the lawyer news review

Catrin Griffiths, editor, The Lawyer

Firms look East for expansion

The summer has been dominated by financial results news, but for our exclusive take on market trends see Matt Byrne’s UK 200 Feature on

page 39.

Beyond the hurly-burly of billings and profit league tables some of the UK’s biggest firms have been ­searching for growth in Asia.

With little growth in Western Europe it has become a truism that law firms are having to look east to secure market share. This is what lay behind Norton Rose’s bold move in merging with Deacons in June 2009. Norton Rose’s success in pulling off an Australasian deal has given it a ­platform to hoover up big firms elsewhere in the Commonwealth; South Africa’s Deneys Reitz and Montreal-based Ogilvy Renault and more ­recently Calgary-based Macleod Dixon.

In February 2010 Allen & Overy famously made a mass Australian hire of 17 partners, 14 of them from Clayton Utz, and in the process launched two brand new offices in Sydney and mining centre Perth.

Then in February this year Clifford Chance partners voted through a dual merger with boutique firms in Sydney and Perth. The double tie-up will see the magic circle firm join forces with Chang Pistilli & Simmons in Sydney and Cochrane Lishman Carson Luscombe in Perth, creating a 14-partner presence in the country.

The latest UK firm to embrace the East is Ashurst, which last month confirmed a deal with top-tier Australian firm Blake Dawson. Blakes has 670 lawyers including 172 partners, while Ashurst has 795 lawyers, of whom 222 are partners. In terms of ­geographical coverage Blakes has six offices across Australia as well as ­outposts in Shanghai, Singapore, Port Moresby, Tokyo and an associated office in Jakarta.

The arrangement will kick off in March next year with a combination of the two firms’ Asian operations, following a vote on 23 September. A full merger, to include Australia, will be up for consideration in early 2014. Blakes will rebrand as Ashurst but the joint operation will not include Blakes’ Australia offices until 2014, and only then if the full merger is voted through by both partnerships. But the financial integration will only involve the non-Australian offices, where revenue and costs will be shared. Ultimately, the firms hope to have a single global profit pool.

The deal is a bold move for Ashurst, which traditionally prefers to expand organically and through lateral hires rather than major deals. Previous merger talks with US giants Latham & Watkins and Fried Frank Harris Shriver & Jacobson foundered, prompting accusations of a lack of ambition and a propensity to miss opportunities.

High tension at Herbies Herbert Smith’s top 10 status is not in doubt, but the City firm – which for some reason persistently likes to style itself as part of the magic circle – is undergoing some internal ­convulsions.

Its corporate department missed budget by £20m last year, and ­insiders have told The Lawyer that it was preparing for a wholesale cull of partners across that department.

To give you an idea of the financial differentials within the firm, the ­average profit generated by each ­corporate partner was £500,000 in the 2010-11 financial year, while the ­figure for each litigation partner was £1.4m on average.

These things matter: average ­revenue per partner (RPP) in ­corporate has been £1.6m for the past couple of years, compared with a £2.1m average RPP for litigators.

Tension between the firm’s ­litigation and corporate teams has been brewing for a while. The ­litigators have been pressing the firm to open in New York, and have also been complaining that disparate ­profitability, coupled with a rigid ­lockstep (a pay system that distributes profits on the basis of years spent with the firm rather than individual performance), means they are ­subsidising the ­corporate team.

Herbert Smith’s conservatism means it is highly unlikely to shake up its partner remuneration system, despite the fact that elsewhere in the City most major firms are doing just that.

Partner compensation is the source of extraordinary cultural stress in City firms and can dominate debate ­within partnerships for years.

Norton Rose and Ashurst have both moved away from lockstep and introduced an element of what is termed ‘merit-based compensation’. Even Linklaters and Freshfields Bruckhaus Deringer are considering the issue.

Chinese law firm opens in London  With so many Western law firms ­looking east it is a significant ­development when a Chinese firm opens in London.

Beijing-headquartered Yingke is the second-largest firm in China by headcount, with 179 partners and 1,583 lawyers in total. It is not in the country’s top tier by reputation, but its aim is to be China’s Baker & ­McKenzie. The only other Chinese firm to have a London office is Zhonglun W&D, but watch this space.