American Lawyer chief European correspondent Chris Johnson meets regularly with senior figures in the legal world at their favorite breakfast joints to chew over the industry’s tastiest talking points. Johnson’s guest this week is Slaughter and May’s senior partner, Chris Saul. On the menu: the long-term viability of the firm’s "best friends" alliance network.
Slaughter and May has always been a bit different. Indeed, the conservative firm, renowned for its transactional prowess and market-leading profitability, quietly prides itself on its willful and somewhat anachronistic quirks.
It is the only member of the U.K. top 50 not to have converted to LLP status, meaning it does not have to make its financial statements publicly available by filing them with Companies House, and it steadfastly refuses to comment on its fiscal performance. Historically, it hasn’t commented much on anything, viewing marketing with contempt and dealing with the media only when strictly necessary. The firm has issued a grand total of 68 news releases over the past eight years and still doesn’t have a press office.
Slaughters doesn’t even have practice areas in the conventional sense, producing what it refers to as “multi-specialist” lawyers able to handle a broad range of work—albeit with a strong emphasis on public M&A and other marquee corporate transactions—for a blue-chip client base that is the envy of the City. (Slaughters acts for more FTSE 100, FTSE 250, and London Stock Exchange–listed corporations than any other law firm in the world, according to investment research company Morningstar.) Its financials aren’t bad, either. The firm’s revenue per lawyer of $1.305 million is beaten only by Wachtell, Lipton, Rosen & Katz and Sullivan & Cromwell, according to The American Lawyer’s reporting for its 2012 Global 100 survey, while its tightly held equity consistently delivers average compensation comfortably in excess of $2.5 million per partner. (Last year’s profit per equity partner of $2.89 million placed it seventh in the Global 100 rankings.)
But it is Slaughters’s international strategy that most clearly distinguishes the firm from its competitors. While most top firms have established bases across the world, Slaughters instead relies on its so-called best friends: A network of nonexclusive alliances with leading independent firms. (Slaughters itself has just four offices: Its London headquarters, and small outposts in Beijing, Brussels, and Hong Kong.)
“It is a little unusual,” admits Slaughters senior partner Chris Saul, who has joined me for breakfast at his favorite restaurant, The Delaunay.
The sister restaurant of The Wolseley—my personal early morning eatery of choice—I have to admit that I was excited to see how it compared to its older sibling. But as I settle into one of The Delaunay’s green leather banquettes, my first impression is one of slight disappointment. The restaurant is pretty enough—with dark wood panels, huge gesso pillars, polished brass lamps, and monochrome art deco marble flooring—but it feels more like an old-fashioned gentleman’s club, rather than a grand café, and somehow lacks the sheer spectacle of The Wolseley. That said, the large room is buzzing, even at this early hour, and the menu looks promising. The first page is the stuff of children’s dreams. Patisserie; a whole section dedicated to biscuits and sweets, including marshmallows; milkshakes; seven different variations of hot chocolate; and ice cream floats made with everything from cream soda to root beer. Elsewhere, German and Austrian specialties abound. There’s even an adjoining "counter" section that offers a range of take-out options from frankfurters to Viennoiserie, made fresh on-site at the restaurant’s own pastry kitchen.
A waistcoated waitress, a white apron tied neatly around her waist, takes our orders. Saul asks for eggs benedict and English breakfast tea. I opt for an Americano, having just managed to resist the lure of the "kaffe kirsch"—essentially a drinkable Black Forest gateau, combining a long espresso, cherry brandy, Belgian chocolate and whipped cream—but can’t look past the intriguing-sounding oatmeal soufflé with apple and rhubarb sauce.
As our drinks arrive, each served in antique silver pots with worn wooden handles, Saul recalls the formation of the firm’s best friends network in the mid-90s.
“The U.K. market was entering a period of intense change,” he says, straining the loose-leaf tea into a porcelain cup. “Clifford Chance had already done its big merger [London-based firms Clifford Turner and Coward Chance combined in 1987] and was beginning to be more acquisitive internationally, while Linklaters had started its big alliance push. We sat back and asked ourselves one key question: What was going to serve our clients best? We decided that working with the leading local counsel on a jurisdiction-by-jurisdiction basis would allow us to provide clients with the best possible quality of advice, while also giving us the flexibility to choose the most suitable team for each specific deal.”
As “the cornerstone European jurisdiction," Saul says Germany was “fundamentally important” to the alliance, and the first firm signed was elite German outfit Hengeler Mueller. Spain’s Uría Menéndez, Italy’s Bonelli Erede Pappalardo, Dutch firm De Brauw Blackstone Westbroek, and France’s Bredin Prat soon followed, forming what remains the core of the best friends network. (Slaughters actually had its own office in Paris when Bredin Prat joined the group, but that operation was absorbed by the French firm in 2004.)
“There were skeptics, of course," Saul adds. "A lot of the investment banks, who were all going in the opposite direction at the time, told us that it wouldn’t work, but we’ve been very pleased with the way in which it’s evolved."
A series of high-profile setbacks to established alliances have led some to question the long-term viability of the model, however. Herbert Smith, for example, suffered a huge blow in late 2011 when its long-standing alliance with leading European practices Gleiss Lutz and Stibbe collapsed. Then, last April, Slaughters saw its Australian best friend, Allens, quit the network to sign an exclusive alliance with one of Slaughters’s Magic Circle rivals, Linklaters. (Slaughters now spreads its Australian work between Clayton Utz, Corrs Chambers Westgarth, Gilbert + Tobin, and Minter Ellison.)
“I suppose it was disappointing, but with hindsight it wasn’t that surprising,” Saul says of Allens’s defection. “The slight oddity about Allens is that although we had been close, the relationship was to some extent based upon the work we did together when we were both in Singapore. After [Slaughters] closed down in Singapore in 2004"—Saul says the market was suffering in a post-SARS downturn—"we drifted apart somewhat.”
