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Peter Cornell has heard from naysayers before. The global managing partner of Clifford Chance recalls that, when the London-based firm was eyeing continental Europe, skeptics said a British firm could never take on established locals like Italy’s Chiomente Studio Legale, the Netherlands’ De Brauw Blackstone Westbroek and Spain’s Uria & Menendez. “That has all changed,” Cornell said. “Those are still very good firms, outstanding firms that I have huge respect for. But what has changed is that in all of those markets we see, right beside them, our Italians, our Dutch, our Spaniards going head-to-head with them on the local stuff as well as the international stuff.” Speaking to a reporter in his new, surprisingly modest, Manhattan office, Cornell is keen to stress the firm’s record of success abroad. But such chest-thumping in many ways only underscores the fact that, in the world’s biggest and richest legal market, Clifford Chance has yet to disprove its naysayers. Quite the opposite, in fact. The last five years have seen the firm, one of the world’s largest with 3,300 lawyers, go from pace-setter to basket case in the United States. Dozens of high-profile partner departures and a messy retreat on the West Coast have seriously damaged Clifford Chance’s image, calling into question the wisdom not only of the firm’s decision to merge with New York’s Rogers & Wells in 2000 but of its vision as a global law firm. It was against this backdrop that Cornell decided in December to relocate to New York from London. He arrived last month, becoming the first head of one of London’s “Magic Circle” of leading corporate law firms to be based in the United States. The 52-year-old Briton has swiftly made his presence felt in the firm’s offices on West 52nd Street On arrival, he created a new four-partner U.S. executive committee. Cost-cutting measures have been introduced: according to a source inside the firm, as many as 40 New York staffers have already been let go. According to another source at the firm, Cornell is also poised, pending a partner vote, to personally assume the role of managing partner for the Americas. The move would strengthen his ability to both push reforms in the United States and advocate on New York’s behalf among partners in London. John Carroll, the present regional head, announced last week he was stepping down from the position at the end of April to return to his litigation practice. It will be Cornell’s fourth stint running an office and second time heading a region in his 30-year career at Clifford Chance. In the course of his postings in Singapore, Spain and London, he has earned a reputation as both a hard-nosed manager and a consummate diplomat. Easygoing and unpretentious, Cornell is not at all the sort of Savile Row-clad nabob one might expect to head one of the top London law firms. Famous back home for his love of surfing, he projects confidence and an eagerness to throw himself into the fray that is perhaps more stereotypically American than British. But can anyone pull Clifford Chance’s U.S. operation out of its downward spiral? “Peter is just a terrific guy, a really smart and really nice guy” said a former Clifford Chance New York partner who asked to remain unnamed. “But this is just too little, too late.” Indeed, if big-name partners with large books of business are truly the lifeblood of major law firms, Clifford Chance is long past needing a transfusion. PARTNERS JUMP SHIP Things began to slide for Clifford Chance in 2002. Prior to that, the merger with Rogers & Wells and a subsequent bold move into California had marked the British firm as a powerful and aggressive new competitor. That Clifford Chance’s West Coast move came at the expense of onetime San Francisco leader Brobeck, Phleger & Harrison only burnished that image. But starting with Kevin Arquit, one of the nation’s top antitrust lawyers and arguably the firm’s biggest star, who left Clifford Chance in December 2002 to join Simpson, Thacher & Bartlett, a long string of departing partners has created a very different image. Shortly after Cornell’s arrival in the United States, the bleeding continued as the firm’s five-partner New York bankruptcy practice, led by Margot Schonholtz, left last month for Kaye Scholer. In between, the firm has seen the departure of stars like Arquit’s practice co-head, Steven Newborn; intellectual property head Leora Ben-Ami; litigation chief Kenneth Gallo and even its former U.S. managing partner, securities litigator James Benedict. The San Francisco and Los Angeles offices that opened in 2002 with lateral partners from Brobeck were closed barely two years later. A New York office that numbered 450 lawyers in 2002 now counts only 265. Cornell can hardly deny that the going has been rough. But he rejects the idea that the departure of its biggest stars has left the firm broken beyond repair. “What you’re seeing now is that, over five years, we haven’t had as much progress as I would like but what we have represents to me a very exciting, positive platform,” he said. “We’ll move forward with a bunch of people, partners and associates who I think are committed and loyal and understand our way of doing things.” LOCKSTEP COMPENSATION VS. ‘EAT WHAT YOU KILL’ To its critics, however, the firm’s way of doing things is precisely the problem. The firm’s insistence upon a system of lockstep compensation, in which partners are paid according to seniority, is widely regarded as the root of its partner retention difficulties in the United States. Most American law firms pay partners according to the amount of business they originate, the system known as “eat what you kill.” Additionally, Clifford Chance’s massive size and far-flung nature supposedly confront American lawyers with conflicts and red tape not present at even the biggest U.S. firms. It is easy to ascribe such difficulties to fundamental cultural differences and many of the firm’s detractors do. One ex-partner describes Clifford Chance’s approach as “socialist” and ill-suited to the supposedly more entrepreneurial and individualistic United States. “In Europe, clients really do hire the firm,” he said. “In America, they hire the individual lawyers.” The partner points out that, unlike most U.S. firms, Clifford