2008 Laterals Report: Pumped Up
After years of infighting and defections, Clifford Chance's American operation is now attracting lateral partners.
The American Lawyer
By Vivia Chen
February 01, 2008
The ladies room at Clifford Chance's New York office is replete with small luxuries usually found in the dressing rooms of private clubs-moisturizing lotion, hair spray, mouthwash, and fragrance, among other niceties. But what really stands out are the bottles of Molton Brown soap perched to the right of each basin.
Fine English soap gracing the counters of a washroom in midtown Manhattan is a minor yet telling detail. Like Molton Brown, Clifford Chance is a London-based institution that has transformed itself into an international brand-albeit one that has had a hell of a time keeping some of its American partners in line since a messy 2000 merger with New York's Rogers & Wells.
The war between the British and American factions is long finished, say Clifford Chance partners on both sides of the Atlantic. They add that the firm's United States offices (in New York and Washington, D.C.) are now thriving. "The idea and reality of Rogers & Wells are over," says U.S. managing partner Craig Medwick, a Rogers & Wells veteran. "Now we have the Clifford Chance way of doing business. We have uniform expectations, a uniform selection process for partners, and uniform training. The Clifford Chance academy is like the McDonald's academy." Unity and consistency, he says, have stopped the talent drain and allowed the firm to rebuild.
And that rebuilding is based on no small part to lateral partners: Since 2006, Clifford Chance has brought on 14 of them. (The firm now has 88 partners in the U.S.) For a firm that had lost some its finest lawyers-among them, antitrust experts Kevin Arquit and Steven Newborn and litigators Kenneth Gallo and James Benedict-after the merger, it's a nice change to be on the receiving end of talent. Last fall, its Washington, D.C., office bagged a powerhouse three-partner litigation team, headed by Juan Morillo from Sidley Austin. Other hires include regulatory partner Thomas Pax from Pillsbury Winthrop Shaw Pittman's Washington, D.C., office; mergers and acquisitions partner John Graham from King & Spalding's New York office; and finance partner John Howitt from Paul, Hastings, Janosky & Walker's New York office.
Indeed, Clifford Chance's U.S. operation seems to be on the rebound. Revenues in the U.S. are on the rise: for the year ended April 30, 2007, almost $320 million, compared to $265 million in 2005. Overall, this has been a banner year for Clifford Chance, the top firm in the Global 100's gross revenue rankings. And thanks in large part to the firm's lockstep compensation system, the Americans are sharing the wealth: For fiscal 2007, worldwide revenue was $2.4 billion and profits per equity partner topped $2 million.
The firm's management has been devoting a lot of attention to U.S. offices. The fact is, Clifford Chance emerged from its Rogers & Wells ordeal a chastened institution. Though still rooted in the land of the Queen (35 percent of the firm's lawyers are in the United Kingdom, compared to 13 percent in the U.S.), it has made concessions to the realities of American legal practice-such as injecting flexibility into its lockstep system. It's also paying attention to soft issues like morale: It recently installed capital markets lawyer Laura King as its "people partner" to work on increasing retention rates and finding ways to set Clifford Chance apart from other firms. "Her sole role is to look after people," says David Childs, the firm's managing partner since 2006. These efforts seem to be bearing fruit. In our 2007 midlevel satisfaction survey, the firm's New York office ranked tenth out of 81, while the Washington, D.C., office ranked twenty-seventh of 62.
But being on the rebound isn't the same as being out of the woods. Skeptics maintain that the firm's rising stock in the U.S. is an illusion. "What's feeling good is the currency conversion," says one former partner about the effect of the escalating British pound on the firm's overall revenues. Moreover, there's still a big gap between the U.S. and British offices. Now generating 14 percent of the firm's overall revenue, the U.S. is behind the 25 percent contribution the firm has set as its goal. In fact, Clifford Chance's U.S. operation had higher gross revenue ($344 million) in the year ended April 30, 2002, the first full fiscal year after the merger, than it did in the most recent fiscal year. (The firm projects its U.S. revenue to hit $360 million in the year ending April 30, although Childs won't estimate when the American offices will reach the 25 percent goal.) Also, the U.S. needs talent infusions in areas such as mergers and acquisitions and antitrust. While it has hired some solid lateral partners, the process has been long and slow.