Signs of the weakening relationship were evident as early as 2007, Saul adds, when Allens lined up opposite Slaughters—and alongside Linklaters—on the proposed $165 billion megamerger between mining giants Rio Tinto and BHP Billiton. (Slaughters rainmaker Nigel Boardman was listed among The American Lawyer‘s Dealmakers of the Year in 2008 for his role advising BHP on the ultimately failed combination.)
“That was a pretty clear barometer of the close relationship they had with Linklaters,” Saul says. “It was also clear to us that things were changing in Australia. Allen & Overy had just opened there, and Allens was getting itchy feet—they felt a certain need to be part of a global firm.”
But as a member of the best friends network, was Allens not effectively already part of a global firm?
“Yes,” he adds, “but they clearly wanted something more exclusive, and that’s really not our approach.”
Saul says that the lack of exclusivity among its alliance firms is “crucially important to the proposition that it is the clients that govern." Although Slaughters would obviously prefer to work with its best friend in any given jurisdiction, he explains, if a client has an existing relationship with a different local firm, Slaughters will happily use them instead.
Saul admits that such an open arrangement leaves the firm vulnerable to a possible “guerilla attack” on its core client relationships—particularly if the local firm being drafted in from outside the network has its own links to another U.K. firm—but says it hasn’t been a “major issue” thus far. “We just work very hard at convincing the client that they are already getting the best possible service,” he says.
Our food arrives. Saul proclaims his eggs benedict to be “absolutely delicious." My oatmeal soufflé, while ever-so-slightly overcooked, is a revelation. Through some culinary magic, it manages to be light yet substantial, and both savory and sweet. The accompanying rhubarb and apple compote is fresh and bursting with flavor, with just the right amount of sharpness and acidity. I strongly advise everyone to rush out and try this dish as soon as is humanly possible.
As we tuck in, talk returns to business. Although Allens is the only firm to have formally left the best friends network since its inception, cracks have started to appear between Slaughters and some of its U.S. allies. Slaughters has historically worked with six firms across the Atlantic: Cravath, Swaine & Moore; Davis Polk & Wardwell; Paul, Weiss, Rifkind, Wharton & Garrison; Simpson Thacher & Bartlett; Sullivan & Cromwell; and Wachtell, Lipton, Rosen & Katz. But even such notoriously conservative Wall Street firms are starting to reassess their strategies. In 1999, S&C took the highly significant step of launching an English-law practice in London with the hire of Norton Rose projects partner Jamie Logie. Simpson Thacher and Davis Polk followed suit—their hires of Clifford Chance private equity star Adam Signy in 2009 and Freshfields corporate partner Simon Witty in 2012, respectively, were cited by The American Lawyer as among the top lateral moves in those years—with all three firms also becoming active in recruiting Hong Kong–qualified lawyers. Previously some of Slaughters’s closest allies, the firms are increasingly becoming direct competitors. The progressive encroachment on Slaughters’s home turf has predictably had a knock-on impact on the firms’ relationships.
“While we have a good relationship with those firms and really like them very much, the ties are necessarily looser now than they used to be,” Saul says, adding that Slaughters has referred an increasing proportion of its U.S. work to Cravath, Paul Weiss, and Wachtell as a result.
As the market continues to consolidate, Slaughters is likely to find itself increasingly facing such issues. Saul accepts that the pool of available independent firms to which it can refer work is diminishing, and that the market is inevitably set to consolidate further. Nevertheless, he insists that the firm remains confident in its strategy.
“Our view is that, for the foreseeable future, at least, there will always be a cohort of top-class independent firms in all material jurisdictions around the world,” he says. “We see independence as a very desirable commodity to thoughtful law firms. Not only does it ensure yourself of a certain flow of referral business from other independent firms around the world, it also ensures, and this is really quite important, that your lawyers will have a genuine say in the direction of the firm.”
And while a number of local firms have ceded their independence in recent years, Saul speaks in almost evangelical terms of others “coming back to the path," including Gleiss, Stibbe, and best friends member De Brauw. (De Brauw left an alliance with Linklaters in 2001 after merger talks between the two firms broke down.) Slaughters is continuing to develop ties with local firms throughout China, such as Fangda Partners, Haiwen & Partners, and Jun He Law Offices, Saul adds, and recently hosted a forum in Botswana that brought together 29 sub-Saharan law firms from 22 African jurisdictions, the best friends network, and six Africa-focused clients, including BHP and drinks brand owner Diageo. (Slaughters has particularly interesting ties to two of the attending African firms: Atiq Anjarwalla, name partner of Kenyan firm Anjarwalla & Khanna, is a former Slaughters associate, while Udoma Udo Udoma, senior partner of Nigeria’s Udo Udoma & Belo-Osagie, attended Oxford University with Saul.)
“It may be a trite point, but in such a competitive market, there’s a real benefit to being different,” Saul says. “I like to see us as the Porsche 911 of the legal community: We’re rear-engined and a bit quirky, but focused on performance and quality.”
I have to laugh. It’s a long-running joke that Porsche designers have the easiest jobs in the car industry, as they don’t actually do anything—the 911 looks almost exactly the same today as it did upon its launch in 1963.
“Ah, yes, but that’s the secret,” Saul smiles. “It’s actually evolved considerably over the years, but Porsche has done a wonderful job in making sure that, despite the changes, it’s still instantly recognizable as a 911.”
A Slaughters partner talking enthusiastically about branding? My, how times have changed.
Breakfast for two came to £29.19 ($45), with service.
Chris Johnson is The American Lawyer‘s chief European correspondent. Reach him at firstname.lastname@example.org. Follow him on Twitter at @chris_t_johnson.