Legal Business Blogs

Lone star state of mind

Reed Smith’s assault on Houston is a brave move following its failed merger with Thompson & Knight three years ago.

The firm launched a greenfield office in downtown Houston last month, where it will fill two floors of the city’s tallest building, the BG Tower, with up to 30 lateral hires over the next quarter. Firmwide managing partner Greg Jordan says Reed Smith has already recruited several partners and associates from leading local firms.

Although he won’t name individuals, he says that local hires are crucial. ‘Our goal is to build the office with people who are real leaders in their fields. And we’re not planning to build the office through relocations, but real Houston talent.’

Texan firms tend to agree. Jerry Clements, chair of Locke Lord says: ‘There is a great deal of loyalty in Texas. And its a very difficult market to break into, if you’re not from there, because of the client loyalty, history and knowledge.’

Houston-based energy partner Doug Glass from Akin Gump Strauss Hauer & Feld says: ‘A lot of US and international clients want to expand in the energy field. Our firm, like others, has from time to time in the past encountered interest from other law firms who want to enter the market, but we feel good about our competitive position. Apparently our clients share that view.’

Brimming with confidence is well and good, but there are stumbling blocks unique to Texas that Jordan must consider. Firstly, the Texan legal market is a battlefield so making 30 lateral hires will be a bit of a problem. Texan partners often stick like glue to their firms and pledge loyalty throughout their careers. And as clients in Texas tend to choose firms over individuals, it is harder for a lawyer to defect. Baker Botts London-based energy partner Steve Wardlaw tells LB that the question of whether Reed Smith can be successful depends on whether they can hire laterals. ‘The energy market for lawyers is quite deep and ingrained and what you hear from Texans, is that people don’t flit between firms,’ he says. ‘In the London market they’ll change every few years, but that is not what happens there.’

Michael Pollack, global head of strategy for Reed Smith admits that his firm had approached up to 20 local firms for a merger yet failed to find a partner and says this was due to, ‘client conflict and not the right fit at the time. It’s a very competitive market’.

Despite this, Reed Smith has kept its eye on Texas. Jordan says: ‘Over half of our 250 clients have operations in Houston. The strategy is really about being where the clients are and expanding our services and relationships with them.’

The move is good in theory. Houston has long established its position as a premiere energy hub, with over 3,000 energy related companies based there – the highest concentration in the US. Reed Smith is also attracted to the abundance of shale gas in the US. The gas fields in surrounding states are an oasis of untapped reserves which clients wish to explore. Pollack believes the US will be an energy exporter in the next 10 years and the impact on over 70 of its energy clients in Houston will be ‘huge’.

Jordan is aware of all the challenges a newcomer faces and insists that his firm can tackle them. ‘We’ve never been in Texas,’ he says. ‘Having a lot of clients here already helps, but we’ll be competing with firms that have been here for up to 100 years.

We know that it takes time to build a brand position, so we are going to work really hard to build that.’

Jostling for position in a saturated market is a Herculean task, and Reed Smith certainly has its work cut out.