Legal Business Blogs

US law firms in London must adapt their business strategy to account for new challenges and opportunities

On the face of it, things are going very well for US law firms in London. Last year, Cravath launched a London-based English law offering, Akin Gump’s London revenue jumped by 25% and Greenberg Traurig took on 15 new lawyers in London.

While London will continue to provide opportunities for US law firms – due to its position as a leading financial centre and its attractiveness for a global client base – acute disruptions are forcing leaders in US law firms to reconsider their international approach.

Of particular concern is the decline of M&A activity in the UK, Europe and the US and the slowing of globalisation due to major geopolitical and trade tensions. This is inevitably raising questions around international expansion into London and other global markets.

‘Traditionally, US law firms have had different strategies for international expansion,’ says Simon Thornton-Graham, partner at Davitt Jones Bould and former counsel at leading US law firms. ‘For some, like Latham & Watkins and White & Case, physical offices in carefully selected global locations have been a key part of their growth strategy. Other firms have preferred a “best friend” network, working with leading law firms in each jurisdiction their clients operate in. More recently, we have seen US firms hire UK-qualified lawyers for their London offices – as is the case with Cravath, Swaine & Moore – or even merge to create scale like Shearman & Sterling and Allen & Overy did recently.’

Each option provides opportunity and risk in equal measure, and in a time of immense global financial insecurity, making it work requires strong leadership and strategy: ‘Navigating the new global landscape is becoming increasingly complex and risk-filled for organisations,’ says Thornton-Graham, who has also worked in-house for Amazon and Getir. ‘That has already translated into different buying behaviours for clients looking for legal advice. They are less interested in whether their existing lawyers have a physical office in the jurisdiction they need help in. They want and need the “best-in-class” firm in that particular market. That requires firms to ask some tough questions about their strengths and limitations, inevitably leading them to reassess their priority markets going forward.’

Recent decisions by US firms suggest this is already happening at pace. New rules in Saudi Arabia allowing firms to operate on their own without a partnership with a local firm has led to major US (and UK) law firms including Kirkland & Ellis, King & Spalding and Gibson Dunn opening up there, citing its status as one of the world’s fastest-growing economies as being a key opportunity for them. Domestic expansion is also a key priority for US firms. For example, last year several firms opened offices in Miami to service the tech companies that are now present there due to increased tax benefits.

Narrowing focus, expanding networks

The opportunity for US law firms is to position themselves as trusted advisers to global industries struggling to navigate the increasingly complex and volatile issues caused by geopolitical/trade tensions. This is not easy to do and will take serious self-reflection and discipline.

‘My observation, drawing on many years’ experience, is that the most resilient firms are those that have a strong sense of who they are, what they do best, and truly where their core business is,’ says Peter Allinson, chief executive of Davitt Jones Bould. ‘If that is the case, then they capitalise best on opportunities, ride out the worst of the boom or bust and avoid the pain of downsizing in difficult times.’

US law firms’ strengths and profits lie in high-stakes deals for large multinational clients. To ensure resources go towards this, they are increasingly looking to outsource legal processes, automate non-critical work areas, and explore AI. With client organisations looking less towards physical location and more towards having the best lawyers in the markets they operate in to help them navigate the ever-increasing complexities of global operations, ‘buddying up’ and consortia working will also need to become more common, reflecting practices that are already the norm in the commercial world they seek to serve.

Those with smaller UK offices, for example, or where the work is in a non-core area, may prefer to rely on their networks of friends and former colleagues when they anticipate a pinch point – either because they don’t have capacity, or they have limited capability in certain areas. Another common arrangement in this regard operates on a ‘you scratch my back…’ basis where work flows freely between two firms. The reality, however, is that neither of these approaches put the client first, and at a time where clients are seeking best-in-class advice for their markets, a more careful approach is needed.

What firms should be saying to their clients is that they have taken a conscious decision to partner with a specialist which offers complementary expertise to their own, as this will result in better value for the client and is scalable at short notice. As real estate specialists, Davitt Jones Bould has long operated in this space, providing at one end of the spectrum routine estate management support or real estate due diligence to full-service firms, and at the other end, taking on the role of outsourced real estate department to firms who have no real estate lawyers at all.

