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England’s empire builders of international legal services are taking a hit in their own once-indomitable engine rooms. For a decade, most of London’s so-called Magic Circle firms have taken delight in reengineering the landscape of the world’s law firms. They’ve swallowed firms, poached partners, and barged into jurisdictions once famous for their placidity. Now a bit of strife has started to rile the Circle on its home turf. This isn’t just a matter of numbers. Although the departure rate of partners from English firms to U.S. firms’ London practices was more than one a week through 2002, what’s changed in the past few months has been a rise in the quality of the partners heading for the exits. These lawyers, embedded in the most powerful departments of the most powerful legal institutions outside of Manhattan, are now looking to Manhattan firms for a new career. They are heavy hitters, lawyers who are at the top of their tree — in the corporate departments of top-six English law firms — and yet have decided to go to far smaller, satellite offices of U.S. firms. This dents the considerable ego and ambition that have gone hand in hand with the explosive international development of the English giants over the past ten years. It’s not the withering of the Circle, but a sign that it’s losing some of its magic. A normal tactic of the top City of London firms is to privately let it be known that the departing partner was a malcontent, or that he simply wasn’t cutting it in terms of profit generation. While in several past cases this has seemed likely, the recent moves fall into a very different category. For instance, Peter King, a 43-year-old corporate partner who had been at the top of Linklaters’ equity lockstep, starts work at Shearman & Sterling’s London office in August. He resigned from Linklaters in mid-March, and expected to be free from the firm at the end of the financial year, on April 30. However, Linklaters put him on four-and-a-half months of “garden leave.” (God is the real winner here: King will be spending the time doing a theology degree.) When he finally starts at Shearman, King can look forward to a restrictive covenant that states that during his first year at Shearman he must not work for any client that he has served in the past two years. These are not the actions of a firm carefree about its future abilities to compete. Leave aside whether restrictive covenants are archaic and contrary to the spirit of a free market. The point is that by its actions, Linklaters looks rattled. Even worse, the firm runs the risk of annoying Merrill Lynch & Co., Inc., a longtime Linklaters client with which both King and Shearman have close ties. In March, Freshfields Bruckhaus Deringer handled more graciously the departure of star corporate and capital markets partner Tim Emmerson. He resigned to join Milbank, Tweed, Hadley & McCloy, agreeing not to talk about clients, and they bade him good luck. Emmerson, 49, was one year off the top of Freshfields’ lockstep. He was particularly famed for his work on the IPOs of Telecom Italia S.p.A. and Orange S.A. — two of Europe’s largest ever. The only delay to Emmerson’s arrival at Milbank was a short holiday break in the Caribbean, which commenced on the afternoon Freshfields announced his departure to its partnership. Emmerson claims he escaped not so much to “lie low” for awhile, but because his wife was fully aware that had he stayed at Freshfields for another year, he was due his sabbatical break that English partners look forward to with some relish. (Such relish is amply summed up with the words “three months off.”) The departures of Emmerson and King, though executed in different styles that say much about the current character of the two firms they’ve left, have the same net result. These are not people being squeezed out for qualitative reasons. These are not fly-by-night attention-seekers. They are part of the cream of London’s most finely pasteurized legal institutions, and now they’re at U.S. firms. To these names can be added a small but potent list that has taken shape in the last few months. Andrew Brodie has left Allen & Overy for Milbank; Euan Gorrie has left Allen & Overy for Simpson Thacher & Bartlett; Michael McGowan has left Allen & Overy for Shearman & Sterling; Nikhil Mehta has left Linklaters for Cleary, Gottlieb, Steen & Hamilton; and Chris McFadzean has left Linklaters for Latham & Watkins, making him the sixth U.K. lateral to join the hugely ambitious outfit last year. (We should give a mention to Davis Polk & Wardwell’s hiring of Allen & Overy restructuring specialist Nick Segal in the context of this piece. Segal has gone to requalify as a U.S. lawyer and work in New York; his move does not yet confirm a revolutionary change of strategy for one of Wall Street’s finest all U.S. firms, which still relies in the United Kingdom on referrals from a similarly purist Slaughter and May. Saying that, murmurs of skepticism can be heard in the London market that this is but a clever tactical smoke screen. (Segal doesn’t, after all, de-qualify as being a U.K. lawyer …) These, then, are the men with the highest profiles. They are not loners, though: They have much company. According to Legal Business figures, the top 50 U.S. firms in London currently host 1,892 U.K.-qualified lawyers. No wonder things in London are a bit jittery these days. Apart from the immediate impact and loss of business in a lean corporate cycle, the two key questions faced by the managements of the elite English firms are these: What are the strategic implications? And who’s next? The challenge now is that a decade’s worth of strategic initiatives abroad may have left them vulnerable to mischief at home. First, there’s a problem with size. There was a time when the top English firms were of a size that fell within the ken of most partners’ expectations of the way a law firm could function. Not anymore. When, say, Nikhil Mehta became a Linklaters partner, 13 years ago, he was its 102nd. There are now nearly 500. The partners now running the Magic Circle joined their firms when the partnerships numbered no more than 25. The gentleman’s club feel has been replaced by a veritable factory floor of professionals. This is a prescription for, if not alienation, then at least somewhat more tenuous institutional links. Second, there’s a problem with focus. The managerial energies of the past ten years, and particularly the last five, have been almost entirely focused on developing offices in all of the key financial centers of the world, and several others besides. As its full name implies, Freshfields Bruckhaus Deringer is undoubtedly a huge and successful presence in Germany. But what ties it has with the London headquarters — speaking in cultural and profitability terms — are harder to decipher, once you start delving deeper than senior management levels. Linklaters’ European adventures are too numerous even to summarize. But after several years and several strategies, it has cobbled together some impressive acquisitions and rid itself of the “and Alliance” part of its name, which some were starting to rename “and aliens.” (Somewhat unfairly, you may say, but that comes from a Linklaters partner.) Third, there’s a problem at home. Just as the rest of the world starts to fall in line, suddenly the London market goes limp. Partners find themselves wondering about a large cumbersome home office that was built to feast on a relentless diet of premium corporate deals. We seem to be in for several lean years. Is it any wonder, then, that the appeals of the more focused and more profitable U.S. firms are taking their toll on partners sentimental for a more collegiate structure in their London offices? Look at it this way: If many of your partners are going to be strangers anyway, and you’re determined to play on a global stage, why not join a U.S. firm whose own corporate troubles are cushioned nicely by an unrelenting diet of litigation? That problem could be negated instantly if only a leading U.S. firm would accept the standing merger offers from Freshfields or Linklaters. If only, indeed. The Magic Circle is hardly disappearing. As Tim Emmerson puts it, with typical modesty: “My departure alone won’t harm Freshfields. There are 50 corporate partners at the firm.” But will others follow where Emmerson and King have dared to tread? The U.S. firms are certain the answer is yes. They have done what they can to instill just a hint of panic at the English giants, by calmly waiting for the right market leaders to decide to move. The head of Shearman & Sterling’s London office, Kenneth MacRitchie, summed it up well in a comment to Legal Business when King’s arrival was announced: “We have spoken to a number of really talented junior Magic Circle partners who say that if we get a big name, they may move.” Translation: Don’t be the last restless guy to get out. Emmerson is no maverick. He simply says, of his decision to leave one of England’s finest law firms: “I haven’t bought into the global starship idea.” If a few more Emmersons vote with their feet, English managements will have headaches on their hands. It’s not that the global starships will stop flying, it’s just that they may be watching some of their stars leave them behind.

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