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Hey isolationists: Wake up and smell the espresso. While you were worrying about setting up in Silicon Valley and paying first-year associates almost as much as self-respecting investment banking trainees, some of your rivals were quietly breaking into markets you haven’t thought about since that blissful postgrad summer when you decided to find Marrakesh. Everyone knows about the U.S. firms determined to build their own private network of embassies and the swashbuckling British firms bent on restoring the Empire. But what do we make of these developments? � Consummate Washington insider Wilmer, Cutler & Pickering has a coterie of German lawyers doing deals in telecommunications and real estate in Berlin; meanwhile, the firm’s inside-the-Beltway rival, Hogan & Hartson, now recruits associates directly out of Polish law schools to staff its office in Warsaw. � LeBoeuf, Lamb, Greene & MacRae, once content to protect domestic utility companies, now has 20 Russians in its Moscow office — and about half as many Kazakh lawyers in its Almaty depot. In all, 15 percent of its lawyers now work out of foreign branches, and the firm now gets 30 percent of its revenue from global work. � At Squire, Sanders & Dempsey’s annual firm retreat in September, Cleveland-based managing partner Thomas Stanton pointed out that the firm is now practicing law in 40 different languages around the world — and he wasn’t referring to his headquarter city’s famously diverse West Side. Like it or not, the economy is going global, and with it the business of law. In this issue we offer our third annual Global 50, a list compiled jointly with Legal Business, the London-based monthly. We rank the highest- grossing firms and the largest firms — according to head count — in the world. From those lists, we distill the most profitable. But if the business is global, the strategy for succeeding is still anything but clear. Our friends at Legal Business tout the handful of London firms that are nearly as ubiquitous as McDonald’s, and, they claim, as convenient. The Brits aim to be one-stop global players who will serve the choicest multinational clients. Legal Business dismisses as shortsighted all but the few U.S. firms who have scooped up local lawyers. The alternative wager is on U.S. firms that have sought to leverage their existing globe-trotting clients into an international practice. The profits there are real enough. Atop the Global 50 revenue chart, Skadden, Arps, Slate, Meagher & Flom — gently derided as big but “not global” in Legal Business — still managed to represent foreign-based companies in the two hardest-fought takeover struggles of 1999, Gucci Group N.V. and Mannesmann AG. Last year Davis Polk & Wardwell, without any foreign partners, handled two of the biggest mergers in Spain and is currently working on two of the biggest attempts at privatization in Asia. At least 20 American law firms now have more than 10 percent of their lawyers stationed in overseas offices. (Not all of them are on the Global 50 revenue chart; gross revenue at Coudert Brothers; Squire Sanders; Willkie Farr & Gallagher; and Wilmer, Cutler & Pickering weren’t high enough to qualify them.) Almost all of the firms with a substantial international base report that their revenue per lawyer, on average, is as high in their foreign offices as in their U.S. bases. They also say that their global work — whether for foreign clients in the U.S., for U.S. clients overseas, or for non-U.S. clients overseas — accounts for an increasing percentage of gross revenue. Mel Immergut, chairman of Milbank, Tweed, Hadley & McCloy, for instance, estimates that fully half of his firm’s revenue falls into one of these categories. Which prompts the question of how to grow internationally — the most complicated and momentous question for any American firm with global aspirations. Given the hypercompetitive market — where U.K. firms are opening in new cities every month and German lawyers are being snapped up quicker than the new Sony Playstations — you’d better know what you want before you start wading in. If New York-based White & Case were a country, it would be Holland in the 1600s. With a strong but limited home market (White & Case, domestically, doesn’t compete with the most elite firms), it must, to remain competitive, search out foreign markets, insinuate itself into their economies, and make itself indispensable to the success of their worldwide trade. With 37 offices in 26 countries — from Bahrain to Vietnam — White & Case has gone places where even the intrepid Dutch never ventured. But with history to inform it, White & Case has improved on the imperialist example: Instead of merely sending its lawyers to plant the White & Case flag around the world, the firm has gone native. Management makes a habit of hiring local practitioners and practicing local law in the many jurisdictions in which it has offices. With some variations, Clifford Chance and the other British behemoths clogging the top spots of the Global 50 charts also employ this business model, as do such American firms as Baker & McKenzie, Coudert Brothers, and, more recently, the erstwhile Clevelanders: Squire, Sanders and Jones, Day, Reavis & Pogue. White & Case first opened an office in Paris in 1926, but didn’t launch what chairman Duane Wall calls its “aggressive strategy of globalization” until 1978, when it began following such clients as Deutsche Bank AG and Cr�dit Lyonnais to locales around the world. Today, White & Case searches out qualified native lawyers in foreign outposts and hires them into the firm. It then gives the new hires a mandate to build both a staff and a local client base. “We want local offices that practice local law,” Wall says. The ideal White & Case matter, he says, involves at least two of the firm’s 37 U.S. and foreign offices. Unlike some of his U.S. competitors, however, Wall’s firm is happy to handle purely local deals as well — as the British firms do. “We’re reaching for a broader range of business by having people on the ground all over the world,” Wall says. Of course, managing such a melting pot of lawyers can get complicated. “You’ve got to commit to strong development and training,” says Squire, Sanders managing partner Stanton, whose firm has absorbed the overseas offices of six different competitors in six different countries in the last three years. Squire, Sanders now has at least four partners meetings a year, as well as quarterly regional meetings for the European and Asian lawyers. And the firm leaders in Cleveland spend a lot of time on planes. “It’s a constant thing,” says Stanton. “You can’t say, ‘I visited Kiev last October, so it’s fine for the next 17 years.’ “ Just as difficult is the question of compensation: How do you pay lawyers who work in cities that have drastically different salary scales? The highest-paid lawyer in Sydney, Australia, for example, makes less than $500,000 a year, says Coudert Brothers managing partner Anthony Williams, so it wouldn’t make sense for Coudert to compensate its Sydney partners as much as its New York contingent. Baker & McKenzie solves the problem by treating each office as a separate profit center. Coudert’s policy, Williams says, is to operate on a three-year curve. In other words, over any given three-year period, “offices should take out what they put in,” he explains. Under the firm’s worldwide point system, he says, the number of points a partner receives varies, based on the local market and his office’s performance. At a glance, Cleary, Gottlieb, Steen & Hamilton has much in common with White & Case. More than one-third of its lawyers are stationed overseas, in offices in seven countries. Its Paris office is filled with French lawyers, its Frankfurt office with Germans, its Brussels office with Belgians. But Cleary, the paradigm of specialized globalization, actually has quite a different business model than White & Case and the British global firms. The firm has always focused on its niche: high-end work for big multinational businesses. It has never planned to have offices all over the world — its lockstep compensation structure meant that it didn’t open offices in markets that couldn’t support high rates — and has never looked for purely local work in the markets in which it did operate. Cleary opened its first overseas office, in Paris, in 1949. (The firm represented the French Purchasing Mission, the entity rebuilding France with Marshall Plan funds.) “Then we saw a lot of interest by American companies in investment and acquisition in Europe,” says Cleary managing partner Peter Karasz. “They needed advice in European laws, and there weren’t American-style firms then in Europe. We filled a vacuum.” Cleary’s specialty became the representation of Fortune 500 clients overseas, providing counsel in business, regulatory, and antitrust law. And those providing the advice — and making the connections with European officials and businesspeople — were often themselves European. “What we did was unique at the time,” says Karasz. “Early on, we hired local lawyers, graduates of European law schools. We grew our own associates who then became partners.” Cleary’s foreign offices, eventually representing European and Asian clients as well as American companies with business abroad, became as well known (if not better known) overseas as the firm is in its home market. Shearman & Sterling, too, has become a global player without, as chairman Stephen Volk puts it, “becoming any bigger than we have to be.” Shearman now has 284 lawyers — 32 percent of its total — in Europe and Asia. While its four Asian offices are staffed with expat U.S. lawyers, in Europe, local lawyers outnumber Americans by more than 2:1. “Our strategy is based on our belief in globalization,” says Volk. “We want to be at the top of every market we’re in. We want to meld U.S. and non-U.S. finance and M&A strategies and tactics in a way that will work in whatever market we are in. And we want local lawyers who will have strong ties to local clients who, if and when there’s a downturn [in their regions], will be able to live by their wits rather than off their partners.” Volk seems pleased with the results: The firm estimates that half of its revenues come from international work done both inside and outside the U.S. Skadden, meanwhile, has expanded its lawyer ranks overseas by 27 percent this year, three times its 9 percent domestic growth. Using its own successful national expansion to Chicago and Los Angeles as its guide, Skadden plans to continue to grow overseas, particularly in Western Europe, by hiring established lateral partners in cities where Skadden’s expertise in mergers and acquisitions and capital markets can be exploited. “We aim at the most significant transactions for the largest clients wherever we are,” says managing partner Robert Sheehan, pointing to this year’s Gucci and Mannesmann deals as examples. Times are changing at Davis Polk — a little. It used to be that associates had little chance of making partner if they didn’t spend a good part of their careers in the U.S. Then, in 1999, John Banes, an American associate who had worked in the firm’s London outpost since 1994, made partner; and this year Chinese American associate Show-Mao Chen was named a partner in the Hong Kong office, where he’d been since 1993. But lateral partners from foreign countries, � la Skadden or Shearman? Highly unlikely. As Sullivan & Cromwell’s chairman, H. Rodgin Cohen, says: “You never say never, but it would have to take the right circumstances.” Those circumstances have yet to arise. Sullivan & Cromwell does have three or four native English solicitors in its London office. None are partners. It’s a question of market: Davis Polk and Sullivan & Cromwell aren’t aiming for local British business, let alone the far-flung native work that the global firms like White & Case handle. Their strength is cross-border M&A and capital markets work for the largest international companies. Sullivan & Cromwell, for instance, has had a longtime practice representing foreign governments that issue U.S. securities for state-owned enterprises; that practice, in turn, led to business when some of those state-owned businesses privatized. So far this year Davis Polk’s international practice has handled 15 public offerings of more than $1 billion, as well as 15 other multibillion-dollar deals for clients in such countries as England, Spain, and Holland. Those practices require international offices — Sullivan & Cromwell has seven outposts in Europe, Asia, and Australia; Davis Polk, five in Europe and Asia — but not, at least so far, foreign-trained partners. “We’re going to have to look at it,” says Cohen. “But the issue has always been quality. We’re just not going to diminish the quality of our lawyers regardless of the business opportunities.” International expansion in the last several years has, of course, come at a time when the U.S. economy is better than it’s ever been. Has the strength of the market for legal services here distracted some firms from growing over there? “I certainly hope so,” says Stanton of Squire Sanders. But take a lesson from Skadden, whose position on the gross revenue chart speaks loudly for the wisdom of its management. Skadden is growing overseas far faster than it is growing in the U.S. “The [practice of law] is globalizing,” says Skadden chief Sheehan. “While the U.S. economy has done better than the world on average, things average out over time. … We try to look down the road a very long way. Our overseas offices may not be immediately as profitable as the U.S. But in ten to 20 years, we will have a more profitable institution.” And much more interesting firmwide meetings.

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