It doesn't help that the New York office continues to be plagued by an image of a beleaguered firm. "They've stemmed the tide of people leaving, but that's because every big name has left," says consultant Peter Zeughauser, who advised the firm during its most tumultuous years. It's also been frustrating for Clifford Chance partners in New York that plum deals originating in the London office often bypass them, while other New York firms, such as Sullivan & Cromwell and Simpson Thacher & Bartlett, get the U.S. work.
But Childs says that all that is changing. "Perception lags reality," he says. While Childs doesn't deny that some of his London partners were reluctant to give work to New York "in the first year or two after the merger," he adds that "we're past that now." The obstacle now, explains Childs, is that some of the firm's longtime London clients, such as Barclays Bank PLC, already have ties with other U.S. firms, and it's hard to break those relationships. But that will change in the future, says Medwick, adding that clients are giving New York more work. Moreover, he says the firm gets "enormous amounts of resumes from partners." The firm is not merely stable these days, he suggests, but dynamic.
Not long ago, Clifford Chance partners would have been thrilled with plain-vanilla stability. "We lost virtually every senior partner in D.C.," says Leiv Blad, Jr., managing partner of Clifford Chance's Washington office, where the lawyer count plunged to 34 in 2005 from 90 at the time of the merger (it is now 60). "These people were my friends," says Blad. "I wanted them to stay." Childs acknowledges that there was "lots of sorting out" after the merger: "Some people who didn't want to be part of our [lockstep] model left." As for the catching up that the firm has to do because of these departures, Childs calls that an "inevitable" part of the merger shakeout.
An unpretentious, roll-up-your-sleeves kind of partner, the London-based Childs is not a natural cheerleader. He's direct in his answers, if not a tad brusque. Yet Childs, who was formerly the firm's chief operating officer, has been getting good reviews for his performance, even from the firm's alumni. "He's done a great job and turned the bureaucracy around," says one former partner. Though Childs winces at the idea that Clifford Chance has subdued-"Please don't say 'colonized,' " he says-its American rebels, Childs makes no apologies for being hands-on: "We want strong management." He is a nut-and-bolts manager, he explains: "I'm an M&A guy. I try to boil things down to simple issues." Among his goals are building trust and confidence in management; increasing retention rates and morale; improving profitability; and helping the U.S. offices meet their objectives.
There's progress on those fronts, says Childs, because the troublemakers are gone, and lockstep is no longer an issue. "The U.S. partners are converts to the [lockstep] system," he says. After some drag-out postmerger fights over compensation, the firm finally adopted a three-part "ladder" system in December 2005. Most equity partners fall into the "main ladder," while "ladder two," the low end of the compensation scale, is designed for partners of smaller jurisdictions and those in Eastern Europe. Finally, "ladder three" (also known as the "super ladder") pays 50 percent more than the main ladder and is reserved for superstars. Medwick says the spread among the main ladder partners is 2.5:1, and that half of the equity partners take home more than $2 million. The super ladder was designed "to attract or retain the highest-quality people," Childs says. "The only place it was envisioned for is the U.S. The fact that we voted for it sends a signal that we understand the U.S. market."
So far, no one has landed on the super ladder, and no one is complaining-yet. Even a sought-after litigator like Morillo (he claims $12-15 million in billings) says he has no problem being on the firm's standard lockstep. "Lockstep works if the firm is sufficiently profitable," Morillo says. That said, he insists that "money was not determinative" in his choice of firms. Morillo says he was "aggressively compensated" at Sidley-"more like someone ten years senior"-and that he and his team (former Sidley Austin partners Steven Cottreau and Steve Nickelsburg) got offers from a slew of firms, including Gibson, Dunn & Crutcher; Latham & Watkins; and Cadwalader, Wickersham & Taft. Morillo represents ING North American Insurance Corporation and Mohawk Industries, Inc., among others.
