The picture that emerges is of divergent agendas as Slaughters and its key continental allies strive not only to educate the market about what its alliance is about but also to define for themselves what they are trying to achieve. And issues like attempting to prod deal stats-providers to class the alliance as a single unit for the purpose of M&A rankings not only seem intellectually unsound but an unstable basis for top-flight professional services businesses to base their strategy.

But then the problem with best friends is not the practicalities of whether it can deliver as a workable alternative to global firms. Even the most dismissive of big four rivals, concede that it does deliver for clients and that that if any group of law firms can make this work, this is the group to pull it off.

But it seems much of the problem with the alliance is motivation, meaning what they hope to get out of it. It’s hard to escape the feeling that Slaughters has largely chosen this path because, at heart, it simply didn’t want to adapt its cherished culture or hard-won status despite those pesky radical changes in the global legal services market. And the desire to maintain the status quo isn’t a very compelling concept behind which to rally the troops (or clients, for that matter).

There is also the suspicion that Slaughters has for too long defined its strategy in opposition: i.e. Not Being a Big Four Firm in the manner of its magic circle rivals. But then whoever said Slaughters had to buy into that particular brand of globalisation? What, for example, was wrong with the concept of the highly targeted, quality-first approach adapted in different ways by Cleary Gottlieb and Sullivan & Cromwell?

The problem, presumably, is that it would involve changing and Slaughters really doesn’t want to. For good or ill, Slaughters is now committed to its current path, whether it likes it or not. Luckily it does - but that doesn’t mean it will work.

alex.novarese@legalweek.com

This argument has been particularly in evidence at DLA Piper, which bristles at those that argue it is basically a transatlantic merger that didn’t happen. Likewise, CMS Cameron McKenna, having become more bullish about its international network, has explicitly sought to fashion CMS as a Deloitte-style organisation, offering total European coverage.

But how convincing is this line of argument? To a certain extent, the big four have avoided integration because of regulatory hurdles regarding their core audit businesses. Likewise, concerns regarding audit liabilities have seen large accounting firms use separate partnerships to contain risk. As such, avoiding integration was to a great extent about expediency - not because it was an ideal model to run a global professional services giant.

By common consent this patchwork model also comes with its downside, as accounting firms have been plagued with variable service and poor quality-control, issues that have also dogged international law firms. Such problems have been seen even in major markets like Japan, where PricewaterhouseCoopers last year split from its local member firm.

It is also true that accountancy at the top end has far fewer competitors than in the legal sector, so the big four don’t have to worry about competing with fully-integrated rivals that can punch in their weight division. No such protection applies in law, where you have firms of the calibre of Freshfields, Sullivan & Cromwell and Cleary Gottlieb Steen & Hamilton stalking the top end of the international legal market.

But perhaps the biggest problem with big four justification is that the big four is slowly moving away from it themselves. The clearest indication yet of this trend comes from Ernst & Young, which last month announced a major shake-up that will see the firm merge its European partnerships and “integrate” a further 42 countries into a single unit.

The logic is that the 3,330-partner giant can reflect the business needs of its top international clients and that audit liabilities have become manageable as accountants have grown more sophisticated at cross-border risk control.

The proposals, which are due for a vote later this month, have been seen as a challenge to Ernst & Young’s big four rivals and the expectation is that they will be looking to usher in more meaningful integration. Indeed, KPMG and Deloitte have made more modest moves in that direction already, having respectively merged their German and UK practices and UK and Swiss operations in 2006.

To keep this in context, accountancy-watchers are somewhat sceptical of the extent of this integration and it seems on current indications that Ernst & Young’s move is a way short of a fully-fledged single partnership. But the tide is clearly moving in the direction of the integrated global model.

Given the influence that the accountants have had on the internalisation of the legal profession, it seems hard to see how this can’t increase the pressure on law firms to follow suit.

alex.novarese@legalweek.com

At the time its well-received union was being finalised during late summer 2007, Dewey Ballantine and LeBoeuf Lamb Greene & MacRae were predicting profit distributions to partners would be around 10% above budget. As any law firm leader will tell you, that’s a handy windfall anytime but that goes double when you’re about to put together one of the largest ever legal mergers. Yet by year-end there was almost no excess to distribute, according at least to one partner within the firm.

The reason, according to Dewey chief Steven Davis, was an unbudgeted $30m (£15.1m) hit the firm took on compensation for its associates that saw the firm boost its year-end bonuses to between $45,000 (£22,700) and $110,000 (£55,500). Cue lots of grumbling among the partners as Dewey & LeBoeuf faces up to the less sunny commercial environment of 2008 with less fat to get it through the cold snap.

End of the road?
Such concerns illustrate the uneasiness that has taken hold of American firms despite the world’s largest legal market in 2007 maintaining robust growth.

Our US sister title The American Lawyer’s eagerly-awaited Top 100 financial rankings show that turnover across the group grew by a healthy 13.6% to hit $64.5bn (£32.4bn) in 2007, driven largely by the first-half boom in M&A and banking work.

It’s the end of an impressive five-year run for America’s top law firms that has seen the group grow considerably ahead of their long-term trend. Over this period the key benchmark of underlying productivity, revenue per lawyer, has grown by $205,000 (£103,000). Profits per partner has accelerated even more dramatically, rising $438,000 (£221,000) to an average of $1.3m (£653,000) across the top 100.

But even if the US economy hadn’t been hit by the sub-prime collapse there would have been cause for concern given some of the underlying trends at play. For a start, it’s become increasingly apparent that US law firms have squeezed their equity every bit as aggressively as their UK counterparts. AmLaw found 37 of the 100 shrunk their equity partnerships over the year while a further four had held flat. Having pushed leverage, many partners are now concerned at the cost implications of last year’s hikes in assistant salaries and bumper bonus pay-outs at a time when transactional work is sharply down.

This fear has been compounded as overall attorney headcount rose substantially across the group last year, up 6.8% annually. Interestingly, while this mood of uncertainly has become more pronounced since the crunch started to take hold, that unease was plainly there as far back as last spring.

