US firms and building London

If you’re a US firm, what is the balance between home-grown and US-derived work in your London (or for that matter any other foreign) office?

One of my clients asked  what the balance was at other US firms, having read in this week’s edition of The Lawyer that Kirkland & Ellis, for example, derives 70% of its London revenue from the US.

That set me thinking about what the ideal balance might be, and how that might affect partner behaviours within the office and lateral recruitment.

First, I think we need to draw a distinction between ‘pure’ US firms, those that have grown organically in London and are still firmly headquartered in the US, and hybrids, firms that are the product of a merger between a US firm and an existing London practice, often with the consequence that the firm describes itself as international and, sometimes, shifts the centre of gravity of the whole practice away from the US as a result.

With hybrids being the product of existing self-standing practices, it would make sense that London is much less dependent on the US, if at all. In contrast, the immediate challenge for a newly-merged London office of a hybrid firm is to increase the flow of work, largely from, but also to, the US in order to integrate the new firm.

The rationale for an ‘organic’ US firm in London should be firmly rooted in business – giving (US) clients access to London and European markets. Some US firms in fact try to avoid building domestic client bases at all, feeling it muddies the waters, but most let the business develop organically, taking on domestic clients as and where they arrive, mostly as a result of lateral hires. However, I have heard some US partners complain there is little rationale behind their London offices beyond prestige or an unsubstantiated sense that they “have to be there…”.

All that said, is there a ‘right’ balance of self-generated vs referred work for a hybrid or an ‘organic’ US firm?

Getting the balance right seems to me to be a philosophical question, dependent on your view of what the firm is supposed to represent and why you are in London in the first place.

If you see London principally as a profit-centre, this question is perhaps moot. Bluntly, the more disparate your client base, the more you take on laterals with oddly-shaped client bases and allow or encourage them to acquire clients almost randomly, the more you are fundamentally creating a home for lawyers with individual practices rather presenting clients with an integrated service offering. Integrating London with the rest of the firm becomes far less important, but it is worth considering how this plays with clients who can get frustrated if the service does not feel ‘joined-up’.

Trying to create a self-standing office also has challenges in terms of achieving critical mass; fairly easy in some niche areas, much more difficult in mainstream transactional disciplines, for instance. This not only affects what resources you are able to deploy, but also recruitment and retention.

If you are trying to create a more integrated offering, meanwhile, great care needs to be taken to give partners an opportunity to meet and spend time with colleagues in the US and other offices. You can’t really expect people to refer work on a consistent basis to names in an internal telephone directory, but making it happen in reality is expensive and time-consuming, words that are usually anathema to spreadsheet-focused law firm managers.

I think ‘expensive’ and ‘time-consuming’ is why some partners I talk to who have moved to US firms complain that while much is made of the potential referrals from the US office(s), sometimes it is just all talk, and the end result is an atomised London practice, made up of sole practitioners who sink or swim on their own recognisance (“eat what you kill”), which suits some people and not others. I think this may also contribute to the markedly higher failure rate of London laterals into US firms.

One partner I spoke to in the London office of a US firm said his firm had struggled to develop referral business out of the US, largely because the firm’s business in the US revolves around a range of strong niche practices. Many US partners, leaders in their field, would not refer work to London simply because they felt that partners in the London office were not of equivalent quality. As a result the London office has been forced to develop more domestic business, which has neither improved matters on the integration front nor solved the basic problem.

By contrast, London offices that are heavily-dependent on their US arm for workflow are also heavily plugged-in to the US economy. If, as an individual partner, you are not moving to the rhythms of the local economy at all, that can mean you become quite disconnected, reducing your market-mobility, and if work dries up in your area, that may mean that a you are not busy while your peers in UK firms are flat out, which can quickly lead to disenchantment and departure.

If the idea is to have an integrated practice, where London is capable of servicing all the needs of the firm’s US clients, it also needs to have a bit of capacity to be able to deploy, sometimes at a moment’s notice. Failure to be able to offer this will soon stem the flow of referrals from the US, but as we all know, this is a difficult issue to manage in any firm.

Allowing or encouraging partners to build a domestic client base tends to inveigh against this, and the pressure exerted in many top-performing US firms on billing will of course push partners in the direction of the fruits which hang lowest, which are almost certainly going to be domestic ones.

The real challenge for US firms is to build a tight, focused and high quality stock of lawyers who can hold their own against UK rivals and not only provide prompt and responsive service to internal referrers of work in the US, but who can develop and extend that service. By that I mean developing products and services that their US counterparts can in turn offer to their clients to make their lives easier and drive important international revenues through the system.

Returning to a common theme of mine, the solution seems blindingly-obvious: decide what you are for in London, which services and sector-specialisms you need to be offering to fully realise your vision and then resource deliberately to a vision-inspired business plan – the why, the what and the how, if you like. That should, in turn, determine what your ideal balance of home-grown vs US-referred work should be.

Equally, you need to be alive to the consequences of dependency or disconnection, and make sure you act quickly to mitigate the negative potential of either phenomenon.

Leave a Comment

Your email address will not be published. Marked fields are required.