Chance does not even keep track of which individual partners brought in what business. “Americans like to keep score,” he said. Cornell does see things more in terms of the firm than its individual lawyers. But he does not think that view is particularly European. Indeed, he believes fewer American partners would have left the firm had their offices been contributing more to the overall firm’s profitability. “I think the frustration at being a region that’s punching below its weight wasn’t doing anyone any good,” he said. “Every office wants to be the jewel in the crown. “The fact that we haven’t been able to do ourselves justice here, I think that was frustrating for people, for partners sitting at the management level. They know they’re representing a region that’s not doing as well. It’s easier to say it’s London’s fault.” CULTURE OF CONSENSUS Which is not to say there are no cultural differences. Even though the large British firms are much larger than their American counterparts and have far larger administrative staffs, they retain many of the hallmarks of traditional partnership that U.S. firms claim to have outgrown. Votes are common and partners expect to be heard. Despite his august title, Cornell has less power than many American managing partners, who can often make decisions on their own or in consultation with a only small, self-selecting executive committee. “It’s true that all of the global firms based in Europe have constitutions that are fairly consensual,” Cornell said. “That’s a fact. I find that as frustrating as anybody else. I find it particularly frustrating given the job I’ve got.” Cornell said the culture of discussion and consensus is an attraction to many Americans who have felt brutalized by overbearing management committees and mysterious compensation decisions. But the consensual approach also means the firm has a hard time reacting swiftly to crises. Two years ago, a long-discussed proposal to modify the firm’s lockstep to accommodate higher-paid U.S. partners met stiff opposition from British partners who wanted to maintain a pure lockstep. Despite the mass exodus of U.S. partners that followed, the firm is only now developing a similar proposal. Earlier this month, Cornell told partners assembled in Paris for the firm’s annual meeting that the role of global managing partner needed to be further empowered. In the coming months, Cornell may gain the power to, among other things, promote non-equity partners, a probationary position at the firm, to the full partnership Geographic distance has made the firm’s deliberative processes all the more tortuous for Americans, contributing to disaffection. Cornell said he hopes his presence in New York will help keep U.S. partners engaged in firm management. “Perhaps I can more readily involve and inform folks in the Americas about what I’m doing and what is going on in various initiatives in a way that maybe in the past they’ve felt — not excluded — but haven’t been as close to as they might have been if they’d been sitting in London or Paris,” he said. COMPARING LOCKSTEP COMPENSATION AT BRITISH, U.S. FIRMS Lockstep compensation remains the subject of the greatest debate and discord. Though foreign to many American lawyers, it is not a British import. David B. Wilkins, a Harvard Law School professor and head of the school’s program on lawyers and the legal profession, notes that lockstep was the norm at most U.S. firms until about 20 years ago. It remains so at the most prestigious and profitable New York firms, places like Wachtell, Lipton, Rosen & Katz; Cravath, Swaine & Moore and Davis Polk & Wardwell. Wilkins said lockstep has some long-term advantages that more American lawyers may learn to appreciate again. “At American firms, a lot of time is wasted on these bloody battles over credits,” said Wilkins. In addition to promoting internal harmony at firms, he said, lockstep can allow firms to develop more balanced practices and build stronger and broader relationships with clients over the long term. Cornell points to such advantages in explaining why he believes it is the only way forward for a global firm. “We know for our clients it’s quite compelling,” he said. “If they come to me and say, ‘Well, Pete, there are eight jurisdictions involved, what is the right office and which is the right partner?’ “In eat-what-you-kill, I might say I should do it and it should be my office because I’ll get all the bloody points. But they know in our system I’ll say that’s the office you should go to and that’s the guy you should use.” But lockstep at U.S. firms is usually part of a conservative firm culture in which graduates of elite law schools typically rise to partnership together, with almost no outsiders admitted laterally. These firms have usually argued that only partners who have trained together, preferably from their earliest years as associates, can trust one another to work hard and maintain high standards of quality. “Lockstep can work,” said Wilkins, “but it’s very hard to make it work with widespread lateral hiring.” ATTEMPT AT FLEXIBILITY In contrast to the New York elite, Clifford Chance has relied heavily on lateral hiring and mergers for growth, both in the United States and overseas. The firm’s model of global scale and reach has required it to do so. But the market for lateral partners is very much driven by the “eat what you kill” mentality. Which is no doubt one reason Cornell and others at the firm agree the U.S. market requires some accommodation in Clifford Chance’s lockstep. The firm already has some flexibility at the top end and many of the U.S. partners who left had previously been awarded extra points beyond the top range of Clifford Chance’s lockstep. Though a proposal to institutionalize such flexibility was defeated by a partnership vote in 2003, Cornell and a group of other senior partners are taking up the cause again, looking at introducing across the firm such lockstep reforms as market-weighting, in which partner units in the United States would be valued more highly than those in, say, Italy. A proposal is expected in the next two months. “There are a number of ways you can do it, but it’s still a lockstep system, where you’re not paid by reference to performance,” he said. “It’s by reference to market, local economy, not