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A princess lives in the attic of Gianni, Origoni & Partners. That makes the firm unique among the members of Linklaters & Alliance, and very likely among the world’s law firms. The Principessa Deldrago, the heiress of a Papal States cardinal, rents out the bottom floors of her 17th-century palazzo to Gianni’s 110 lawyers in Rome. A pew for singing priests sits behind reception. In the boardroom, an inlaid Cassettoni woodwork ceiling towers more than 30 feet overhead. On one wall hangs a mirror with a handworked gilt frame adorned with cherubim and the dragons of the Deldrago family coat of arms. On another hangs Rome’s largest oil painting in a private collection: 16 canvases that together span an area of about 10-by-8 yards. Such a grandiose setting seems entirely appropriate given the larger-than-life standing of Gianni Origoni name partner Francesco Gianni. As the animating force of the firm, Gianni is — in level of income, status, opulence, and ambition — the modern equivalent of Renaissance nobility. The same can be said of Vittorio Grimaldi of Grimaldi Clifford Chance, although his firm’s Rome office occupies a 1913 art deco villa that seems almost plebeian by comparison. Over the last decade, Italy has rapidly grown out of its provinciality into a money center important enough to attract the big international law firms. Many of the top Italian lawyers have allied with outsiders, stopping short of a full merger. But during the last year, the eyes of Europe have turned to Gianni and Grimaldi to see whether they would move toward full integration with their British counterparts. The two princes issued opposite decrees. Grimaldi formalized his firm’s union with Clifford Chance on January 1. Gianni’s firm declined to put the question of a full merger to a vote this spring — even as Linklaters’ other European allies moved into more advanced merger talks. Though their approaches to consolidation are different, Gianni and Grimaldi personify the changes taking place today among firms at the apex of the Italian legal market. Until 1993, when Grimaldi turned this market on end by forging his first-stage alliance with Clifford Chance, Baker & McKenzie was virtually the only foreign law firm in Italy (it opened offices in Milan and Rome in the 1960s). Since the entry of Clifford Chance, eight of the top 10 London firms, including Freshfields Bruckhaus Deringer and Allen & Overy, have opened shop. They’ve been joined in the last three years by five New York firms — Cleary, Gottlieb, Steen & Hamilton; Curtis, Mallet-Prevost, Colt & Mosle; Coudert Brothers; Willkie Farr & Gallagher; and White & Case — plus Cleveland’s Squire, Sanders & Dempsey. Meanwhile, three of the Big Five accounting firms have ramped up their legal practices. With other Americans on the prowl and only a handful of major independent Italian firms left, Kenneth Lee, a Milan-based partner of White & Case Varrenti e Associati, wagers that “there are going to be a lot of consolidations and spin-offs and spin-ins” during the next few years. The cause for Italy’s current popularity dates back to the late 80s, when the local stock market reached critical mass and international investment banks invaded Milan. For years the maturation of Italian capital structures had been impeded by the influence of the country’s large Communist party. But the fall of the Berlin Wall in 1989 spurred Italy’s economic takeoff by boosting investor confidence and inaugurating a frenzy of privatization. The country’s trillion-dollar economy is now the sixth-largest in the world, just behind Great Britain’s. (By some reckonings, if Italy’s black market is included, it ranks fifth.) No law firm with a serious European strategy wants to be left out of such a market. With the boom in privatization work slowing down, the new arrivals are pinning their hopes on the euro and the theory that the novelty of a stable currency will make Italian companies more attractive M&A targets. They’re also hoping that the tech economy revives. Before the tech slump, Italy — long known for being at the forefront of design — showed signs of becoming a leader in telecom and Internet design. Design has been considered the commercialization of the Italian artistic genius, and “the Italian genius for design is not limited to fabric,” notes Peter Alegi, the dean of American expatriates and of counsel in the Rome office of 60-lawyer Ughi E Nunziante. A look at the recent history of Italian law firms helps put into perspective why Grimaldi would join a London-based behemoth and why Gianni would, for the moment, decline a similar opportunity. Until the early 1990s, the prototypical Italian firm was a boutique of 40�50 lawyers, centered on one powerful individual, usually the founder or the heir of the founder, with a fierce regard for the family name. Such a firm typically had a presence in both Rome, the government center, and Milan, the financial center. It employed associates for a few thousand dollars a year, and paid the handful of top partners princely sums. Firms based on this model were often unstable because of their dependency on one charismatic figure. They were also vulnerable to cherry-picking because of the