Morillo does not fit the Clifford Chance lateral mode. For one thing, he has a ton of business, a third of which is international. Not shy, Morillo doesn't seem to fit the antistar ethos that Clifford Chance espouses. Moreover, he's a litigator in a firm dominated by corporate lawyers. So what does he see in a place like Clifford Chance? The opportunity to put his mark on a relatively blank slate. "It's a place where there isn't someone like me," he says. And though he readily admits that Clifford Chance is "one tier below the top New York firms, I see it as a challenge."
Most laterals to Clifford Chance aren't looking for a blank slate; rather, they are attracted to its cross-border platform. "Most join us because they feel they can improve their practice through the international nature of our firm," says Childs. Indeed, virtually all the Clifford Chance partners interviewed for this article cited its international presence as a drawing card. "I wanted a firm with a global perspective," says finance partner Zarrar Sehgal, who came from Milbank, Tweed, Hadley & McCloy. The worldwide reach of the firm is a big advantage, says Graham: "It's a mammoth firm. It helps you win just a little bit more of business for your corner."
One lesson that Clifford Chance's management took from the Rogers & Wells experience is that it can't impose its culture on nonbelievers. The firm's lateral strategy is to hire those who share its global vision and team ethos. "The question is whether the international nature of the firm is important to you or not," says Childs. "If you have a domestic practice, it won't be important for you to meet the guy in Shanghai."
Both Childs and Medwick stress that the firm is not looking for laterals with big books of business. "We have more work than we can handle," Medwick says. Though Childs says he's thrilled to hire a rainmaker like Morillo, he acknowledges that the former Sidley Austin partner is atypical. "We won't attract stars," he says, bristling at the term. "We want to be sure people join for the right reason. The biggest challenge is to build something that doesn't change our culture."
American laterals report that they went through a thorough, if not eccentric, vetting process that was more akin to a law school endurance test. Graham says the process took eight to nine months and that his interview with the partner selection committee in London included "technical legal questions" that involved "more substance than shooting the breeze." Investment act partner Brynn Peltz, a former Simpson Thacher senior counsel, also says she had a full-day test complete with fact-pattern hypotheticals. The hiring process, she says, is "much stricter than with U.S. firms . . . I thought my children would have to be interviewed."
Morillo also describes his Clifford Chance courtship as "the most vigorous process I've seen." He says the firm interviewed his clients and did public searches about him and his team, finally producing a 20-page nominating memo that was distributed to the partnership. "I was impressed as hell," he says. The Clifford Chance way, sums up Graham, is "not the style that would come from a U.S. firm."
Of course, it's easy to swallow the Clifford Chance style when things are on the uptick. "Our profits are up, so the New York partners have bought into [the Clifford Chance way]," says Medwick. But for all the positive talk about the joys of lockstep and the esprit de corps, there lurks an underlying note of caution. Morillo, for one, admits that "it took me a long time to get comfortable that litigation is a real practice there." The question of whether the firm can expand out of its traditional financial institution base is "still up in the air," he adds. The real test will likely come when the pound drops in value, the firm's financial practice hits a big bump, or some big American rainmaker insists on being put on the super ladder.
But for the lawyers who have toughed out the years of postmerger turbulence, there is a sense that they will survive the uncertainties ahead. After all, they were on board when the firm seemed destined to self-destruct-and they lived to see it prosper. "The people who stayed are really committed to the firm," says Blad. "We are here because we made the choice to stay." For a firm that's been through purgatory, that determination might be its greatest strength.
E-mail: vchen@alm.com.
