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Will U.S. Law Firms Stick With Hong Kong This Time Around?
The Asian Lawyer
As leading American law firms rapidly expand their Hong Kong practices, some of their British competitors are taking comfort in the notion that this too will pass.
"Not all of them will be in it for the long haul," asserts Peter Charlton, Asia managing partner for Clifford Chance, of U.S. firms in Hong Kong. "It takes them a long time to decide to do something, but they're very quick to cut when they don't think they're getting the return they want."
The idea that U.S. firms are likely to cut and run if things get tough in Hong Kong is based largely on the fact that, amid previous downturns in the Asian financial capital, some U.S. firms did cut and run.
In the years that followed the 1997 Asian financial crisis, firms like Gibson, Dunn & Crutcher; Chadbourne & Parke; and the firm now known as Pillsbury Winthrop Shaw Pittman all shut offices in Hong Kong. In the downturn that came in the wake of the severe acute respiratory syndrome (SARS) outbreak in 2002, Cravath, Swaine & Moore; Kelley Drye & Warren; and the former Dewey Ballantine closed shop. Kaye Scholer was the last major American law firm to close its Hong Kong office, in 2006.
Kaye Scholer and Kelley Drye say they have no plans to return to Hong Kong. Cravath declined to comment, while Chadbourne and Pillsbury had not responded by press time.
But in the years afterward, Gibson Dunn and Dewey returned. Are things different the second time around?
"That was three lifetimes ago," says Joseph Barbeau, partner-in-charge of the Hong Kong office Gibson Dunn relaunched last August, over a decade after it closed its last one. "The whole model of global firms was different then."
According to Barbeau, Gibson Dunn pulled out of Hong Kong in 1997 not because of the financial crisis but because the Los Angeles firm needed to re-think its global strategy. "Gibson concluded that it hadn't conducted an international build-out the way we should have," he says.
Barbeau says the firm is now committed to being international in a way it wasn't back then, though its expansion plans remain more measured than many of its competitors. In Asia, the firm has not focused heavily on the red-hot capital markets sector, he says, in part to avoid the boom-bust cycle inherent in that practice. Instead, the firm is seeking outbound mergers and acquisitions assignments and litigation. In addition to Hong Kong, Gibson Dunn also opened in Singapore in 2008 and is currently applying for a license to open a Beijing office.
Of course, the market has changed enormously since the late 1990s. Back then, China was a less important part of Hong Kong practice, which was more focused on Hong Kong itself and Southeast Asia. Some of the firms that shut down in Hong Kong, like Kaye Scholer and Pillsbury, actually kept Shanghai offices open. But nowadays, Hong Kong practice is mainly about funneling international capital into China.
For Dewey & LeBoeuf, connecting the China and Hong Kong dots has proven a struggle, one that might have been easier had one of its predecessor firms stayed the course in Hong Kong eight years ago.
Dewey Ballantine shut down its Hong Kong office at the beginning of 2003, a decision that was subsequently and infamously parodied at the firm's annual dinner with a racially insensitive song stating the office was getting "the gong" because of its weak performance. The incident was widely reported in the news media in both New York and Hong Kong.
Carl Hopkins, a Hong Kong-based legal recruiter with Major, Lindsey & Africa, says Dewey's past in Hong Kong could be more of an issue because of the skit. "The market is so different now that I don't think anyone cares about firms that closed in 1999 or whenever," he says, "but people do remember that stupid dinner."
Of course, another reason people remember is because the partners that got the gong at Dewey have gone on to become some of the biggest names in town. David Zhang and John Otoshi moved on from Dewey to Latham & Watkins, where they built a leading practice taking Chinese companies public in the U.S. Last month, both were part of the "dream team" Kirkland & Ellis recruited in its bold push to become a Hong Kong capital markets player.
But Ingrid Zhu-Clark, who came from the LeBoeuf, Lamb, Greene & MacRae side to become Dewey's Beijing managing partner after the 2007 merger, says she does not dwell on the past. "They made a decision that I'm sure they thought was right," she says, adding: "You can never tell if a lawyer who is successful in one firm at one point in time would have been successful in another."
Zhu-Clark acknowledges the Hong Kong office that LeBoeuf launched just before the 2007 merger has had a tough time. The firm recruited private equity lawyer Daniel Liew to lead the office but he jumped ship barely a year later to launch a Hong Kong office for British firm SJ Berwin. A local affiliate firm built around Arthur Marriott, one of the first British solicitors to be anointed a Queen's Counsel, fell by the wayside with Marriott's retirement from Dewey last year.
"It's a pity," says Zhu-Clark, noting the firm has developed several mainland clients that it could ideally serve in Hong Kong too.
But cutting and running is not in the cards this time, says Zhu-Clark. The firm is set to announce two partner-level recruits, one in Beijing and one in Hong Kong, in the next few weeks.
"We are looking at tomorrow," says Zhu-Clark. "Our future is clear that we are going to expand."