Prognosis for U.S. Firms in Europe

By Ward Bower

Ward Bower s we predicted last year, the only move- prospects and selling the deal to the inevitable ment of U.S. law firms into in super-majority of partners needed to approve a A 2005 came from U.S. national firms, — merger in both firms, significant trans-Atlantic two who did so, effective January 1, by merger, London/U.S. mergers are more likely to occur (Kirkpatrick & Lockhart/Nicholson Graham & in the 2007/2008 timeframe. Jones, and Piper Rudnick Gray Cary/DLA) and For U.S. firms already in London, the strate- Katten Muchin Rosenman, by affiliation (Katten gy currently is to strengthen locally by recruit- Muchin Rosenman Cornish LLP). At least two ing high-quality lateral partners (e.g., top other national firms (Heller Ehrman and Nixon partners from Lovells, Allen & Overy to Hogan Peabody) are reported to be looking actively. & Hartson and Dechert, respectively, in 2005) Heller was even reported by the legal press to and by recently announced increases in the have opened an office in London staffed by starting salaries of newly qualified solicitors to expatriates, but that has not yet occurred. It is £85,000 ($153,000), 20 percent or more above entirely predictable that other national U.S. that offered by indigenous British firms. By firms will shift their attention to London, but gaining access to top partners from top firms, only after they complete their domestic priori- and the best and brightest of the young lawyer ties (Holland & Knight, currently reconsolidat- talent available, the foundation is created for ing acquisitions made during the 1990s; competition on the ground at a new level. Greenberg Traurig still embarked on its U.S. Retaliation from the London elite is predictable, expansion). An exception to this might be both in lateral and new solicitor markets, Sonnenschein Nath & Rosenthal, having ratch- although on the basis of partnership chances eted profitability to levels that will enable them rather than starting salaries. to look to combination with a solid mid-sized or Shifting to the Continent, 18 of the 27 new larger firm in the London market. offices of U.S. firms “opened” in 2005 represent- Top-end New York City-based firms are ed DLA offices brought to or opened after the unlikely to be attracted to a merger in London Piper Rudnick merger. In 2006 to date, three which would be dilutive of their profitability. more non-DLA offices have been opened. Over And, as we reported last year, regional firms half (7 of the 12) new non-DLA European offices based elsewhere will focus on achievement of a opened in 2005 and so far in 2006 are in national platform before shifting their focus to . More openings of German offices by London. None of the firms identified in this cat- U.S. firms can be expected in 2006 and 2007. egory last year appears ready to move forward. Growth of the fee-earner headcount now In London, the intensely competitive local exceeding 10,000 in the U.K. and Europe is due market is causing independence-committed primarily to the strengthening of existing U.S. medium-sized and larger firms to think serious- offices, in part accelerated by the demise of ly about trans-Atlantic merger. Like their coun- Coudert Brothers in mid-2005 and the recent dis- terparts in New York, their sense of their own mantling of Haarmann Hemmelrath in Germany. position in that market is probably inflated, but Many lawyers in these firms joined London and that situation will rectify itself as options are European offices of U.S. firms in the last year. explored via discussions with U.S. firms. Those Our prediction for 2006 is therefore different discussions are likely to begin in earnest during for London than it is for Europe. In London, we 2006, and it is possible there will be trans- expect to see U.S. firms already on the ground Atlantic merger activity later this year. strengthening themselves through aggressive However, due to the time-consuming process of lateral recruiting of both individual solicitors identifying and vetting potential merger and teams and via organic growth through

8 July/August 2006 Report to Legal Management addition of top quality assistants, partners in those offices identify dis- firms and ’ over-expanded relying on inflated wage scales to affected partners in both indigenous market are unlikely to see much new attract and keep highly credentialed firms and in European offices of entry. is likely to see newly qualified solicitors. Mergers other U.S. and U.K. firms. Some of further incursion by U.S. firms only of real consequence can be expected the remaining indigenous firms will on an opportunistic basis, in now to follow in 2007 and 2008, as decide to make themselves available stable jurisdictions such as Poland growth strategies on both sides of for acquisition by a U.S. or U.K. firm, and Hungary. the Atlantic mature and potential or will split and parts of the firm candidates find and get to know will be available for acquisition. Ward Bower is a principal of Altman each other. This activity is most likely in Weil Inc., working out of the firm’s offices On the continent there will be Germany, and, possibly, in The in Newtown Square, Pennsylvania. He continued opportunistic growth of Netherlands and Spain. Italy’s can be reached at (610) 886-2000 or existing offices of U.S. firms there as patchwork quilt of small family [email protected].

Legal Profession … continued from page 3 created risks and exposures at all lev- whom they barely know in different Corporate Law Departments els, both internally (employment law, practice areas and in geographically Finally, the most desirable law firm benefits law, etc.) and externally (pro- remote offices. Some firms are clients (major corporations with fessional and general liability, bank emphasizing more objective stan- in-house law departments) will and landlord relationships, etc.). dards to allay this problem. choose and use lawyers differently. Seventy percent of large U.S. firms Corporate client insistence on Understanding the thought process have formally designated a general diversity initiatives and demonstrat- of these important clients will make counsel to manage the legal affairs of ed progress in their outside law client surveys and interviews indis- the firm. That number is likely to firms has made this a management pensable to successful law practice. increase, and smaller firms are likely focus. Major firms are implementing The convergence of corporate to do this as well. The law firm gener- formal diversity policies in order to legal work into a smaller number of al counsel generally reports to the demonstrate results to existing and firms is only one corporate legal managing partner or governing board, prospective corporate clients. strategy. Corporations also are find- although rarely serving as an actual The traditional democratic part- ing more effective ways to handle member of the governing body. This is nership is dead. Large firms cannot their e-discovery responsibilities, to intentional, designed to help preserve afford to have every partner involved outsource routine quasi-legal and client privilege. in every decision. Definition of deci- legal work, both domestically and sions reserved to partners acting as a internationally, to find means of Cultural Change committee of the whole, delegating marrying their need for international Increasingly, large firms recognize the everything else to management, is and global delivery of services with need to identify and train leaders at increasingly the means by which large the convergence movement, and to all levels. Individual professional law firms are effectively managed. get better control over legal costs, coaching of selected partners has been The “billable hours culture” in law fees and pricing. Smart law firms the subject of investment by some firms will have to change as corporate will help accommodate them in all of firms and the results have been clients put real pressure on hourly these areas. impressive. It is a small price to pay to rates. Except for firms doing premium increase the effectiveness of a lawyer. strategic and “bet your corporation” Ward Bower is a principal of Altman A second cultural change under work, where it almost doesn’t matter Weil Inc., working out of the firm’s offices way in some very large firms has what it costs and all that matters is in Newtown Square, Pennsylvania. He been to revisit the partner compensa- that you win, downward pressure on can be reached at (610) 886-2000 or tion system. This process frequently rates will squeeze profits even further. [email protected]. involves a great commitment of time Increasingly, firms doing commodity and energy by a committee of lead- and less valued work have to find ers and top lawyers, is imperfect at means of charging other than on an best, and at large firms requires the hourly basis, and means to use sys- committee to apply subjective judg- tems and efficient processes to meet ment to the remuneration of partners client needs profitably.

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