As people across the world struggled to rationalise the UK’s shock vote to leave the European Union (EU) on Friday, lawyers and industry experts stressed the importance of remaining calm and measured for the sake of clients, as the real impact of the vote unfolds. The fallout will likely be far-reaching and one aspect of it looks set to be a major shift in US firms’ UK operations.
Tony Williams, principal of legal consultancy Jomati Consultants, said that other than short-term regulatory work, the outlook may be grim for the legal industry in the UK.
“We will see recruitment freezes and I think we could well see layoffs,” he said.
While Williams does not expect firms to make cuts immediately, he said they’ll have to be asking themselves what their prospects look like during the next six to 12 months.
We will see recruitment freezes and I think we could well see layoffs
Many of the US-based firms with a large presence in London are focused on transactional work, which is expected to remain slow post-Brexit, Williams said. The quicker the UK and the EU figure out how UK companies and banks will interact with the European markets, the better, he said.
“All will be challenged,” Williams said of the corporate law firms in the United Kingdom. “The advantage some of the magic circle firms have is the depth of their regulatory practices.”
But he emphasised that London is still an important international financial hub and will likely remain one, even if its role is diminished.
“London isn’t going to disappear in a puff of smoke,” Williams said.
For some, the chaos could present opportunities, both in the short term as they advise clients on immediate responses to the vote, and in the long term as they look to potentially shift the focus of their operations.
Reed Smith made a big push in London nearly a decade ago when it merged with Richards Butler, currently housing more than 360 lawyers in the city.
“We will further assess what the implications of Brexit will be now that it has actually happened and we will be talking most closely to clients,” said Roger Parker, Reed Smith’s managing partner for Europe, the Middle East and Asia. “Implications to their businesses are paramount in terms of the drivers of our considerations.”
As a professional services business, we must look and learn and listen, but there is a calm reaction here
Parker said he was watching reports that some banks plan to move staff out of the country. And there is concern, he said, over how dealflow and investment into the UK will be affected. There is likely to be little immediate impact on the deal side as the summer months often prove slower, but he said the true impact will start to be felt in the third quarter.
“In some respect, the volatility in the currencies and the stock market does create opportunity for some in the same way it causes concerns for others,” Parker said. “As a professional services business, we must look and learn and listen, but [there is a] calm reaction here and very much a focus on doing business and staying focused on what the trends are.”
On the bright side, Parker said 60% of Reed Smith’s London office revenues are derived from work done outside of the country. He said the Brexit vote could create business opportunities for the firm and the chance to pivot to new areas of practice. Reed Smith did that after the 2008 financial crisis, Parker said, and the firm’s financial services industry group has grown considerably as a result.
“I would hope that we can replicate that flexibility and investment into redefined products and opportunities,” Parker said. “I’ve seen them do it before. I’m confident they can do it again.”
Miriam Gonzalez, who is set to join Dechert’s new four-person London office leadership team next month, said it is too early to start assessing how the vote will impact firm operations.
“We need to start seeing how clients react to this,” Gonzalez said. “In the immediate short term, we are seeing already an incredible upsurge of [client] requests. This has created enormous legal uncertainty. Clients are trying to understand what has happened.”
Gonzalez acknowledged that London may become a less popular jurisdiction to do business.
“I don’t know whether American companies will continue to think they can do business throughout the EU from a main presence in the UK,” Gonzalez said. “It could have really considerable implications on the shaping of our practices.”
Gonzalez said there are a lot of questions surrounding the kind of law that lawyers will be able to practice from London, as it relates to clients’ work throughout the EU.
An Allen & Overy spokesperson said the firm is reminding its clients that the main reasons for choosing English law to govern contracts will not change given that such law is largely unaffected by EU laws and regulations and “will continue to be certain, stable and predictable”.
“The most important message that we are giving clients is that nothing is likely to change the legal framework governing the UK’s relationship with the EU immediately and the terms of the UK’s exit from the EU will have to be agreed,” the spokesperson said. “This may take years to negotiate.”
Other firms with a heavy London presence said they will monitor the situation and feel they are well positioned for the future.
Oliver Brettle, executive partner of White & Case’s London office and a member of the firm’s global executive committee, said that while there has already been some impact from the vote, such as a softening of activity levels, it will also likely yield work, including regulatory questions.
White & Case has been advising clients on the vote for several months, having established a Brexit task force in October led by partners based in London, Berlin, Brussels, Paris and Geneva. The firm also held a webinar for US-based clients earlier this month regarding potential legal needs and timing.
Brettle noted that, amid disruption in London, the fact that White & Case is a “truly global law firm” has provided the firm with “strength and resilience”. The outcome of the vote is nevertheless likely to prove a strategic challenge for the firm, which had previously been pushing to beef up its London presence.
Paul Rawlinson, London managing partner and global chairman-elect of Baker & McKenzie, said the firm will be able to better understand the vote’s implications for the firm and its clients as details of the separation emerge.
“With offices across Europe and the rest of the world, and as a full-service firm with a broad mix of practice groups, we are well placed to manage what lies ahead and are taking all the necessary steps to ensure that we’re able to fully support and advise our clients, wherever in the world they operate,” Rawlinson said in a statement.
Despite confidence firms have in their existing operations, the lateral and merger markets are likely to suffer immediate fallout from this week’s vote.
Though some legal industry observers had predicted a transatlantic merger this year, Williams said such plans may be stalled.
“The US firms are behaving just as other investors, saying, ‘Do I really know what I’m buying at this stage?’” he said.
But one alliance that was already announced – between North Carolina-based Womble Carlyle Sandridge & Rice and UK firm Bond Dickinson – is forging ahead, the firms said.
“I’m more excited than ever that we have this capability to really help [our clients] in a real way,” Womble Carlyle chair Elizabeth Temple said, adding that all the firm’s US clients could be impacted by the UK’s withdrawal in some way. “Uncertainty and change makes people uncomfortable but there actually will be enormous opportunities for our clients.”