The London view
On this side of the Pond the interest will be what the US results mean for American firms on the international stage. On first reading, it appears London firms will further bolster their competitive position, though not to the same extent as last year. This is because it was a generally uneven year for New York-based law firms that didn’t have heavy exposure to private equity. (The exception proving the rule is once again Wachtell, which kicked up its profits no less than 23.6% to take its PEP within a whisker of $5m (£2.51m).)

As such, it looks entirely possible that two or even three London firms will this year earn a place in the world’s top 10 most profitable practices, ending the long domination by Manhattan firms of this select club. Even though UK firms will have longer to feel the crunch-effect thanks to their April year-ends, current indications are that European firms will keep pace with the US, rather than lose ground as they did in the wake of the dot.com crash.

Set against that, it was a generally solid if unspectacular year for internationally-minded firms such as Shearman & Sterling and Weil Gotshal & Manges (Latham being the happy exception), which suggests benchmark firms in London will keep investing in the UK. Elsewhere, the winners and losers were hard to predict, but that’s another blog in itself. Perhaps some of the US firms that have been widely dismissed in the jaded London market – Proskauer Rose, say – will be getting a positive reappraisal.

If you want to see more of the top 100 results, Legal Week will be running in depth coverage later this month. If you can’t wait that long, check out the relaunched and much-improved website of The American Lawyer. The site will be working more closely with legalweek.com from now on, reflecting the increasing links between the two titles.

That means more of our coverage will be reaching the vast US legal audience and our readers will be getting the pick of AmLaw’s highly-rated analysis and commentary.

alex.novarese@legalweek.com

But it was by no means certain there would be any increase in the bands at all this year given the drop in work levels and the gloomier global outlook (indeed, Linklaters partners weren’t even sure there would be a rise last week). The reasoning went that assistants would largely earn above-inflation annual rises under the assistant track and so it made sense to keep the bands unchanged.

That was the logic Herbert Smith employed when it announced today, just after Linklaters, that it was maintaining its 2007-08 rates as a prudent measure, even if the timing is unfortunate for the firm. And, of course, City pay bands did remain largely unchanged from the £50,000 starting region they hit after sharp rises in 2000 and 2001 for no less than five years. In this context, Linklaters’ pre-emptive move looks bullish even if the firm’s junior lawyers were paid a touch less than equivalents at Allen & Overy and Freshfields Bruckhaus Deringer.

But for all the grumbling of partners regarding unsustainable pay rises, the recent hikes were a little less expensive than the dot.com splurge, which in two years raised the cost of junior lawyers by around 50%. In comparison, last year’s boom culminated in salaries rising less than 30% over a two-year period.

The continuing pressure from US law firms attempting to get traction in the City is also maintaining some upward pressure in the labour market, as it’s hard to see that coming from client demand.

Adding to that pressure this week was Shearman & Sterling, which hiked its City pay bands by 7% across the board. However, it’s still hard to see major rises from most American firms. As a so-called mid-Atlantic firm, Shearman had fallen behind some comparable rivals like Weil Gotshal & Manges. But other leading US firms will generally be constrained by what they pay on Wall Street, though it’s possible that firms like White & Case could come under pressure to pay Manhattan-level salaries in the Square Mile.

But returning to Linklaters, its move on pay appears to be another suggestion that the firm under Simon Davies is intent on focusing just that little bit higher up the food chain. Linklaters is already currently moving to bring its German partnership in line with its London equity, which will necessitate a more rigorous focus on the top-end of the German market. And the firm is currently reviewing the future of its Central & Eastern European network in a move that could see four offices spun off on profit grounds.

As the firm’s celebrated managing partner Tony Angel completes his last day at the firm today, Silk Street, it would seem, has no intention of resting on its outgoing chief’s laurels.

alex.novarese@legalweek.com

The initiative, as detailed in a news story this month, revolves around external investors taking positions in litigation. But rather than previous attempts to use funding to bank-roll claimants, it has been used by a handful of pioneering defendants.

Understandably, the idea gets some lawyers scratching their heads – and left one reader to wrongly conclude that we were referring to litigation buy-out insurance, which has been used in a small number of major disputes in the US.

The defendant model does function a little like insurance, though the motives of the external parties and dynamics of the arrangement are very different from dealing with an insurance company. The investor is likely to be a hedge fund or special situations fund looking to make high-risk investments. The investor gets a fee or premium and effectively offers to fund a substantial chunk of the defendants’ liability. The attraction for defendants is hedging and managing their exposure, despite higher upfront costs. And by introducing an outside investor that will look at a legal opinion to gauge the merits and risks of the claim, a company can effectively put a ‘market price’ on their litigation risk.

The latter point is one reason that the model has drawn the attention of corporate lawyers, since such a hedging tool would have obvious benefits to a company that wants to do a major corp-fin transaction and doesn’t want the uncertainty of litigation liabilities screwing it up. Stretching the concept further, external funders could in theory trade or sell their positions to other investors, a fact that makes the model operate more like a capital markets instrument than conventional after-the-event litigation insurance.

Will it catch on? Well, some of those working on and with third-party funding believe it has far more potential than conventional claimant funding. It can also likely count on considerable support from leading City law firms, which have converted to the third-party funding cause with remarkable speed despite initial controversy. Widespread support for the general outside funding model is also in contrast to previous experience of conditional fees and after-the-event insurance in personal injury, where claimant and defendant counsel often bitterly opposed each others’ tactics.

But ultimately, the fate of defendant funding will rest on whether there are enough alternative investors willing to back the concept. Given the walls of cash that some hedge funds assessing litigation reportedly have to spend, the revolution could come very quickly.

alex.novarese@legalweek.com

The source of this endorsement is the Wall Street Journal’s widely-read Law Blog, which covered A&O’s controversial legal costs for representing Research In Motion in a patent dispute and asked readers if the much-debated £5.18m bill was reasonable. The good news for A&O’s US profile is that the case has provoked bafflement from US lawyers more used to the concept of bet-the-company patent litigation, who mainly conclude that the stakes were high and the magic circle firm won.

