership decisions far too late, which does collateral damage.

Natasha Harrison: We pick up associates who have been trained by all of you. They are looking for absolute quality of work, responsibility and a clear career path. I interview them and say: ‘I am interviewing you to see if you can be a partner here, one day.’

Jason Radford: Linking this into the diversity discussion, the industry has historically left the career discussions way too late.

Alex Novarese: This is my point about delay because you are haemorrhaging women lawyers.

Jonathan Field: Why don’t all firms do what K&E has done? There are really two answers: firstly, some firms are scared clients are not going to buy a six-years-qualified as a partner. It would seem that theory has been disproved by K&E. The second is a very insular view that there is a prestige to being a partner, so you cannot just let everyone be one. I do not think that is a commercial view.

Neel Sachdev: You just make up the right people. Every time you make up somebody and get it wrong, you dilute your franchise.

Denise Gibson: The K&E model is genius, but sometimes people refer to your entry-level partners as glorified senior associates. I have worked with them and they are highly talented, but I guess a lot of your clients took comfort from them having the backup of the more experienced partners. There is something to be said for the model, but it is difficult for it to be adopted more universally.

Neel Sachdev: It helps us as well because the clients we are acting for, in private equity and private capital, are young. Private capital is a younger person’s game.

Alex Novarese: The status quo for gender diversity is obviously not great. Is there any sense it is getting slightly less embarrassing?

Denise Gibson: There was a very nice piece in the FT. I had this vision that it was going to be us.

Nathalie Tidman, Legal Business: I am interested to hear what people think of the idea of a shared partnership. Surely that ticks more than one box, not just keeping valuable, talented women in the profession.

Denise Gibson: I am massively sold on this. Improving the way in which we scale jobs has to be a solution of the future. This is not just for women, frankly. It is not necessarily a traditional job share but what models we can employ. How do you engage these people so it feels like a two-way relationship?

Guy Norman: We need to engage with our clients more openly around these challenges. With some clients a lot of lip service is paid, but when it comes to the heat of the moment, they want the same person in the room, 24/7, through their transaction, because that is their priority.

‘Clients pay lip service, but when it comes to the heat of the moment, they want the same person in the room, 24/7, throughout their transaction.’
Guy Norman, Clifford Chance

Tamara Box: We use this as an excuse. The problem goes back to our business model. Clients have the right to demand 24/7 service and they get it from a lot of service providers that don’t have their people working 24/7. They have teams of people. It is our problem, because we do not want to pay people if we cannot recover that from clients. Our issue is to get creative and say we are going to staff every deal with ten people, but the client is going to pay for five. That happens in a lot of consulting firms and all the accounting firms. Our problem is we want to pay really well and to pay ourselves really well. Profitability is at the heart of this and the billable hour is a big part too.

Alex Novarese: Is there a feeling that there is scope to be more flexible with what it means to be a partner?

Tamara Box: Absolutely.

Charlie Jacobs: Yes. Whether youngsters, partners or whoever, agile working and more flexibility is hugely important. People are saying it is important.

Denise Gibson: This is where we have to remember that we should embrace non-legal talent in our senior ranks. Coming back to the point about partners, I do not think it just needs to be possible – it needs to be done. You need to have partners prepared to put up their hands and show they are the beneficiaries of some of the more flexible alternatives, because people need to see how that works at senior levels as well.

Natasha Harrison: One of the issues I have with the diversity path is everybody is ticking boxes; people do not actually believe in it. Until they are committed and truly believe in the value of diversity, it will not succeed.

Pranav Trivedi: We have been very successful [with diversity] on the intake side. The attorneys we are recruiting are a proper reflection of society. For whatever reason, by the time they make their way up the ranks, the partnership does not reflect society. We struggle to understand what is happening. I have been in this role for six years now and it is one of the two or three things that I have focused on, at the very top of my agenda.

Alex Novarese: Do exit interviews not give any indication?

Pranav Trivedi: They do not, sadly.

Julian Stait: Part of it is whether we are proactive enough in engaging with clients.

Alex Novarese: Do law firms need to talk about it? Can they not be saying, ‘We stand behind the product. Leave it to us to resource it’?

Pranav Trivedi: Clients are driving that discussion.

Julian Stait: We should be driving it. My experience is that clients are very receptive.

Natasha Harrison: It is a change of culture as well. It is a discussion that is much bigger than tonight, but you need the structures that will support the growth of a truly diverse culture and environment.

Alex Novarese: Thank you for your thoughts. LB

alex.novarese@legalease.co.uk