Round table: The language of London leadership, in association with Law UK
How do leading international law firms maintain competitive advantage in the City, with rate pressures and talent retention both major challenges amid the new wave of transatlantic mergers? In partnership with Law UK, we brought together UK and US firm leaders at The Landmark London to find out.
On the panel:
Damien Crossley, senior partner, Macfarlanes
Hannah Field, London managing partner, Shoosmiths
Jonny Fort, co-founder and partner, Fort Stratford Partners
Ted Greeno, London co-managing partner, Quinn Emanuel Urquhart & Sullivan
Smridhi Gulati, partner, Cadwalader, Wickersham & Taft
David Johnson, managing partner, Slaughter and May
Paul Lewis, managing partner, Linklaters
Ed Stratford, co-founder and partner, Fort Stratford Partners
Nick Usher, London managing partner, Winston & Strawn
Moderator: Mark McAteer, editor, Law UK
Jonny Fort: We see rates as probably one of the biggest push factors, and as someone who’s worked at the top end of the US firm market and has now taken on a role in more of a challenger brand, how do you see things developing with rates, Hannah?
Hannah Field: There can be less pressure on rates at the top US firms because inevitably different client bases are willing to pay for different things. When you’re acting for the top PE houses in the world, they actually rarely quibble the bills. There’s almost a gap in the market now at the mid-rate range – particularly with more and more mergers happening – meaning rates are getting pushed up among a lot of the UK law firms who have done US mergers. The key thing is there needs to be more flexibility on rates and pricing across practice areas. There needs to be a bit more sophistication to the rate cards, rather than just the blanket hourly rate and everyone trying to hit that very top rate every time.
Ted Greeno: There’s far too much focus on rates, rather than looking at the mix of the team. If you have more senior people on your case, the bill’s probably going to be lower than if you have a very wide, broad-based pyramid. There’s not a great deal of sophistication in working out what is ultimately the best way of managing cost, even among those big corporates that use procurement departments.
Ed Stratford: In our conversations, rate pressure is definitely a massive factor in partners considering a move. We have a couple of firms here going through mergers. It’d be good to get your thoughts on how you’ve addressed the rates between those US and more established UK international firms.
Nicholas Usher: Clients are looking for certainty. If I’m a client, I just want to know what it’s going to cost.
Smridhi Gulati: When I first moved to US firms, I observed that US colleagues didn’t have to provide fee quotes for deals, especially in private equity. They’d just tell the client what’s on the back‑end at completion and they’d charge that. In fact, sometimes they’d get paid a premium where the client was really happy with their service – unheard of in the European market! So the rates increase every year – it’s the US model, because US clients (in certain industries at least) have always paid. I’ve seen a shift in this over the last few years, with US clients also having more focus on costs. As such I think we will see a shift in the approach to rate increases, but it has to start from the US, because that’s where that model has come from.
Jonny Fort: As law firm leaders, are you increasingly hearing rate pressures as a reason why someone might be looking to leave the firm, saying: “We can’t stay relevant in our practice area because of the rates that we’re being asked to charge”?
Paul Lewis: No. If anything, it’s the other way around – conversation about whether their practice and the rates they can command fit with what we’re trying to do and where we need to get to, both in terms of our profitability requirements and our strategic direction.
Hannah Field: We do hear it a lot. Particularly out of the mergers with US firms, people who feel like they can’t keep up with the new rates coming in at their current firms.
David Johnson: If firms continue to price purely on hours, AI will inevitably reduce revenue at certain levels of work and force a transition toward different pricing models.
We’ve never had billable hour targets and hourly rates often don’t sit at the centre of our commercial conversations.
Paul Lewis: This means you need to do more fixed‑fee work and be better at controlling the risk on fixed‑fee work, which changes your economic paradigm.
Damien Crossley: If AI streamlines or reduces the volume of low‑value tasks, how do you price the higher‑value work at the top of that pyramid? The traditional law firm business model has largely been underpinned by a broader base of work that supports the overall fee, with the more complex, higher-value work sitting at the top as the icing on the cake. If you take away that marzipan layer of work, and you are only charging by the hour for the most value‑added elements, then you will have to say: “This service is worth £100k. We’ll use AI, we’ll use our people – you’ll just get a bill for £100k.” That’s where I expect the industry, or at least at the premium end of the market, is going to move.
Mark McAteer: With the recent wave of US‑UK mergers how do you see the broader impact on the London market, particularly in terms of investment strategy and competition for talent?
Nick Usher: The competition for talent – and talent retention, to look at it in a slightly more positive way – is as big an issue as any of us face, and that isn’t just a comment about partners. It’s about associates and other staff as well.
Smridhi Gulati: The legal landscape has really changed. We’re pretty deep into a tussle for talent, and certainly for us that was one of the drivers in considering a merger. We’re a premium Wall Street brand. We’re a very finance‑focused firm. But we really had to look in the mirror last year and ask: “Is lateral recruitment going to be sustainable enough for our growth aspirations?” And for us, the decision was that it was right for us to pursue a merger. There is so much movement in the market these days. You’ve got to be able to sustain that. You’ve got to be in a position where you don’t feel your losses, and if you’re a particular size in this market, you will feel your losses – and that can be quite challenging for any firm trying to grow.