Comments from posters include:

"I think these fees could well have been reasonable. Let’s not kid ourselves after the fact that we were paying Toyota prices for a Cadillac cruise;"

"How much would it have cost RIM if they lost? Remember, RIM lost a huge patent case in the US and paid hundreds of millions of dollars. There were very sensitive to the value of these cases."

And:

"It’s not for the judge to decide if the case is 'heavy'. If it’s important enough for RIM to hire a big firm with instructions to leave no stone unturned, then it’s damn well 'heavy' to them."

Given Americans’ famed tolerance for high-cost litigation, perhaps this isn’t entirely welcome to a firm that still wants to be seen as a cost-effective if high-end service provider in the UK courts (an Audi, maybe, but certainly not a Bentley). However, it does bring in a bit of perspective.

It also reflects the fact that the least convincing element in Mr Justice Floyd’s scathing costs order was the rather airy dismissal of claims that RIM was a target for aggressive patent litigation, when the BlackBerry brand has made the company a lightening rod for exactly such actions.

Anyway, click here if you want to read more, though I think the best observation is probably: "$900 as an associate? I hear English chicks love an American accent, too. Time to renew my passport…"

alex.novarese@legalweek.com

Assessing costs on A&O’s largely successful representation of BlackBerry manufacturer Research in Motion (RIM) in a High Court patent dispute with Visto Corporation, the judge starts by pouring scorn on the “astonishing” £5.18m sum A&O clocked up. Then Floyd keeps going, outlining the firm’s costs and resourcing in withering detail.

Indeed, this assessment could end up being a model for litigators looking for a yardstick for costs and manning on High Court litigation. Over 15 months, two senior associates respectively spent 2,252 and 2,291 hours, between them accounting for costs of nearly £2m, sums for which Floyd observed “one would be entitled to expect each of them to be able to recite all the documents in the case by heart”.

A&O’s sole assigned partner, Nicola Dagg, put in 1,387 hours, while the other four associates on the case spent around 3,500 hours. And Floyd continues: “Perhaps most surprising of all is that another £1m odd has gone on trainees and paralegals,” for what he says were largely superfluous prior art searches that consumed 5,000 hours.

He continues: “If one adds up all the hours spent by RIM solicitors, one finds that some nine man years have been spent over 15 months. All for a trial with no disclosure which lasted about five days.”

In comparison, Visto’s costs, despite instructing a top-flight IP firm in the form of Taylor Wessing and experienced specialist counsel, were a far more modest £1.6m, fees which Floyd notes were enough to mount a case that was “thoroughly and conscientiously prepared”.

It then goes on and on but the most quotable bit is probably this: “The picture summoned up by this bill of costs is one which is totally unfamiliar to anyone who has been involved in economically conducted patent litigation.”

Floyd also has “great difficulty with the logic” of Dagg’s assertion that the defence was part of a wider international tussle between Visto and RIM and that Visto’s “overall goal was to shut down RIM’s BlackBerry system entirely”.

It seems pretty damning and, by consensus of rival patent litigators, it has not been the best advert for A&O in particular or magic circle firms as cost-effective options in patent disputes. The criticism is also going to sting in legal circles, coming from a judge with a strong record in IP litigation.

But it’s worth keeping a little perspective, especially as this kind of litigation really does exist in a global context. While it is agreed that this was not the most complex dispute, it comes against a backdrop of high-pressure IP litigation, for which RIM has often been a prime target thanks to the market domination of the BlackBerry.

And Visto - a California software company that produces wireless email software for mobile phone manufacturers - is no stranger to proactive litigation, having in recent years pursued a strategy of robust patent enforcement.

In that context, aggressive defence has a broader tactical value than the case in itself. If you want to win the war, you have to show that you’re ready to put up a fight, even if the individual battle doesn’t appear that important. And anyone who doubts the stakes or potential costs of this litigation needs only glance at the bloodbath around Qualcomm, or indeed the $612m settlement RIM agreed in 2006 with NTP following an IP dispute. Likewise, A&O’s costs, which are undeniably high by UK standards, would be small change compared to the kind of fees sloshing around US patent hot-spots like Texas.

As such, A&O’s assertion that it was representing its client in a high stakes matter - and let’s not forget that the battle-hardened RIM is apparently happy with its adviser - should not be easily dismissed.

Latham & Watkins IP veteran Larry Cohen sums it up pretty well: “This does seem like a lot of money for this kind of a patent case. However, no-one can question the result of the work of the Allen & Overy team, who achieved the right outcome for their client.”

In IP litigation, the result is pretty much the bottom line. Still, they might want to keep a slightly closer eye on the costs next time.

alex.novarese@legalweek.com; claire.ruckin@legalweek.com

No, not from the Canary Wharf, despite the steady stream of grumbling that’s been emerging from Skadden Arps Slate Meagher & Flom, but from a senior finance lawyer who had decided that enough was enough, sources said.

Since City desks across the land (well, London) has been searching for just such a mythic beast for months with no success, it seemed a scoop indeed. After all, followers of the non-dom saga have been repeatedly told that hundreds of irritated rich people have their bags packed but, inconsiderately for journalists, have refused to actually get on the plane.

In the meantime, while everyone has been looking at the residents of Mayfair for a departee, a FTSE 100 company, pharmaceuticals group Shire, has stolen their thunder by announced that it is moving its headquarters to Dublin, sort of the corporate equivalent of going non-dom.

Anyway, a space duly cleared on the front page, our reporter closed in and finally located our man who informed us that, yes, the requirement to make non-domiciled residents pay a £30,000 levy or face full local taxation was a factor. But not for him - more for his non-lawyer wife, who is employed in a profession that pays a good deal less than corporate lawyering.