low compensation given to young partners and associates. That created an opening for the Brits. Clifford Chance was first to seize the opportunity. “I’ve been called the Trojan horse of the Anglo-Saxon invasion,” Grimaldi says. But, “it was a necessity. If I had not done it, somebody else would have.” In eight years Grimaldi has expanded the Clifford Chance-allied offices — in Rome, Milan, and Padua — from five lawyers to 160, with plans to double the 80-lawyer Milan office within two years. Along the way, he introduced securitization to Italy and built dominant franchises in privatization and IPOs. Explaining why the British invasion was necessary, Grimaldi, who is 60 years old, lays out what has come to be known as the “big man theory” of Italian law firms. “When [the law firm founder] retires, that’s the end of the story,” he says. “Others can be very good lawyers, but only one is the founder. At that point, conflicts develop over who takes over the leadership.” Take the case of Grimaldi’s old firm, the venerable Studio Avv. Ercole Graziadei. “After Graziadei [the founder] was gone, we had 10 years of disaggregation and tumble and desperate fighting,” he says. “I contributed to the destruction of the firm.” Indeed, it collapsed six months after Grimaldi left to work with Clifford Chance. The lesson of history, he suggests, is that the prima donnas of the Italian bar “need the discipline of an Anglo-Saxon structure.” At age 50, Francesco Gianni is less haunted than Grimaldi by issues of succession. For him, alliances must be justified on the basis of costs and benefits. Gianni founded his firm as an offshoot of Rome’s Studio Legale Bisconti in 1988. (In 1993 the new firm sprouted its own offshoot, Studio Legale Tonucci, which has grown into one of the nation’s largest firms, with 135 lawyers.) Having once worked in the U.S. for Chicago’s Sidley & Austin and New York’s Rogers & Wells, Gianni became the Italian corporate lawyer of choice for American firms. His firm did about 15 deals a year with Skadden, Arps, Slate, Meagher & Flom in the late 1990s. In September 1999, after turning down an overture from London’s Slaughter and May, Gianni’s firm allied with Linklaters. Gianni addresses the rumors that his firm has lost work because of the alliance. “American firm referrals have dried up because they hate the Brits,” he concedes, adding that “we send Linklaters four, five, six times as much work as we receive.” Of the four large M&A deals Gianni’s firm has handled in the last 18 months, only one (representing Vodafone Group in its sale of Infostrada S.p.A. to Enel S.p.A.) came by referral through the Linklaters alliance. And Gianni believes he would have attracted that deal anyway. By profits per partner and revenue per lawyer, he says, “we’re the most profitable and fastest growing in the Linklaters alliance.” Linklaters & Alliance spokesperson Mati Kindrekus notes that Linklaters does make a number of referrals to Gianni’s office in London. And, she adds, “it’s hard to compare the profitability of one firm against another. In terms of pure profits per partner, Gianni probably is most profitable. But Gianni has a significantly smaller infrastructure.” So, then, does the Alliance pay off for Gianni Origoni? Gianni runs the numbers and estimates that were he still unaligned, referrals would amount to 8 or 10 percent of his work. Instead, the Linklaters pipeline accounts for 5 or 6 percent, a modest shortfall. “I don’t care about [a difference of] 3 or 4 percent,” says Gianni. “The question is: Am I positioning myself in a way that will generate deal flow? I have to be efficient, good, attractive.” The bottom line is that the marketing edge from being a member of the Alliance, especially in pitching banks and investment banks, more than makes up for the loss in referral work. And yet, Gianni admits, “Linklaters would love to do the merger tomorrow. We told them we are not ready.” Why the cold feet? Gianni attributes it to the opportunities offered by Italy’s legal economy. “Linklaters’ other allies [in Belgium, Holland, and Sweden] are from mature or saturated legal markets,” he says. “Here, the demand exceeds supply, and there’s lots of room to grow. The creation of a top tier has not yet happened.” Gianni reasons that while the Italian market is still in such flux, his firm should remain independent and focus its energies on expansion rather than on integration. The firm now claims more than 200 lawyers, with offices in Rome, Milan, Padua, London, and New York. Gianni’s goal is to have 350�400 lawyers on board by 2005. “Linklaters knows we are totally loyal,” Gianni says. Still, one implication of deferring a merger is that if Linklaters can’t give the firm as much time as it needs, Gianni Origoni has plenty of options. A spokesman for Linklaters & Alliance says that Linklaters has no rigid timetable in mind. Grimaldi suggests a slightly different explanation for Gianni’s reluctance to merge. He is a qualified expert on the matter, having made the very decision that Gianni is avoiding when he formally joined Clifford Chance at the start of the year. “It’s not that the legal economy is not ready,” Grimaldi says. “[Gianni Origoni] may not be psychologically ready. It took us