Foreign firms in London still struggle to find that elusive balance between organic growth and lateral hiring. Charlotte Edmond charts the latest trends

It was 40 years ago this year that Cleary Gottlieb Steen & Hamilton first opened its doors in London. Having opened in Paris in 1949, Cleary had marked itself out as a firm with international ambitions early on. And although it was not until 1997, with the hire of Lovells partner Andrew Curran, that the Manhattan law firm launched its English law capability, Cleary's status as an international pioneer of the legal sector is undoubted.

Curran's hire was shortly followed the year after by that of Simon Jay  from Travers Smith Braithwaite, and it was around that time that the US firm launched its London trainee scheme, which now sees it recruit in the region of 15 trainees a year.

Cleary's story is fairly illustrative of the growing band of firms that have chosen to largely pursue a strategy of organic growth in London. With around 80 lawyers in the City and 12 UK-qualified partners worldwide, the firm is not approaching the size of the largest of the US firms in London. However, the 18-strong UK-based partnership represents around a 10th of the top 20 US law firm's overall partnership, and approaching 20% (three out of a total 17) of the partners the firm has made up over the last three years have been City-based.

simon-jay-clearyCleary's Jay (pictured) comments: "When the firm was founded shortly after World War II it was always intended that it would be international. We opened in Paris shortly after New York, but we have always kept to a single partnership and lockstep and that dictates a certain culture across the firm. You have to have the same quality of partners in every office, and therefore organic growth – where people develop in the culture of your firm – is a far preferable route for us."

Meanwhile, having opened in London in 1972, Sullivan & Cromwell recently announced that it will take on trainees for the first time in 2013. The firm is aiming to take on four to six trainees in its first year, and has also recently launched a London vacation scheme.

"In the US, it has always been very much about lawyers joining straight from law school – it's what helps give the firm a collegiate feel. So bringing in people direct from university in the UK is just an extension of that philosophy. We needed to build a sufficiently broad base in our UK practice before we were able to do that," comments Sullivan's co-head of EMEA projects, Jamie Logie.

Similarly, recent entrant Ropes & Gray is set to take on trainees for the first time later this year, having gone through a period of growth since opening in January 2010, including adding partners Maurice Allen and Mike Goetz, formerly of Freshfields Bruckhaus Deringer. After making a series of partner hires in 2010, the firm has already in 2011 recruited Jones Day partner Peter Baldwin, Kirkland tax specialist John Baldry and DLA Piper private equity duo Kiran Sharma and Will Rosen.

Lateral expansion

Contrast with Cleary the expansion strategies of Weil Gotshal & Manges and Kirkland & Ellis: while the pair both take on London trainees, London promotion numbers over the last three years have not been huge (one out of 17 and 18 out of 192 global promotions respectively). However, the pair has been active on the lateral front in recent years, including Kirkland's hire of a major part of SJ Berwin's real estate team and the more recent hires of Ashurst duo Gavin Gordon and David Arnold.

Meanwhile the news this week of Weil Gotshal's hire of Clifford Chance funds trio Ed Gander, Nigel Clark and Nick Benson, as well as tax partner Jonathan Kandel, marks one of the most significant team hires to date. Other London hires for Weil Gotshal include Jones Day's restructuring partner Adam Plainer, Ashurst banking partner James Hogben and, most recently, the much-touted hire of Linklaters' banking partner Stephen Lucas.

Laurence Harris, London office head at Edwards Angell Palmer & Dodge, argues that ambitious practices need to effectively deploy both organic development of the team and lateral hiring to succeed.

He comments: "Taking on trainees and building organically has the huge advantage of instilling loyalty to the firm. However, it is very time-consuming and long term, so it is difficult to be responsive to market demand – it's like a super tanker; very hard to turn halfway through. That's one of the major issues for smaller offices – it's hard to make that organic growth model fit. Plus, if you need to build a new practice area, you can't just wait years for people to come through the ranks."