Somehow, breaking the news that the City faces an exodus of non-dom teachers didn’t quite hit the spot, but the search goes on.

alex.novarese@legalweek.com

That means that the two key elements in the equation that Berwins needs to consider are the US and the key emerging markets. The US has always provided a dilemma for the firm, as its entrepreneurial and individualistic style has long drawn comparisons with the US legal model. For some this meant the firm was a natural candidate for a US tie-up. For its part, SJs has always denied that an American deal is the end game, though it seems apparent that some partners support such a move.

Instead, as illustrated by a story this week, the firm has elected to focus on closer referral links with a handful of US practices. That includes the Boston-based Goodwin Procter, a respected firm that shares SJs’ focus on private equity. Current indications are that the firm is focusing on three or four firms in total, with New York’s Paul Weiss Rifkind Wharton & Garrison and West Coast leader Cooley Godward Kronish cited as other relationships.

In some cases this involves secondments and joint pitches, though so far all links fall short of exclusive tie-ups. It remains less clear where this will lead since Berwins describes its US strategy as ‘ongoing’ and there are current discussions about deepening links. In particular, Goodwin Procter seems eager to take the relationship forward.

Obviously, this is a tricky balance for SJ Berwin, whose pan-European coverage makes it a handy partner for any decent US mid-tier looking for a referral firm across the pond. Pitch it too narrow and it risks losing valuable business but go too wide and you risk building nothing.

Yet the bottom line is that while the US can wait, SJs will soon want to settle its emerging market strategy. The focus right now appears to be more on Central & Eastern Europe/Russia rather than a follow-the-herd move into the Middle East. India and Asia also beckon.

The European push has served the firm well but it is now coming to the end of its natural life. A broader canvas awaits.

Clifford Chance (CC) and Allen & Overy (A&O) this became the latest firms to unveil their new partners, announcing on Monday (7 April) that they are adding 35 and 28 lawyers respectively to their global partnerships. The additions bring CC’s total partner head count to 648; A&O's to 505.

The message seems loud and clear: London’s elite will continue to promote from within, even though most firms are facing the most uncertain economic conditions for seven years.

Likewise, on 17 March, Freshfields Bruckhaus Deringer named 25 new partners. City heavyweights Ashurst and Herbert Smith followed with 17 and 18 promotions respectively - showing that there's a strong degree of confidence beyond the very top.

All of the firms promoted roughly the number of lawyers that they made up in 2007, except for Herbert Smith, which doubled its promotions from last year's crop of nine. But 12 months ago the economic climate was obviously very different: plenty of highly-leveraged M&A deals were closing and 'sub-prime' had not yet become a word to strike terror into the hearts of City bankers and lawyers.

Of course, a law firm partnership is ostensibly for 20 to 30 years, not merely a short-term economic cycle. Most managing partners readily point out that partnership appointments are about long-term investment.

"The question is, 'Is the business case and the individual person a plausible proposition for the next 25 years?'" says Freshfields senior partner Konstantin Mettenheimer. As he tells it, if you can tick all the right boxes for a partnership, you make the grade - no matter what the market's like.

But the track record of many leading firms shows that the number of promotions is actually pretty closely related to financial performance. In 2000, during the height of the dotcom boom, CC bumped up no less than 72 to partner, a level that neither CC nor any other magic circle rival has yet gotten close to repeating. Fast-forward to 2004, when top firms’ profits hit their low point post-boom and just 18 lawyers made the grade. Ditto Freshfields, which hit a high of 43 new partners in 2001 and then made up only 16 new partners during its own 2004 profits slump.

"In the past we were a bit more on the spot and influenced more by economic conditions," says Mettenheimer. "Now we're much more disciplined about taking a long-term view and focusing on the individual as well as the business case."

Both Mettenheimer and CC managing partner David Childs predict that the number of associates promoted to partnership by their firms over the next three years will broadly match the levels of the past two years.

"You have to take the long-term view," Childs says. "You have to think that markets will change - and many of our international offices are actually very busy."

Of the 123 new partners at the five firms, just 45 - little more than a third - are London-based.

Today is one of those times when law suddenly seems like the smart career choice over investment banking. Mid-level associates nursing partnership prospects are hoping that proposition continues to hold true for a few more years at least.

richard.lloyd@alm.com

And short-lived it proved. By the time the comment had been published on Thursday, a substantial campaign against UBS’ strategy in general and Kurer’s nomination in particular was under way.

The most serious element of this is an open challenge from former UBS chief executive Luqman Arnold, who, through his investment vehicle Olivant, has built-up a £200m-plus stake in the bank and is seeking a sweeping shake-up of the bank’s governance. Arnold, in a letter widely reported today, explicitly criticises the appointment of a lawyer to chairman in place of the deposed Marcel Ospel.

The letter argues that Kurer’s appointment “does not bode well” for improving the bank’s governance. Arnold goes on to claim that the 58-year old Swiss lawyer “lacks precisely those skills most relevant” and calls for an “outstanding Swiss banker” to take the role (though it was a celebrated Swiss banker in the shape of Ospel who presided over UBS getting itself into this mess).

Likewise, a prominent Swiss pension fund, a breed not known for outspoken shareholder activism, has gone on the record to criticise Kurer’s nomination, with one trustee quoted as saying that “lawyers are advisers and staff people, but not suitable to lead a bank”.

Elsewhere, Kurer’s nomination has been written up by pundits as a stopgap measure at best, while The Times disapprovingly noted this week that the last in-house lawyer to lead a major bank was Sandy Weill at Citigroup. At this rate, Kurer’s confirmation by shareholders as chairman, which is scheduled for 23 April, cannot be taken for granted.

That UBS - which, despite being a titan of Switzerland’s famously conservative banking sector, should prove to be the worst-afflicted bank from sub-prime write-downs - should see its strategy come in for a mauling is unsurprising. But it seems awfully telling that Kurer’s elevation should be so strongly opposed for no other reason than that he is a lawyer. After all, with UBS facing likely litigation and major governance challenges, a highly experienced banking and M&A lawyer doesn’t seem that ill-suited to the role.

