If there is one big trend in the analysis of Legal Business in recent years it is the encroaching existential threat represented by US-bred law firms.
That could be termed ludicrous simplification given the differences between individual law firms both US and homegrown but in many respects it remains a generalisation that speaks to profound transatlantic differences in approach covering the majority of the world’s largest law firms. There is a US model built on individualism, intense focus on profitability and higher pay for stars, and a resistance to bureaucracy. In contrast the UK’s brand of internationalism, backed by a far more institutionalised approach, had been startlingly successful until the banking crisis flipped the market.
Since then, pretty much everything has been flowing in the direction of US firms, which obviously have the huge advantage of feasting on the world’s largest legal market and biggest economy. The key issue – as highlighted in this month’s Global London debate – is that while US firms have shown some ability to appropriate elements of the UK approach to strengthen their global advance, London firms are doing their US rivals the huge service of not returning the favour.
As we touch on in this month’s Legal Business 100 coverage, the playbook of UK market leaders is worn out. The consequence has been ceding market share to US rivals while tolerating dangerous levels of profit dilution in foreign markets with uncertain prospects. UK law firms need a fundamental renewal of their business models to address the reality that American rivals are running rings around them in too many strategically important practice areas.
True, in some respects, UK firms are up against global markets that remain inhospitable but that’s life so suck it up; the first part of climbing a mountain is noting the thing is there and that the tactics for getting to the top are not those that took you to the foothills.
In essence, UK firms need to make substantive changes to their remuneration, geographic weighting and leadership to reflect the competitive pressure that has rapidly materialised in a globalised market. In remuneration, for partners that means fewer baby steps and backdoor deals and ushering in far more flexible partnership models and for associates to stop pretending they can get away with a huge pay gap with US law firms (Allen & Overy gets the most credit for addressing this one).
On a more fundamental level, the failure of Magic Circle firms has been in not transforming themselves into the Anglo-American institutions they need to be to execute their own agendas. Instead they tried to break America. The obvious means of tackling the US via a transformative merger they can’t get, either as acquirer, equal partner or target, so they could try a fixer-upper acquisition. But they have arguably missed that particular window. That leaves the most likely option as Americanising their businesses at a granular level. This involves bringing in far more talented US lawyers into senior practice and leadership roles on a firm-wide basis and reaching a material accommodation with the US professional world view rather than trying to force Clifford Chance’s 1997 agenda on an increasingly bemused Wall Street.
The world has moved on but the good news is that as London and New York slip increasingly into synchronisation as global cities and finance hubs it looks entirely practical to have global law firms built on the dual hub of New York and London – the NYLon law firm if you will. Even taking these steps, it will take years of commitment, but that at least would be taking action and moving in the right direction. Sooner is better than later because at this rate the US-v-UK debate will quickly become irrelevant.
Read more on our London Global debate here.