Edwards Angell has grown its London office partner count by almost a fifth in the last year, despite a firmwide partner reduction of approximately 4%. London laterals accounted for nearly a third of all laterals at the firm in the last three years, while the number of London lawyers has grown from 41 to 60 in the last year.

But even for some of the longest-established international offices in London, recent years have not seen an abundance of internal promotions. The number of London partner promotions at international firms has certainly taken a hit, even if overall London partner headcount has remained broadly static. Lateral recruitment in the City over the last three years has accounted for around 14% of total recruitment across all offices at international firms, with Reed Smith one of the most active hirers over the period, having taken on 24 partners. Mayer Brown, K&L Gates and Canadian firm Fasken Martineau have also been particularly acquisitive, building their London bases by 18, 14 and 12 partners respectively.

"Lateral hires tend to fall broadly into two categories – augmenting areas where you need extra depth or opportunistic hires. But it's hard to build your practice on lateral hires alone," says Mayer Brown's London senior partner Sean Connolly. "In London you need to have critical mass – it's one of the most competitive legal markets in the world and you need to be of a relative size to stand any chance of competing. Organic growth is an integral part of our strategy in London- we're committed to our trainee programme as well as promoting our talented lawyers."

A number of firms are feeling more confident that the market ius showing stability and are looking to reach that critical mass. Kirkland saw one of the largest increases in partner headcount over the last financial year, growing London by seven partners, while Latham & Watkins added six and McGuireWoods five. Latham also saw one of the biggest expansions in overall London fee earner numbers, adding 37 new lawyers. White & Case and Edwards Angell were also in expansion mode, adding 58 and 19 lawyers below partner level respectively.

Over the coming year there is more growth on the horizon with several firms looking to expand their London practices. King & Spalding is looking to double its London practice, earmarking growth of its total headcount of 50%-60% in its 11-partner arm. In 2010 the firm recruited former Hogan & Hartson partner Garry Pegg to co-manage the London office, as well as partner Hywel Jones to boost its corporate team.

Having added two partners in 2010 (David Shasha from Simmons & Simmons and Michael Taylor from Norton Rose), Canadian firm Gowling Lafleur Henderson is also planning on boosting its London practice further, singling out growth of more than 60%.

However, the majority of firms looking to grow are envisaging to more modest growth of up to 10%, with several considering growth up to 30%. Fried Frank Harris Shriver & Jacobson executive partner Justin Spendlove comments: "London has a strong domestic law firm base and so international firms over here need to have a very strong offering. You need to be able to demonstrate experience and expertise as well as depth so it's not just about organic growth versus lateral hires – it has to be a judicious mix of the two."

Pastures new

A number of firms are looking to launch new practice areas as part of this lateral expansion, with Ropes & Gray building regulatory and funds, Edwards Angell launching a London banking group and Italian leader Bonelli Erede Pappalardo adding a new insurance practice. Chadbourne & Parke, King & Spalding and Milbank Tweed Hadley & McCloy are also expanding into new areas.

Paul Hastings London chair Ronan O'Sullivan comments: "It is quite an interesting time for international firms in London at the moment in terms of the exodus of people from UK firms we are seeing, driven by financial performance and culture. There is no doubt that you have to have a different growth model in London compared to other offices – it is a hugely competitive market and there hasn't been as much work going around in recent years. What work there is is strongly sought after and if you are a certain size, you can afford to out-price other firms 
to get it."

Firms prepared to take a step further to reach their desired capacity include Bryan Cave and K&L Gates, which both said they are interested in a UK merger deal, while Edwards Angell, Hunton & Williams, Reed Smith, Salans and White & Case all said they would 'possibly' consider a tie up.

As Cleary's Jay puts it: "When looking to develop your practice in a new jurisdiction, you would be well advised to match the strengths of your firm in other offices. As an international firm looking to execute cross-border transactions, you need to have a certain critical mass of high quality lawyers. 
Many firms have learned the lesson that expanding indiscriminately carries with it risks, and that it is terribly damaging to lay people off during a downturn."