I wouldn’t claim any great insight into whether Kurer is the right man to become chairman. But I heard him speak at a Legal Week conference last year and he certainly comes across as a highly capable man with a jaded view of the excesses of international banking (and international lawyering for that matter), which seems entirely suited to the current situation. He was also during his pre-UBS career at Homburger and Baker & McKenzie one of the country’s top transactional lawyers.

Kurer’s critical drubbing also contrasts with the treatment of other senior figures at rivals in recent months, where a string of bank heads have royally messed up their proud institutions, only to see the pundits conclude that you need, er, more bankers.

Unfair? Perhaps, but it seems this prejudice about lawyers in business - as highlighted by this week's comment piece from Nabarro senior partner Simon Johnston - is getting stale. How long before the profession actually does something about it?

alex.novarese@legalweek.com

“There’s some nervousness about volatility, but a lot of our corporate clients are looking at opportunities,” says Cleary Gottlieb Steen & Hamilton partner Pierre-Yves Chabert, echoing a common sentiment in the market. Some US law firms are looking at opportunities, too. For Willkie and Orrick Herrington & Sutcliffe, Paris has become the power-base of their European operations as they put expansion plans to the fore.

Of the two deals Hurstel was juggling on Thursday, one is publicly disclosed thus far: the $800m (£412m) buy-out of Kesa Electricals’ French furniture business by a private equity consortium comprising Goldman Sachs, Colony Capital and Merchant Equity Partners. Willkie is advising the consortium in a deal that shows there’s some life in the private equity mid-market in France.

Hurstel’s other current focus is London, as he leads a four-partner committee (including two partners in New York and one in Washington DC) that is reviewing the firm’s options for growing its presence in the city. Willkie now has a one-partner outpost in London, advising solely on US law. The current review is analysing how the firm can add English law to the office to complement the firm’s existing European outposts in Milan, Rome, Frankfurt, Brussels and Paris.

“We’re unusual in being fairly sizable on the continent but not in London,” Hurstel says. “We don’t rule anything out, but we won’t do it if we don’t find the right opportunity.”

Although Hurstel won’t be drawn on how or when the firm will make its London move — “It’s moving along nicely,” he says of the review — the current betting on the City grapevine is that something is imminent. Given the decimation of the leveraged buy-out market, Willkie seems to have swallowed the business school mantra of invest in a downturn.

Another Paris-based partner currently masterminding his firm’s attempts at European domination is Orrick’s David Syed. The US firm’s European senior partner has overseen the growth of the Paris office since he moved from Watson Farley & Williams in 2002. Paris is now the dominant piece in Orrick’s five-office European network, a full-service practice of just more than 100 lawyers, including 50 that joined from Paris’ Rambaud Martel in 2006.

Now Syed is playing a key role overseeing the growth of London and launching a presence in Germany. With around 50 fee earners, Orrick’s London arm hardly makes a splash in the City market but a couple of recent hires, such as corporate finance partner Hilary Winter from Jones Day, have given it some momentum. In Germany, merging with a local firm is solidly on the agenda, but Syed insists: “We’re not close yet.”

The strategy for growing London is premised on the notion that if Orrick has a decent network on the continent, the firm suddenly becomes a lot more attractive to potential laterals and even UK merger partners. “I call it a strategy of encirclement,” Syed explains.

For Willkie and Orrick, though, the risk is that if you don’t land the right partners or merger candidate, you simply go round in circles.

It’s an understatement to say White & Case-watchers were not surprised; the intensity of rumours regarding the US firm’s most high-profile UK lawyer had picked up over the last two years. But it was in January when the claims for the first time appeared to be something more substantive than standard City gossip.

In essence, well-informed outsiders said Allen and Goetz were sufficiently disenchanted with White & Case’s central management and the level of recognition the London office was receiving that they were looking to move and had held informal talks with Freshfields, Linklaters and Herbert Smith. Internal indications by February were that there were issues of concern but such a move was still unlikely before the summer, with the hope being that various bones of contention could yet be resolved.

Events took a sudden turn for the unexpected when Freshfields - a firm that hardly ever hires laterally in London, let alone at this level - managed to put together a deal within days of the talks going public on 10 March. To many, Freshfields looked an unlikely home for the pair given the downsizing of its finance practice during its turbulent 2006 partnership restructuring (there is a logic to the hires but that’s a whole other article). But the final announcement of their move to the magic circle firm on 14 March brought the bruising episode, which has brought occasionally hyperbolic claims regarding a supposed state of outright rebellion in London, to a close.

The obvious question as the dust settles is what impact the affair will have on White & Case’s City arm, which until recently looked like it could do no wrong, having managed spectacular growth over the last three years. After all, to lose two excellent partners so identified with your success in circumstances that call into question the strategy of the firm is, in isolation, patently not a good thing.

And due credit should be given to the departing pair. Allen’s unique profile and career trajectory (Clifford Chance to Weil Gotshal, then Weil - via an internal bust-up - to White & Case in 2000) has meant that he always attracted more than his fair share of sniping. But it is clear that Allen and Goetz have delivered in spades for the US firm, with White & Case in seven years building a 32-partner finance practice in London and securing a string of key banking appointments.

The firm achieved this via a sustained investment push that nurtured energetic, entrepreneurial lawyers and built a practice worth $235.7m (£120m) in 2007. It was a dramatically different strategy to that attempted by many US law firms in London, partly because it put a premium on utilising local lawyers’ talents and market insight rather than attempting to graft on an external culture.

While other American firms still wrestled with the concept of the banking panel in Europe, White & Case secured regular instructions and close City links with a host of institutions, among them Deutsche Bank, ABN Amro, BNP Paribas, Goldman Sachs, Lehman and JP Morgan and several major UK banks.

