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When Shearman & Sterling sent its highly respected former managing partner, Whitney Pidot, to Singapore last November, the move was clearly intended to signal the New York-based firm’s seriousness about expansion in Asia. As the new Asia managing partner, Pidot oversaw offices in Beijing, Hong Kong and Tokyo, but his base and the centerpiece of the firm’s Asian strategy was Shearman & Sterling Stamford, a newly launched joint venture with Singapore law firm Stamford. Less than a year later, that venture is no more. Wednesday, Shearman signed an agreement with Stamford terminating the joint venture, effective immediately. The agreement follows protracted talks and a lawsuit filed in Singapore by Stamford head Lee Suet-Fern seeking to enjoin Shearman from withdrawing from the venture. In a joint statement, the firms said, “both parties have concluded that their respective strategic objectives can be more effectively achieved as independent firms.” The demise of Shearman’s Singapore joint venture follows the fate of similar joint venture with local firms involving New York’s White & Case and London’s Clifford Chance Rogers & Wells. Born amid great promise, such ventures have encountered setbacks in the form of intractable cultural collisions and a deepening slump among Southeast Asian economies. The troubled course of Singapore joint ventures may also portend difficulties for law firms expanding in other Asian countries that have been reluctant to open their legal markets to foreign competition. With a well-educated, English-speaking population and a highly developed legal system, Singapore has long been an attractive Asian base for multinational corporations and the law firms serving them. Though barred from practicing Singapore law, stand-alone offices of international law firms have long worked on cross-border transactions governed by U.S. or British law. In October 2000, the government of Singapore allowed a small number of foreign law firms to practice local law by forming ventures with prominent local firms. The initial foreign firms included White & Case; Clifford Chance; Freshfields Bruckhaus Deringer; Linklaters; Allen & Overy; Lovells; and Orrick, Herrington & Sutcliffe. The Shearman joint venture began in February 2001, when Lee joined Shearman from the Wong Partnership, which was Clifford Chance’s joint venture partner. Without Lee’s corporate practice, Clifford Chance decided not to go forward with the venture, though the Singapore business press has reported that Clifford Chance has begun talks to revive its joint venture with the Wong Partnership. LOCAL LAW Large British and American firms have increasingly sought to practice local law abroad, as many potentially lucrative transactions, particularly those involving property or other tangible assets, must be structured according to local law. Shearman and White & Case both have stated their ambitions to practice local law in major markets around the world. However, many Asian countries that firms have targeted for growth fear foreign domination of their legal industries, and have prohibited foreign firms from either qualifying their own lawyers or hiring local lawyers. In so doing, those countries have also effectively cut their own lawyers off from the transactional expertise of American and British firms as well as the lucrative cross-border flow of deals they dominate. Asian governments have seen joint venture regimes as a compromise between these conflicting goals, said James V. Feinerman, a professor at Georgetown University Law Center who specializes in Asian legal systems and corporate law. “It’s been a half opening,” he said of Singapore’s joint venture regime. But such ventures are often beset by compatibility problems and can pose particular problems for multinational players accustomed to calling their own shots, he added. “Firms like Shearman and White & Case have a lot of experience doing things their own way,” said Feinerman. “They’ve gone all over the world by themselves.” CULTURAL CONFLICTS Partners at both White & Case — which terminated its joint venture with Singapore’s Colin Ng & Partners on May 31 — and Shearman & Sterling declined to discuss the status of their Singapore operations. But sources familiar with both joint ventures said personality conflicts and cultural differences loomed large, exacerbated by the web of personal relationships connecting Singapore’s business and political elites. For instance, Stamford’s Lee is the daughter-in-law of Lee Kuan Yew, founder of modern Singapore and patriarch of the island city-state’s ruling political dynasty, whose members also control many of the largest businesses in the country. Her husband, Lee Hsien Yang, is chief executive of SingTel, Singapore’s partly privatized telecommunications company. Perceived favoritism benefiting the Singapore partners has often rankled their U.S. counterparts. Under the terms of the joint venture law, foreign firms were not permitted to have more lawyers in the venture than their Singapore partners have. When Shearman moved an international arbitration practice group to Singapore and raised its number to 25 lawyers, the joint venture was obligated to hire five more lawyers on the Stamford side merely to keep the balance. Sources also said some foreign firms have expressed concern that their Singapore joint venture partners have pitched clients outside of the joint venture structure. Feinerman said losing business in such a manner to a joint venture partner is a major concern of all multinational firms, particularly given the much lower rates local firms typically charge. “Clients may find the local firms are as good for their purposes and a lot cheaper,” he said. ECONOMIC WOES The economic downturn affecting the region has hardly helped joint ventures thrive. Highly dependent on exports to the U.S., many Southeast Asian economies went into a deep recession last year. Singapore saw a 7 percent drop in gross domestic product in the fourth quarter of 2001. Ralph Baxter, the chairman of San Francisco-based Orrick Herrington, said that his firm’s joint venture with Singapore firm Helen Yeo & Partners was going fine operationally, but that the office was having a difficult time economically. “It hasn’t been as significant for either of us as we hoped,” said Baxter. “The business climate in Singapore is very, very tough right now. There’s simply less economic activity in Southeast Asia right now.” Baxter said it was possible international law firms were becoming more conservative in their growth projections for Southeast Asia, and added that some may be thinking about curtailing Singapore operations. Singapore established the joint venture regime largely to build itself up as a regional financial and legal center to rival Hong Kong, the traditional base for law firms and financial firms operating in Asia. Until Pidot went to Singapore, Hong Kong was regarded as Shearman’s primary Asian office. In an internal memorandum on the Singapore situation sent to Shearman partners, senior partner David W. Heleniak said the firm would be continuing its Singapore office as a stand-alone operation. A firm spokesman said there were no plans to recall or relocate Pidot. HONG KONG CONNECTION Many multinational companies expanded their Singapore operations over concerns about working conditions in Hong Kong following its 1997 reversion to Chinese rule. “There was some thought that Singapore was a new Asian Switzerland,” Feinerman said. Concerns about Chinese encroachment in Hong Kong have mostly evaporated, he said, and Hong Kong has long been a leader in the liberalization of its legal market. In Hong Kong, international law firms may hire local lawyers or have their own lawyers admitted to practice. Feinerman noted it had recently become much easier for foreign-trained lawyers to take the examination to become admitted to practice in Hong Kong. But the Singapore joint venture regime is still likely to be an attractive model for other Asian countries where American and British law firms are keen to expand, but where the governments are nervous about opening the doors to foreign competition. South Korea and, above all, China top that list. Current Chinese law bars foreign firms almost completely from practicing local law, including through joint ventures. Chinese lawyers may join foreign law firms but, in so doing, lose their license to practice Chinese law, though they may regain it on leaving foreign firms, Feinerman said. However, China’s recent joining of the World Trade Organization is putting pressure on the communist government to seek ways to modernize and liberalize the Chinese legal system, he added. “I’m sure they’re looking at Singapore very closely,” said Feinerman.

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