seven years to get used to the mentality of an Anglo firm, with all its rules and committees. It will possibly take them as long.” By that logic, Linklaters and Gianni Origoni would merge in about five years. “[Gianni] realizes the necessity of coming into a larger organization,” Grimaldi says. “He wants to resist. He wants to preserve his independence as long as he can — which is what I did … . When you found your own firm, you have power of death and life over everybody. It’s difficult to share power with colleagues in Spain or France. I don’t really like it.” The same distaste for bureaucracy and fear of losing power that makes Grimaldi ambivalent about his alliance with the Brits has caused other Italians to reject the idea outright. But remaining independent is risky. Ten years ago, four Italian firms competed for premium international work. The four, with their current number of lawyers, are: 200-lawyer Carnelutti Studio Legale, 150-lawyer Pavia e Ansaldo, 60-lawyer Ughi E Nunziante, and 120-lawyer Chiomenti Studio Legale. Under the new competitive pressure, each firm has splintered or shed partners, often fighting farcically to maintain its valuable family name. Today, only one of these four — Chiomenti — clearly remains in the top tier, on a par with the four London Magic Circle firms in Italy. The others — a reconstituted Carnelutti, a realigned Pavia e Ansaldo, and a smaller-but-still-elite Ughi — have survived at least until next season’s soap operas. They form a second tier, with plenty of international referral work to sustain them. While still doing top-tier work, Chiomenti’s long-term independence seems uncertain. Three partners have defected to arch rivals in the past year. Merger talks with New York’s Shearman & Sterling collapsed in May 2000, and a deal with Freshfields Bruckhaus Deringer fell through later in the year. At press time, the firm was flirting seriously again — this time with Skadden. “We would be delighted to do something with a prestigious firm like Skadden,” says Luigi Bendi, Chiomenti’s senior partner. Most Chiomenti partners are more sympathetic to collaboration with a U.S. firm than with a U.K. firm, in part because the London firms have lockstep partner pay. Bruce Buck, head of Skadden’s European practice, remains coy at press time. “We view Italy as an interesting opportunity for Skadden Arps,” he says. “We’ve had several discussions with prominent firms about alliances and are also considering opening our own office with Italian lateral partners and homegrown people. We haven’t made a decision.” Of the remaining independent Italian firms, the only one considered both top tier and strong enough today to go it alone is the new 70-lawyer firm of Bonelli Erede Pappalardo Studio Legale. BEP is the result of a three-way merger in 1999 between the boutiques of name partners Franco Bonelli, Sergio Erede, and Aurelio Pappalardo. Erede, who trained at New York’s Sullivan & Cromwell and served as general counsel of International Business Machines Corporation in Italy, is placed by most lawyers and clients at the top of the Italian hierarchy. BEP works extensively with the top two London firms that have not created formal alliances in Italy, Herbert Smith and Slaughter and May. Last year, Erede engineered the minnow-whale takeover of Telecom Italia S.p.A. by Olivetti S.p.A., and the firm served as lead counsel to the European target on M&A deals worth a combined �24.5 billion (USD $34.8 billion) By that measure, little BEP placed ninth in the European M&A league tables, two notches above Gianni Origoni, and higher than any American firm except Cleary. Yet, as rivals are quick to point out, this young firm suffers from the same ailment as the oldest Italian firms: It is built around two great men in their 60s. “Bonelli Erede will collapse as soon as Bonelli or Erede disappears,” says one Italian managing partner. In short, the four firms tied to the London Magic Circle, paced by Gianni and Grimaldi, have rapidly displaced old Italian firms at the top of the market, and neither of the two strongest independents seems to have the institutional resilience to mount a long-term challenge. Beneath the top, the Italian legal market is sharply fragmented, with the displaced elite firms fending off attacks from fast-merging upstarts and old-style boutiques. What room, then, is left in the market for new players, like the Big Five accounting firms and the traditional American law firms? Surprisingly, perhaps, the biggest legal practice in Italy affiliated with an organization with roots in America is Ernst & Young International’s Studio Associato Legale Tributario (SALT), with around 200 lawyers. SALT has followed a unique strategy of establishing offices in regional capitals; its 16 Italian offices easily form the nation’s largest legal network. In number of lawyers, SALT has quadrupled in three years; the only partner it lost in that span was to Andersen Worldwide. Its size is on a par with Gianni, Origoni, and Carnelutti. On top of the diet of IP, tax, and employment work one might expect, the office also does deals in midmarket M&A, private finance, and domestic capital markets. “Most of the wealth in Italy is in medium-size companies outside Milan or