The City practice, which now boasts 81 partners, has also been successful outside banking, with corporate making dramatic improvements over the last two years and the firm building a very credible contentious practice, which this month received a boost with the hire of Lovells arbitration head Phillip Capper.

And there is no doubt that Allen (pictured right) and Goetz deserve substantial credit for these successes. Indeed, despite initially making an odd pairing – the more reserved Goetz was cut from different cloth to the gregarious sports fanatic Allen – the pair became close colleagues and an effective team. Indeed, in many ways his work at White & Case has proved Allen’s vindication, disproving critics that argued that a career built on his early success at CC had long been sustained by spin.

Papering over some great big cracks

Yet for all its recent success – and White & Case has consistently out-performed its rather modest billing in recent years – it is fair to say the New York-based global giant has issues regarding its direction and identity yet to be resolved three decades on from the launch of its ground-breaking international push.

On one hand, the firm’s roots and much of its cultural heritage remain in New York and America’s project finance market. Yet much of the firm’s growth over the last 15 years has come outside its US heartlands, with the firm having built a highly-effective network through western Europe and the world’s key emerging markets.

Likewise, practice growth has often come in acquisition finance, structured products and securities, practices suited to more nimble and entrepreneurial lawyers than the staid world of projects. Corporate has also seen substantial growth, with the firm often being at its most effective when leveraging its network of excellent practices in central and eastern Europe.

Such tensions between the old White & Case and the new had simmered for a long time but had been made manageable by the combination of successful expansion and the personal clout of two of the firm’s long-time leaders. The first of these, James Hurlock, led the firm from 1980 to 2000, becoming one of the longest-serving leaders of a major US law firm. Hurlock championed White & Case’s then-unusual international expansion and this strategy and willingness to expand outside its comfort-zone practice areas was continued by his replacement as managing partner, Duane Wall. Wall was a confirmed Anglophile, having been one of the first partners the firm stationed in London in the 1970s. Likewise, as a White & Case veteran, he was able to easily bridge the different constituencies within the fast-changing firm.

By common agreement, the tensions that burst into the open earlier this month were most directly stoked by the election of Wall’s replacement in 2007. After a widely open initial nominations process the election essentially soon became a two-horse race between global co-head of banking Eric Berg and Moscow chief Hugh Verrier. Berg was closely associated with the kind of banking and securities expansion that defined the firm’s recent years and was also viewed as a natural ally to Allen, Goetz and the London office in general.

In comparison, Verrier’s track record as an energy and infrastructure specialist was seen by some to have detached him from the firm’s more recent engines of growth. This may seen a perverse perception, as Verrier has been with the firm for 24 years and made his reputation tightening up the management and performance of foreign branches in Ankara and Moscow – exactly the kind of exotic expansion that has marked out the firm in recent years. He also sat on the firm’s central board. Nevertheless, to some banking and securities lawyers he was seen as a remote, stiff figure more associated with a projects and infrastructure-driven view of the firm that would have been more accurate a decade ago.

In short, it is clear that Berg and Verrier represented two very different visions of White & Case and many assumed that Berg’s more progressive view would prevail. This assumption apparently extended to Berg himself, who is said to have been bitterly disappointed when it was announced in August that Verrier had won the newly-cast role of chairman following the partnership vote.

Berg’s disappointment was shared by some others, especially in the banking practice and major offices like London, Paris and Frankfurt, who regarded Verrier’s election as a step backwards. In this view, the firm had plumped for a consensus candidate that appealed to partners who would be under pressure to change their ways should a more ambitious, securities-driven White & Case emerge, as Berg’s candidature promised.

The best comparison in recent management elections would be CC’s 2001 election of Peter Cornell, a vote from a ruffled partnership against the more robust candidature of Peter Charlton. But while Cornell promised a more inclusive form of leadership, he was a natural diplomat and communicator - skills which Verrier’s many admirers would not say play to his natural strengths.

And worse, having been so long working in smaller branch offices, it is accepted by all sides that the early months following Verrier’s appointment saw him hunker down to get his head round the entire business. This contributed to an internal lack of profile, further aggravating the sense of dislocation. This was perhaps most prominent in London, where partners had been used to the regular presence and contact with Wall, who frequently spent a week or more every month in the UK; it was a running joke that an email to Wall would be immediately returned despite his prodigious workload. This contact also meant that White & Case’s London partners, especially in banking, once felt they had management’s ear.

In contrast, critics of Verrier complain that his low profile meant few knew what his vision represented. Supporters say, quite credibly, that this misunderstands the man’s style. Verrier is viewed by those that know him as a man of utmost integrity, who likes to play it straight and takes a considerable amount of time evaluating situations before he acts. Moving quickly on gut instinct does not play to Verrier’s natural inclinations. There is, however, an admission that the early months of his chairmanship were too low key for the good of a firm in need of leadership.

Sensible changes to White & Case’s management after Wall stepped down probably contributed to the discord between central management and some of its larger European offices. Those governance reforms saw the full-time role of chairman complimented by a newly-created four-strong executive committee.

The initial line-up of Verrier, New York partners Tony Khan and Dimitrios Drivas and Turkey-based Asli Basgoz appeared, on one reading, to be a snub to the successful western European offices. However, at least one senior London partner was sounded out regarding an appointment to the body last year but declined due to an unwillingness to give up client work. It is unclear if anyone in the firm’s banking and capital markets team was approached.

Yet given the clear ambivalence among City partners to giving up coal-face lawyering, it appears likely that what was more damaging was the failure of any UK partner to win a place on the elected eight-member partnership committee, the part-time body responsible for deciding on compensation and the appointment of new partners. At various stages no less than six London partners were identified as contenders for the body: litigators John Bellhouse and Alistair Graham; projects heavyweight Philip Stopford; head of corporate Peter Finlay; and Allen and Goetz. Yet none were to secure places in the open vote. This did not help matters, given London’s strategic importance to the business, representing as it does more than 15% of White & Case’s turnover.

