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U.K. law firms can be forgiven a feeling of schadenfreude at the moment as they look at the comings and — mostly — goings at some of the U.S. firms in London. Last year U.S. firms poached aggressively from their U.K. rivals as they sought to compete for English law work in London. But this year has seen a raft of high-level departures from the London offices of U.S. firms. The circumstances vary from firm to firm, but certain themes recur: a disconnect between the core practices of U.S.-based firms and the target markets of their U.K. branches; a financial pinch after luring laterals with pay so unrealistically high that it threw the market into turmoil; and differences of culture, investment strategy, and client relations that make home offices impatient with their struggling and costly London outposts. The departures that got everyone’s attention were those of Maurice Allen, the founding partner of New York-based Weil, Gotshal & Manges’s London office, and Paul Griffin, managing partner of New York-based Cadwalader, Wickersham & Taft in the U.K. In 1995 Allen blazed a trail for U.S. firms practicing English law by setting up Weil, Gotshal as a London banking practice to compete with U.K. firms. Allen walked out in January along with the office’s managing partner, Nick Holt, and two other banking partners. The team eventually turned up at New York-based White & Case, minus Holt, who is heading KPMG’s associated law firm in London. Cadwalader in 1997 was one of the most high-profile arrivals from the U.S. in Weil, Gotshal’s wake. It, too, set out to establish a U.K. practice — concentrating on capital markets, projects, and structured finance — and the firm offered big bucks to entice partners from the likes of New York-based Clifford Chance, London-based Freshfields, and the former Wilde Sapte. But in June, Griffin — who had joined from London-based Ashurst Morris Crisp 19 months before — left for London’s Herbert Smith, and this after the firm’s English capital markets partner, John Walker, had taken his two associates to New York-based Milbank, Tweed, Hadley & McCloy a month before. Other departures have included John Edwards, who until September 1999 had been managing partner of Sidley & Austin’s U.K. operation and who left the Chicago firm in March for London’s Taylor Joynson Garrett; Stephen Fiamma, for ten years head of Cleveland-based Jones, Day, Reavis & Pogue’s London office, who joined magic circle U.K. firm Allen & Overy; and Keith Hughes, founding partner of Dallas-based Akin, Gump, Strauss, Hauer & Feld’s London office, who quit in June to join Los Angeles-based Paul, Hastings, Janofsky & Walker, leaving the office with just two partners. So why the rush of departures, and what exactly went wrong at Weil, Gotshal and Cadwalader — the firms that were going to beat the Brits in their own backyard? Allen’s future at Weil, Gotshal was questionable from the start, in 1995, when the former Clifford Chance banking star announced he would build a U.K. banking practice for a firm without a significant banking reputation in the U.S. He had seemingly confounded the doubters by amassing more than 100 lawyers at Weil, Gotshal in London, doing deals for the top U.S. investment banks, and reporting London profits per partner of about $800,000, placing it in that market’s top ranks. Yet, ultimately, says Allen, the conflict between the firm’s core practices in London and New York — something he says he was aware of from the start — took its toll. The London office had few clients in common with the rest of the firm, and “that created a lack of unity and sense of belonging,” he says. Allen says it was difficult to build relationships with investment banks when the firm’s bankruptcy practice was suing or had sued those banks in the U.S. “[The bankruptcy lawyers] were just doing their job, but the two tend to be incompatible,” says Allen. Mike Francies, now head of Weil, Gotshal’s London office, disagrees, pointing out that top banking firms like Clifford Chance occasionally litigate against their own clients. He says Weil, Gotshal simply has deeper-rooted corporate relationships than banking relationships. “I don’t think Weil, Gotshal would pretend to be a banking powerhouse in the States. That was one of the reasons for having banking in London — to develop the global banking practice,” he says. “Maurice was here for five years. Is he saying he didn’t realize [it] until last year?” Similar tensions bubbled up at Cadwalader. Former partners say the firm did not have the strength in project finance and international capital markets to support a practice in London. One says the firm took a hit when its main projects client, NationsBank Corporation, merged with Bank of America Corporation, resulting in the New York projects practice becoming part of a general banking and finance group. The ex-partner suggests that Griffin left Cadwalader for Herbert Smith over doubts that his practice would have the support or the profile it needed to grow internationally. Cadwalader chairman Robert Link says, “We don’t have a huge project finance practice in New York, but he knew that. . . . We had an impact with the merger of NationsBank and Bank of America, but we have top quality lawyers and we are very committed.” Building in London takes time, and time is what the U.K. firms have and most U.S. firms don’t. Look at the average per-partner profits for Freshfields or Clifford Chance, and you can assume they would be $200,000 higher if the firms had not bothered to build their global networks over the past decade. Armed with the strength of English law, but without a huge domestic market like that of the U.S., the U.K. firms have developed a culture of firm investment that is alien to most U.S. firms. At first, the pay disparity