Mark McAteer: How do you see the relationship between the UK and US legal markets evolving?
Damien Crossley: The market is more plural now than it used to be. If you look at a UK‑only deal now, you’ll see clients splitting counsel across multiple firms. We work a lot with firms you would regard as competitors in London, because that is what clients want. When a client asks their law firm to do something, they tend to do it. As a result, and as clients have become more sophisticated with how they approach cross-border matters, we are finding that our lack of US capability is less of an issue than it might have been five to ten years ago. In that sense there is still, quite clearly, a place for independent elite firms working on a collaborative basis across the UK and US legal markets.
Jonny Fort: One of the things we see often on the UK side with transatlantic mergers, is partners saying: “I voted for the merger because it was right for the firm, but wasn’t necessarily right for me”. And that undoubtedly creates partner‑mobility opportunities for people like us.
Ed Stratford: Mergers can work for profit margins, it can work for your clients, but ultimately if it doesn’t work at a basic human level it does create opportunities for partner mobility.
And firms like Macfarlanes and Slaughter and May – their biggest distinguishing feature is their ability, culturally, to create something that is pretty unique in the market. You’re just not able to create that same sort of feeling within a larger cross‑border, multi‑office law firm.
Paul Lewis: The comment we’ve heard most in these sort of situations from others is, “It’s not my firm anymore”. It’s not bad – it’s just a reality that you have to work with.
Nick Usher: Going back to the competition for talent point that came up earlier – we’ve all got that to varying degrees, and culture is the thing that ultimately is most likely to create stickiness. We all have to accept that partners will leave. Damien and David are in really great positions to have firms that have long‑standing, defined cultures.
David Johnson: Lockstep is central to our culture but does need to be supported by a sufficient level of profitability. This wave of mergers reinforces the fact there is no single successful law-firm model. There is room for several viable models, but whatever model is chosen, firms need to know what they are good at and, by being the best, drive profitability.
Ted Greeno: Partners are looking for three things. They’re looking for interesting and challenging work – what we all want to do. They’re looking for a good environment where they work – so they like the people they work with, they like the culture – and they want to feel well paid for it. All of those three things are important to everyone, and that’s what you need to provide.
Mark McAteer: Does increased partner mobility encourage firms to tighten exit provisions, or does that send the wrong message?
Paul Lewis: This is one I feel quite strongly about. If a partner wants to go, to quote Jamie Dimon: “There are no bars on the windows”. So if people want to go, then they should go. Exit provisions are to protect firms’ commercial positions, not to try and deter partners from leaving or stop them.
Ed Stratford: The difference is all the firms around this table are in very strong positions, with all the financial metrics going in the right direction. There are other firms out there that aren’t in that position, and that’s when you start to see different behaviours. Without question, we see a lot. It’s very personal in some cases. We’ve seen claw‑back of bonuses over the last three years. Those bonuses were only paid for over‑performance, if there is such a thing.
Paul Lewis: If you’re worried about losing partners, you need to solve the core reason why those partners want to leave, as opposed to trying to stop them leaving by penal provisions. Life goes around. There’s no point getting particularly petty about it, but equally, fundamentally, you have to say: “You’re not on the team anymore; you’re on the other team. And that’s fine – you’ve made that choice. We’re going to protect the firm.”
Smridhi Gulati: We’ve had that conversation and asked ourselves: “Is it too easy to leave our place?” But that’s how we’ve always operated, again it’s the US model. Partners leave for lots of different reasons. At the end of the day, we have to assess what types of changes need to be considered that both ensure no disruptions to client service but also engender good will with departing colleagues. That’s always been my point – if you start looking at clawing back bonuses, holding on to capital etc – the other firm is going to cover it anyway, because that’s the market now. So, it becomes counter‑productive and instead what you risk is creating ill‑feeling and that can have a broader impact, both with the exiting partner and internally. Whatever the circumstance we want to have good relationships with an exiting partner – who knows what tomorrow will bring!
Mark McAteer: Looking ahead, what challenges and opportunities are most critical if London is to remain a leading global legal hub?
Ted Greeno: Our firm started as a pure litigation firm at a time when litigation-only firms were not really around. That was a bet on the future and in many ways that fundamentally changed the market. So all firms need to be looking ahead: how is the market going to change with everything that’s coming?
Hannah Field: Focus but with adaptation really is the key, isn’t it? So many firms right now will rightfully have strategies focused on what they want to achieve by 2030. However, market conditions or the like change and this can mean adaptions become necessary. So two years in say, it might make complete sense to amend and rethink it. You have to be focused on strategies but willing to revisit and revise your grand plans if needed.
Ted Greeno: Some of the really big law‑firm failures have involved firms that adopted a grand strategy and then blindly stuck to it, regardless of how the market changed.
Damien Crossley: It’s about understanding where your strengths are and then sticking to those strengths. The market moves around you quite a bit, but particularly in the last few years, has begun to crystallise into new, distinct segments. There is a danger in being too reactive, chasing every new trend. Sometimes it is better to let the fog lift, allow things settle down, and keep your own strategy simple. That has been a successful approach for us.
Our thanks to Mark McAteer and the whole Law UK team, and all the contributors for an informative, enlightening and enjoyable morning.