The London perspective – countdown to departure

It would be wrong to overstate the aforementioned issues but the partnership committee vote did bring to the surface tensions regarding the development of the London office. The firm has repeatedly debated whether to have a strong executive figure for London in recent years - without ever resolving the matter. And while lawyers like Stopford and Finlay have been strongly involved in central management (they currently sit on central committees handling work allocation and risk respectively), it seems apparent that a disconnection has been allowed to develop between corporate and projects on one side - practices viewed as more naturally aligned with White & Case ‘establishment’ - and the more freewheeling figures in banking and capital markets. This is underlined by the curious structure that separates the projects department from the banking team.

The flipside of this, as has been pointed out by exasperated London partners dismayed by the more hyperbolic claims regarding the London office’s supposed uprising, is that White & Case has built much of its success in the Square Mile by letting local lawyers just get on with it. The firm, which has been known to dismissively refer to US referrals as “import/export business”, estimates that just 5%-10% of its business comes via the States. In contrast to most US law firms, this is also the kind of place where very little has to be run past central management, a factor which contributes to its can-do gusto. The counter-argument to those arguing that London needs more management representation is that such processes and centralisation have had very little to do with the office's success.

Further complicating the internal dynamics is a relationship between head-office in New York and London that on occasion is downright ambivalent. After all, they represent to world’s two leading financial centres but while London has been an undoubted success, even the most on-message White & Case partners concede the entrepreneurial drive that runs across its UK practice does not generally extend to the more conservative New York practice.

Given the success of White & Case at cracking one of the most competitive legal markets in the world and the continued struggle to upgrade the firm’s New York practice (the firm is still characterised as ‘a donut’ by sniping NY rivals, referring to its supposed empty centre), the scope for friction between the precocious offspring and more pedestrian parent is obvious.

Other issues that have been highlighted by London lawyers are concerns over junior partners’ pay, which - despite the firm’s increases in profitability - have been sorely tested by dramatic rises in comparable numbers from UK law firms and the prolonged slump in the dollar. While White & Case, which operates a meritocratic pay system, can match top London rates for its senior equity partners, the concern is that it is losing ground at the junior end. And that fear is shared by more than just the banking team.

Currently the firm pays its new UK salaried partners (dubbed 'contract partners') in the region of £250,000, though this figure is understood to vary considerably in individual cases (and one recruiter claims to have seen deals below £200,000). Junior equity partners are pegged directly to the firm’s dollar-based profit centre, which means, according to one partner, that newly-promoted equity partners are in line to start on around $650,000 (£328,000).

Given the collapse in the dollar, the argument goes that this undermines the firm’s appeal to talented junior partners compared to sterling-based locksteps that will typically offer more certainty and better pay in the short-term. This issue has become more pressing given the dramatic increases in the profitability of the London practice, up 19% in 2007 to average $1.53m (£780,000) per UK equity partner. With London near to matching the firm-wide partner profits average, the long period in which the firm has effectively subsidised the drawings of UK equity partners looks set to end very soon.

The firm moved to recognise this issue last year when it introduced what was dubbed a 'dollar protection plan', which superseded an outdated scheme that had been in operation since the mid-1990s. The scheme is designed to allow for a one-off payment to help offset long-term currency movements. At the behest of senior equity partners, the scheme, which made its first payment in December 2007, was designed explicitly to protect junior partners at the expense of high-drawing equity partners.

The scheme was received as a welcome gesture, though there is a limit to the protection that the firm can offer partners in the UK without fundamental reform of its remuneration structure. Yet while pay is undoubtedly a factor in recent tensions in London, it is yet to become a critical issue and was apparently only a secondary contributor to the departures of Allen and Goetz.

Other clues to their dissatisfaction can be gleaned from the firm’s business plan for London, which was put forward in November. The plan essentially revolved around upping investment in corporate, which currently constitutes a 15-partner practice in London, and further internationalising its City business by transferring more of its key lawyers to important emerging market offices. The firm has since acted on that by announcing the transfer of four London partners to offices in the Middle East and Russia (though only one, structured finance specialist Simon Morgan, heralds from the banking/capital markets team).

On one reading, this constitutes an understandable break with the five-year run of heavy investment in banking, which has forged one of the largest finance teams in the City. Yet ironically, this strategy supports one of the key priorities for the City banking practice: the call for London finance lawyers to play a stronger role in key emerging markets.

The reason for this apparent contradiction is that some banking lawyers felt that, while the concept of building on emerging markets enjoyed wide support, in reality office politics and local resistance was slowing down moves to make it happen. Some also argued that the emerging markets push was too often sidelining banking in favour of projects, energy and infrastructure. It is easy to see how, with the absence of the easy communication the banking team had enjoyed with Wall, this issue has taken on more significance than it is probably worth.

The other major reason for the departures is rather more prosaic: Allen was bored. As a lawyer who by his own admission thrives on building things, his work at White & Case was largely done. With the plan of restyling the banking practice along international lines not materialising at the hoped-for pace, there was little for Allen left to do with a team fast-approaching critical mass and stuffed full of rising stars.

In contrast, Freshfields’ underweight and overhauled banking practice offered the unique opportunity to build again - but with an established brand. Goetz, having become close friends with Allen, was always likely to move with him, though actually it was Goetz’s relationship with Freshfields chief executive Ted Burke that provided the initial impetus for the move.

Life without Maurice (but with Eric)

The exit having been confirmed on Tuesday 11 March after a meeting of White & Case’s banking and capital markets team, the pair left on Friday 14 March, with far less animosity than many outside observers would have concluded from some of the coverage.

But returning to the original question: how much damage has the episode done to White & Case in London? In terms of clients and the team as a unit, the answer is, in itself, very little. With such a deep bench of good lawyers – among them Chris Kandel, Rachel Hatfield, Magdalene Bayim-Adomako, Antonia Rawlinson, David Barwise and Rob Matthews – the departing partners are the first to admit that the firm has talent to spare and that it is probably the ideal time for such lawyers to take a more leading role. As successful leaders, the departing pair have built in their own succession.

