Just back from an abbreviated week in London (essentially Tuesday through
Thursday). Herewith
a report.
I met with the managing partners of a good half-dozen firms, fairly representative
of the marketplace, and unsurprisingly the top question on most minds is
what the economic downturn portends.
Unlike most of life, where a bell curve distribution is the best first approximation
of almost any sampling, views on this topic are bimodal: Either people
tend to believe things could get quite bad indeed, or else their firms
are having bang-up first quarters here in 2008. To be sure, those on
both ends of this spectrum are hesitant to predict that their gloomy or sunny
outlook will endure: Uncertainty, in spades, is the watchword of the
day. And so I resolved to try to delve into deeper and more enduring
questions.
Primary among them are whether London will overtake New York as a global
financial capital, and what the prospects are for a major (as in "headline
news") US/UK law firm merger.
In a bit of contrast to last time I was in the City last November, there’s
a more cautious and less triumphalist air about London attaining supremacy
over New York. (I will resist the temptation to link this, as rich
as it is, to the overwhelmingly delightful, gratifying, and juicy self-immolation
of Eliot Spitzer, which occurred during my trip.) Now, the view seems
to coalesce around a consensus that New York and London will always be transatlantic
cousins, each with respective styles and strengths and weaknesses, but neither
regnant over the other in capital markets.
Interestingly, one lunch I attended featured a speaker (an American by birth
but one who has lived in London for 20+ years) who discussed the cultural differences
between doing business in the US and the UK. If you will indulge
me in a bit of editorial license, these were the highlights of her talk:
do you do?"
She also told the anecdote of a set of deal documents being jointly worked on by a US and a UK firm. As drafts were updated, the routine became that the US firm would turn on "track changes," insert its revisions, and email it across. The UK firm, by contrast, would leave the document untouched but return it with a cover memo suggesting editorial revisions.
After a few rounds of this, the US firm piped up with some exasperation that the UK lawyers were requiring double-work: First, to read the memo and determine the validity of its points, and second to actually make the changes. Why not just make the bloody changes? And here, of course, we have a cultural misunderstanding: The UK lawyers were merely being politely deferential in not assuming they could trespass all over the so-far-agreed-upon document. The US lawyers were assuming that efficiency and expediency were the goals.
Also anecdotally, in the departure lounge of my return flight, a woman
asked me from behind my back, "How are your dachshunds?" Having
succeeded in getting my attention, she turned out to be a former neighbor on
the Upper West Side, in a building catty-corner to ours, who had moved a few
years ago to London with her investment banking husband for a tour of
duty. I told her that I hoped she felt as at home in London as in New
York—on occasion I’m tempted to envision it as almost the sixth borough
of New York—and
then I took the opportunity to ask her how she would compare the two
cities, as someone with a ringside seat to each. She replied that London
is like Brooklyn Heights—unmistakably an urban locale with its own indelible
identity, but less frenetic and less dense than Manhattan, lower-rise.
As noted, the other enormous question of interest (well, at least to me) was the prospect for a headline merger. Previously, I must say, this speculation has tended to be dismissed with suspicious abruptness on both sides of the pond.
This trip was a bit different. People were far less dismissive, and many indeed even owned up to the potential strategic and business logic of a hypothetical US/UK (read: New York/London) merger. Culture, of course, will always be the obstacle, but the financial misfit that was presumed to exist heretofore may be eroding as practices converge and globalization truly kicks in.
One point of view I heard in different contexts and expressed in different
ways, but pregnant with potential meaning about the market’s readiness for
a merger, was this: Some US firms are relatively strong in Asia and some
UK firms are relatively strong on the European Continent. Wouldn’t that
make for a potentially interesting combination, delivering the three first-world
continents, North America (including New York), Europe (including London),
and Asia?
But repeatedly, the reservation was voiced that it is so intrinsically difficult
to sustain long-run investments in new geographies and practice areas where
partners’ expectations are to "strip-mine" the firm of cash at the end of every
year and even the most visionary managing partners with the greatest commitment
to the long term find it almost impossible to orchestrate continuing, loss-producing,
investments.
Pop quiz: Q: What’s the one line item that appears on every corporation’s
balance sheet that I suspect you have never seen on a law firm’s?
A: [tick-tock-tick-tock…..] Retained earnings.
This still begs the economic question which applies to mergers and long-term
investments in new geographies alike: Why, if the initiative would benefit
us all in the long run—better work from happier and more valuable clients,
higher profitability, stronger weapons for recruitment and retention—can
we not stomach the short-term sacrifice?
I have no answer to this question.
Which makes me optimistic that, during my career, we shall see a transformative
merger.
But, you protest, conflicts will become insuperable the larger firms get? You
know as well as anyone that rules are made to evolve and adapt, and with Chris
Perrin, the general counsel of Clifford Chance, calling for relief from conflicts just
last week, can reform be far behind? (He would permit sophisticated
clients to waive conflicts in any and all circumstances.)
In any event, I predict that I’ll be going to London pretty regularly. Not
the worst duty.