makes recruiting easier for the U.S. firms. “It’s incredibly annoying,” grumbles the managing partner of a U.K. firm, “that firms … entered the market with a plan that involved them overpaying for talent from certain firms, disadvantaging those firms who lose talent they can’t afford to lose.” Especially, he says, when the business plan “was doomed to fail.” “Doom” may overstate the case, but it is a fact that it’s hard to turn a quick profit on highly paid London laterals. Few U.K. partners can guarantee their practice will move with them when they switch firms. U.K. firms sell themselves as a brand and increasingly protect their relationships by making sure no one partner monopolizes a key client. U.K. firms can use methods that would be unthinkable in the U.S. to pry clients from the departing lawyer. The most extreme device is “gardening leave,” where a departing partner serves a notice period, often of up to a year, away from the firm and clients. The best that most partners can say to a prospective new firm is, “I know these clients, and I think I can slowly pick up work from them.” This process can take years rather than months, and re-establishing old contacts inevitably takes a toll on that other benchmark that Americans value more highly — billable hours. “Sometimes they didn’t understand the dynamics of building an institutional client base over time and being patient,” says Allen. An ex-Weil, Gotshal lawyer says that New York’s patience with Allen wore thin after the arrival of Francies and his M&A team from Clifford Chance in 1998. Francies, a highly organized, tireless biller of hours, brought most of his clients with him and immediately started generating revenue. “New York looked at what Mike was doing and said, ‘This is the kind of person we want,’ ” says the source. (Francies disputes this but concedes that his corporate client base was perhaps more portable than banking clients.) A former Cadwalader partner reports that New York was sometimes unwilling to allow recruitment of more associates when the lawyers already at the office weren’t recording large numbers of billable hours. The source points out that, as a startup, the office invested time in nonbillable activities like relationship-building, and, while the office sometimes suffered periods of inactivity, when it was busy there were barely enough staff to cope with the work. Immediate results is the name of the game at U.S. firms these days. As former Akin, Gump partner Keith Hughes puts it, management has to play to a “domestic audience,” some of whom wonder how they benefit personally from having an expensive office in London. Former partners at Akin, Gump; Weil, Gotshal; and Sidley say that the need to keep profits up in the U.S. curtailed the firms’ willingness to invest. Akin, Gump’s London office was set up mainly to service its successful Moscow branch with a capital markets capability, but after the Russian crisis of August 1998 the work from Moscow dried up. Hughes saw this as a chance for the London office to hire more English lawyers, but another former partner says that, instead, there was a de facto hiring freeze, with the test being — you’ve guessed it — a book of business. “[The freeze] wasn’t official in that if someone had come along with �5 million [$7.5 million] of portable business and wanted �1 million [$1.5 million] a year they would have hired him on the spot. An effective freeze occurred because of unrealistic hiring requirements.” Even if, unlike Weil, Gotshal, a firm already has the necessary relationships in the U.S., the strong ties between U.K. firms and their clients — particularly financial institutions — mean there is no guarantee those clients will provide any work in London. As ex-Cadwalader partner Starky says, “There was a certain amount of naivet� on both sides. . . . Lehman Brothers and Nomura in the U.K. have an established panel of law firms they use, and you won’t just be able to get on to that panel as an established firm. . . . It got easier, but it was a slow process.” It’s not all gloom for U.S. firms in London. For a start, some of the defectors went to other U.S. firms, rather than to U.K. firms. Skadden, Arps, Slate, Meagher & Flom and Shearman & Sterling, both based in New York, are playing to their strengths with a mix of U.K. and U.S. lawyers. Weil, Gotshal and Cadwalader are making money in London, and both firms insist they will overcome their problems. As Cadwalader’s Link puts it, “Any growth through lateral acquisitions is an iffy process.” But their experience shows what can happen when U.K. lawyers with big egos find themselves in a branch office of a firm on the other side of the Atlantic. This raises the old problem of culture, and what the Brits see as Americans’ need to control everything. One lawyer says Cadwalader’s London office wasn’t allowed to issue a press release if it hadn’t been cleared in the U.S. The lawyer also reports that the office manager and his team reported to New York, causing conflict between the support group and the London lawyers. Link denies there is any change, but following Griffin’s departure, the office has been given more autonomy under new managing partner Andrew Wilkinson, the office’s biggest biller and a more obviously robust character than Griffin. Another former lawyer from the firm can’t put his finger on the cultural differences he found so difficult, except to say that lawyers had to fly economy class across the Atlantic. Link points out that the firm pays way above U.K. rates of compensation and if people want to fly in luxury they can make their own arrangements. Whichever side of the curtain that frequent fliers find themselves on, let’s hope the airlines provide parachutes. The way things are going, they might need to bail out.

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