This was to a certain extent illustrated by the appointment of younger partners to head the finance group, with Kandel and Bayim-Adomako being appointed to lead the bank finance sub-team and Rawlinson appointed to spearhead client development within the group. The line-up, alongside current sub-heads for capital markets, insolvency and structured finance, will constitute the new team to run the practice after the departures of Allen and Goetz. There is also a sense of relief that the issue over Allen and Goetz’s intentions, which had come to dog the practice over the last six months, has been finally resolved.

And while it would be surprising if some banking work did not migrate to Freshfields, White & Case has already largely institutionalised its links with major clients. Take the Deutsche Bank relationship, built up under Goetz’s oversight to be worth around £10m in 2007 – the firm advises the bank across all product lines and has a range of partners managing the relationship, including Kandel, Rawlinson, Bayim-Adomako and Matthews. In addition, it seems the pair is more focused on building at Freshfields than they are on transferring business.

But aside from limiting the damage, more positively the episode has presented a golden opportunity for White & Case to address issues long unresolved. Key to that is bridging and reconciling the two visions of the firm, something that Verrier had shown insufficient attention to in the hectic months after his appointment. As such, White & Case must resolve just how ambitious it wants to be, including how much it wants to continue playing the 'lifestyle' card in comparison to some of its more driven rivals.

In this context, Berg’s role would look to be crucial. Not because he needs to be drafted in to ‘shore up’ the practice, as the team is already way past needing that kind of support. But having at one point being cited as a possible mover with Allen and Goetz, by all indications he has reconciled himself to his election disappointment and is now intent on taking the firm forward.

Even on a purely symbolic level, that should be important for a firm that has sustained too little communication between its core constitutencies. Providing that dialogue can be maintained - and a few lessons learned on both sides - White & Case should continue to be one of global law’s most distinctive success-stories.

Conversely, failure to seize this opportunity and prevent the departures of younger partners would look to be an entirely unforced error from which the firm will not so easily recover next time.

alex.novarese@legalweek.com

Traditionally, US firms have benefited from the sheer size of their domestic market, the American penchant for pursuing litigation at all costs and large bankruptcy proceedings that provided a seemingly endless gravy-train for law firms. UK firms, in contrast, do not see the same upside from countercyclical litigation work. There is simply not the same litigation climate and litigators make up a far smaller proportion of most UK firms. At New York¹s Cravath Swaine & Moore, around 50% of the firm¹s lawyers are in litigation, while at Herbert Smith, London¹s premier brand in commercial litigation, around 35% of attorneys are litigators.

Following the collapse of the dot-com boom between 2001 and 2003, the magic circle was way off the pace compared with the US leaders. In 2002, for instance, Linklaters' profits per equity partner (PEP) were just over $1.1m (£553,000), compared with Skadden's $1.6m (£805,000) and $1.775m (£893,000) at Davis Polk & Wardwell, according to The American Lawyer Global 100 charts for that year.

Linklaters and its magic circle peers have since eradicated the profitability gap, thanks in part to a corporate finance boom, thriving international networks and a weakening dollar. In 2007 they outstripped the likes of Skadden and Davis Polk in PEP.

So predicting the likely winners in today's downturn is not so easy. Indeed, the answer depends on who you talk to. Freshfields chief executive Ted Burke grants the Americans an advantage in litigation and bankruptcy but says: “In favor of the UK firms is that we have much more diversified revenue sources.”

In other words, English firms generally have broader and deeper international networks so are more exposed to the still-booming markets in the Middle East, Russia and Asia. Freshfields now has more than two-thirds (around 68%) of its attorneys outside its home market, compared with Skadden's 16%. “It¹s not enough to replace a bull market in London, but we're talking degrees of mitigation,” Burke adds.

US lawyers are similarly unsure of who has the edge. The important thing is to look at it on a firm-by-firm basis, insists James Roome, the London head of Bingham McCutchen. “It's a lot to do with the quality of a firm's franchise,” he says. “I have a feeling that those with a broader, deeper franchise, whether in the US or UK, will be just fine.”

“I would rather be a lawyer in a US firm in a downturn,” says David Lakhdir, a London partner at Paul Weiss Rifkind Wharton & Garrison, a firm considered one of the New York’s top litigation shops. “But US firms' profits per partner could be hit harder, particularly if you factor in how profitable we've been per partner and the decline in the dollar.”

America's litigation and bankruptcy markets may give the US firms a boost, but it is perhaps a testament to the UK firms’ progress in developing their international networks and their focus on bottom-line growth that the argument is less clear-cut than it's ever been. It's time to start reassessing those easy assumptions.

A version of this article appears on the website of The American Lawyer, a US sister title of Legal Week.

And that’s just the solicitors - considering the attire advocates have to wear in court, a laid-back attitude to your sexual orientation has to be a plus for the Bar.

So it’s surprising that the profession has so enthusiastically embraced gay networking groups, as can be seen from the launch of the new InterLaw Forum for lawyers, which kicks off with a gala event on 17 April at the National Gallery.

Already, you can sense the competitive, herd-like mentality that the legal profession specialises in baahing into life. Soon the war to be the gayest law firm in London will be in full swing (though I find it hard to believe, as I was recently informed, that the current front-runner is Pinsents). Expect increasingly impressive initiatives, with Herbert Smith securing an early lead after booking Sir Ian McKellen to help launch its LGBT network next week.

Obviously all this is a good thing but it’s getting hard to keep up with the fast-changing morality of once-ruthless law firms in a world in which Freshfields - having just launched a ‘Carbon Commitment Index’ - is apparently about to start to policing the environmental credentials of companies worldwide.

Still, I can’t help wondering if law firms might want to devote a bit more time to certain other groups that arguably get a rawer deal climbing the legal career ladder. How long until firms launch their Pregnant Women, Mothers, Black Men, Working Class and Poor People In General (PWMBMWCPPIG) groups?

alex.novarese@legalweek.com