Rome,” says SALT of counsel Giuseppe “Joe” Tomasetti. “That plays into a market strategy of having a lot of offices.” The open question for this Big Five office, as for others, is whether it can move up the client food chain. Among the more traditional law firms with roots in America, Baker & McKenzie boasts the oldest Italian practice, dating to 1962 in Milan and 1968 in Rome. Numbering only about 100 lawyers, and not generally regarded as a pacesetter, Baker & McKenzie arguably squandered its quarter-century lead. But it can point to at least one gem of a practice group. Last year, B&M’s Rome telecom group was at the heart of a celebrated dispute, advising Blu S.p.A. and its major shareholder in an auction of mobile phone licenses, and then successfully defending the company when the Italian government tried to levy a record $2 billion fine for Blu’s withdrawal from the auction. With one 30-lawyer office in Rome, two veteran Cleary partners have built the country’s most elite American practice. Italian-born Mario Siragusa, routinely cited as one of the great antitrust lawyers of Europe, moved from the firm’s office in Brussels and set up shop for Cleary in Rome in July 1998. He was joined there by 58-year-old Peter Darrow from New York, who previously had helped build Cleary’s London office. Siragusa, who continues to shuttle between Belgium and Italy, is the lawyer of choice in Brussels and Rome for an astonishing list of Fortune 100 multinationals, including Exxon Mobil Corporation. Darrow’s corporate team gets its pick of Wall Street deals in Milan, and has helped Italy to privatize its aerospace and utility sectors. With its small size and premium billing rates, Cleary does not have the scale or pricing to threaten Italy’s largest players on a routine basis, nor does it aim to. Still, no other newcomer can boast such instant impact. At the same time that Cleary opened, Curtis, Mallet-Prevost quietly acquired six-lawyer Studio Legale Gilioli, the third-generation family firm of Curtis partner Eric Gilioli, a specialist in cross-border high-tech corporate law. Coudert Brothers arrived at the start of 2000, when it merged with Sch�rmann & Partners, a 100-lawyer German-based firm with a 30-lawyer Milan office and a strong German-Italian client base. Later in 2000, when the global-minded Squire Sanders acquired the bulk of financially troubled Graham & James, it hooked up with Studio Legale Bernascone & Soci, a 10-lawyer corporate group in Milan that had been part of Graham & James (The two formally merged in May). That summer Willkie hired Ughi partner Maurizio Delfino to open the now-30 lawyer firm known as Studio Legale Delfino & Associati Willkie Farr & Gallagher. Delfino, who earned a J.S.D. from Stanford in 1983, is looking to reach 50-80 experienced lawyers within the next three to five years. Finally, in January, White & Case acquired 30-lawyer Varrenti e Associati, which, like White & Case, excels in project finance. Kenneth Lee, who was transferred from Mexico City to establish the White & Case office in Milan, aims to have 70 lawyers in Italy by the end of 2002. White & Case and Willkie Farr — like most of the major Italian and British firms — have set up shop in both Rome and Milan from the start. It is too early to pass judgment on the newcomers, but it can fairly be said that all are striving to occupy niches and plug into their firms’ international client networks. So far none inspire fear in Grimaldi or Gianni, at their perches near the top of the Italian law firm world. “The Americans are very, very late,” says Grimaldi. “It doesn’t appear to me any of them have a serious strategy.” Gianni agrees, but he dreads a full-scale American landing. “It would be a sort of disaster,” he says. “Where are most multinationals and investment banks based, and who has the strongest relationships with them?” Aside from Skadden, the other firm expected to soon enter Italy is Shearman & Sterling. Shearman’s Europe practice head, Emmanuel Gaillard, declines to comment, but says the firm has aggressive plans to continue building its European presence. As far as Cleary’s Peter Darrow is concerned, Italy is far from being saturated with big-time lawyers. “Journalists like to pick one winning strategy, and that’s just nonsense,” he says. “Italy has a big and vibrant enough economy for more than one strategy to succeed. … [It] has huge, recently privatized state companies, and it has vibrant midsize family businesses, with little in between. That leaves plenty of room for different types of law firms.” It’s less clear that the market also has plenty of room for newcomers looking to compete in scale or grandiosity with a firm like Gianni Origoni. Certainly a new firm is not likely to find a princess in the attic who outranks the Principessa Deldrago, or to hang on its wall an oil painting of record-breaking dimensions. Indeed, the current Milan office of the latest American arrival, White & Case, is notably overcrowded. If the firm moves to a new suite or redecorates, it might bear in mind that the 4-by-4-inch miniature paintings of Rosalba Carriera count among the great achievements of Italian art. As they say, size isn’t everything.

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