‘What often holds firms back from doing this is the fear among some partners that they must guard access to their clients against all comers – internal or external. Again, this notion is no longer fit for purpose: forward-looking fee-earners understand that delighting clients is the way to ensure they stick around for the longest time, and that clients are less sensitive about who delivers the quality work they require than many lawyers realise. That is truer now than ever before,’ says Allinson.

Another fear that prevents firms from giving this strategic option weight is the lack of a clear picture of exactly how workflows will be managed. ‘What I can say from experience is that this is simply a fear of stepping into the unknown. In the many times we have worked with leading US and UK law firms, I have found that with sensible project planning from the outset between the partner firms, a simple set of procedures can be set up identifying the key people in each and their respective roles. The rest is down to regular and open communication between colleagues. For the client it is a win-win, knowing that their lawyers are taking steps to enhance value and service instead of keeping everything in-house. After all, what better way for a law firm partner to demonstrate their confidence in a great relationship with a client than to suggest that they will be even better served through a strategic joined-up delivery with a specialist partner firm.’

Done well, collaborative working can create competitive advantages for US law firms – not least by providing them with the ability to be agile and fast in responding to the ever-changing international landscape.

Increasing revenues, reducing costs

According to the annual PwC law firm survey, which polls the top firms by global revenue, staff and support function costs are growing at a faster rate than fee income, with cost pressures from high inflation and an inability to pass the burden on through pricing to clients becoming a growing issue for firms operating in or through the UK market.

For US law firms seeking to grow quickly in London, this means taking a careful, considered approach to recruitment is critical in the war for talent. Resourcing the highest margin work such as private equity, corporate finance, M&A and banking should take precedence over the practice areas that are crucial to their clients but often have lower billing potential, eg, real estate law. This focus has led to impressive financial results for Latham & Watkins, for example, who posted revenues of more than $5bn last year. The high profitability per equity partner was crucial in achieving this, demonstrating the unique competitive advantage US law firms can gain over their London rivals by following this particular recruitment strategy. This approach has been particularly important for US firms advising on areas like private equity where size really is a competitive advantage.

Partnering with the leading specialist law firms in key but less profitable practice areas, as opposed to hiring the leading lawyers and support staff needed to meet client needs, can not only result in cost-savings but also allows US firms to focus on their core, profit-generating areas. However, it is critical that any selected partner firm has high-calibre lawyers to meet the standards clients have become accustomed to, or it simply will not work. Setting this up in a way that service is seamlessly delivered, through clear methodologies, and meets (or even better exceeds) client expectations in terms of quality is key to the success of any collaboration.

This approach also enables firms to allocate funds towards other key strategic areas, like introducing generative AI and other innovative ideas that can reduce costs to themselves and their clients. ‘Generative AI is either an opportunity or a threat, depending on where you are in your utilisation of it.’ says Thornton-Graham. ‘There is no doubt that we are at a stage now where innovation and technology is a real differentiator to clients, but it won’t be long before it becomes an expectation. Funding it now is critical, and that means not only creating or securing the tech needed to expediate basic legal tasks such as research and drafting but also training and hiring people to utilise it.’

Working together, driving efficiency

In the commercial world, strategic partnerships and consortia are already the norm, whether run over many years or tied to short-term objectives. Consider, for example, the likes of Fujitsu and Siemens which have regularly collaborated in the tech field, or the numerous energy and investment giants working on new ways to make our world more sustainable in the fight against climate change.

These arrangements are nothing out of the ordinary to the international clients we serve, who may wonder why law firms aren’t adopting this approach more widely for their benefit. For US law firms considering the strategic intricacies of expanding in a rapidly-changing international environment, collaboration could lead to a leaner, more efficient service that benefits clients and partner law firms alike.

For more information, please contact:

Peter Allinson, chief executive

Davitt Jones Bould
Level 24 The Shard, 32 London Bridge Street, London SE1 9SG

T: 020 7870 7500