individual performance.” In his short time in the United States, Cornell said he has already talked to prospective lateral candidates who are frustrated with their firms’ compensations systems and receptive to joining a lockstep firm. But Cornell knows such feelings can be fleeting, especially among partners long accustomed to being paid according to their books of business. “The only reason we could do the merger in 2000,” he recalls, “is because Rogers & Wells said to us: ‘We’re fed up with our system. It’s very divisive. It takes too much time. We’d like to embrace the lockstep system.’” American partners who join Clifford Chance in the near future, he said, may turn out to be younger lawyers with less attachment to non-lockstep compensation, possibly promising young partners at lower-tier firms or senior associates at the elite firms. Clifford Chance’s most recent lateral hire in New York was Joel M. Cohen, a 42-year-old litigator hired from the New York office of Greenberg Traurig. “We’ll never be in a situation where we, say, pay someone $5 million to bring them in,” said Cornell. “But in many ways that individual would not be suited. I don’t think that prevents us from having people who are outstanding.” In the end, of course, compensation matters in attracting good people. The real key to making lockstep attractive, said Cornell, is to improve the overall firm’s profitability. Nobody complains about the lockstep at Cravath or Wachtell, he said, because those firms are so profitable. This year, he said, Clifford Chance expects the top level of the firm’s lockstep to be close to $2 million, up from around $1.3 million last year. “You could make more than that [at other firms],” he acknowledges. “but that ain’t bad.” A FOCUS ON BUSINESS DEVELOPMENT How to raise the U.S. offices’ contributions to that profitability will be another major focus of Cornell’s. He is already looking at various ways to control costs. A number of practices in use throughout the rest of the firm have been belatedly introduced to New York. Some of these have rankled. Since the firm moved into its new offices last year, all partners now share a secretary with another partner, sometimes with senior associates as well. Junior and midlevel associates are assigned to in-house “service centers” rather than individual secretaries. These centers in turn assign support work to an attached pool of secretaries and word processors. The practice has won some praise from associates who complained that secretaries were previously monopolized by partners, said a source inside the firm. But the source also said many partners accustomed to thinking of a personal secretary as a badge of rank continue to grumble about their perceived downgrading. The firm is also looking to sublease some of the empty office space left behind by its departed New York lawyers. The firm is presently the majority tenant in its building, with a 380,000-square-foot space designed for 500 lawyers. But Cornell is clear that the firm is counting on the United States for top-line growth above all. The Americas now account for around 20 percent of firm revenue. He said the firm wants that proportion up to 35 percent or 40 percent. “When you think of the size and importance of this market, we need to be significantly higher than where we are today,” he said. Part of the reason Clifford Chance feels it does not need to bring aboard star partners in the United States is its strong client base among major banks and in cross-border mergers and acquisitions. Despite its problems in the United States, the firm has continued to earn coveted assignments in major M&A transactions. The New York office recently led the firm’s representation of China’s Lenovo Corp in its high-profile acquisition of IBM’s personal computer business. The goal has always been to leverage existing client relationships from London in the United States. Cornell plans to bring more British lawyers to work in the New York offices. A number of associates are already there. Leading London partners Jeremy Sandelson, the head of litigation in Britain, and Peter Charlton, an M&A partner and head of the London office, are both expected to spend time in New York this year. Cornell sees a substantial client development role for himself. “It’s only a title,” he said, “but the fact I’m managing partner can help the people on the ground wherever they are because we’re showing the client that we take you seriously. People have been keen to have me come along with them. They think they might get in the door more easily.” It is easy to imagine the good-natured Cornell charming clients, and the firm retains some strong talent in New York. Carroll and Peter Chaffetz are well-regarded litigators. Craig Medwick and John Healy are committed pillars in the firm’s M&A practice. Medwick said he cannot imagine a better platform for lawyers working on major transactions than Clifford Chance. The continued loyalty of such partners is one reason Cornell continues to believe the merger with Rogers & Wells was the right move for the firm. “In my view, it was absolutely the right strategy and it remains the right strategy,” he said. “I think a lot of the attrition you see is what you’d normally expect to see. I think that if we had just built on what we had in the late ’90s that would have taken too long.” That said, Cornell said the firm is willing to give the United States time. New York is too important a market for Clifford Chance to just give up and go home. To do so would mean giving up all pretense of being a global firm. Would it ever come to that? “We close offices; we do it,” said Cornell, citing Berlin, San Francisco and Los Angeles. “You’ve got to make sure all of those offices are carrying their weight. It’s quite a rigorous system because it does mean each of those offices has got to be performing at or about world firm levels. And if they’re not, subject to other strategic reasons, you’ve got to look very seriously at them.” New York at the moment is clearly subject to strategic reasons, which is why Cornell is here. But he also sees the day when the firm will speak as proudly of its Americans as its Spanish, Dutch and Italians. “We’ll get there,” he said. “There’s no doubt in my mind.”

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