Our custom after trips of some substance is to report back to readers in the form of a “Letter From ____,” and since I spent all of last week in my Second Favorite City in the World, here you have it.
Logistics and context
I had 21 meetings in four days with a mix of UK- and US-based firms, ranging in size from the Magic Circle and AmLaw 10 to highly capable niche and “category killer” firms—plus appearances on two panels at the Clyde & Co. annual GC risk forum and a meeting at the FT.
Visiting anywhere, but in this case London, every three to six months is a bit like seeing a neighbor’s child over the same lag time; changes are clearly perceptible but not dramatic and most likely difficult to discern for those living through it day to day. Thus, do not mistake the observations that follow for realizations of seismic or existential magnitude; they are more by way of potentially leading indicators and indicia. (Nor are they listed in an order having anything whatsoever to do with gravity, prevalence, or foreseeable consequences; the sequencing is purely arbitrary and impressionistic.)
The first three are reports of what subjects were top of mind for people; what they brought up unaided or unbidden, if you will, once the “agenda” (if any) had been covered. The fourth is simply my own reflections.
So, shall we proceed?
Here is not the place to rehearse what Kirkland’s been up to lately in the lateral market, but if six months ago the reaction to K&E’s latest multi-million dollar talent grab was, “There goes Kirkland being Kirkland…,” this week there was palpable disquiet, bordering on anxiety—closer to the queasy feeling prompted by the thought “Do they know something we don’t?”
Now, as someone who assumes that by and large all serious students of an industry over the long run can at least agree on the basic facts and economic realities—if scarcely ever on what they mean or what specific guide to action they indicate, right here, right now—I seriously doubt Kirkland “knows” anything you and I don’t. But it has become indisputable that they’re making a different bet on that information than most of us.
They seem to be betting (this is all hypothesized based on zero inside information or intelligence) that one can, if not exactly buy market share, certainly buy market recognition, which, over the longer run—this part is their bet—can be built into self-sustaining, economically viable and high-margin practices. Most of us plod along trying to make prudent and sensible decisions vis-à-vis hiring and recruitment (among many other things) premised on rather unheroic projections for ROI this fiscal year and perhaps the next and in the wildest case the year after that, after which we discount everything to zero, or at least not measurable.
Kirkland seems to be playing a longer game and/or one where they’re willing to face the prospect of real losses in some areas on the bet that their portfolio will pay off over all. But in reality, neither I nor anyone I’ve ever talked to can state persuasively that they really know what Kirkland’s calculations are. This is simply yours truly trying to offer up a hypothesis that can slot their actions into that of rational, prudent-people behavior without resort to histrionics like “this upends everything!” or baleful conspiracy theories.
Allen & Overy/O’Melveny
The questions here surrounded, “Will [should] it happen?” and “Does this finally change things?”
On #1, my strong opinion, which I offer prepared to countenance dissent, is that it should go through. The strategic objective it would serve for A&O is self-evident: While it would not “solve” their exhaustively discussed US market presence challenge, it would be the single largest step in 30 years in that direction. And likewise for O’Melveny, it would do even more; it would solve, once and for all, the profound challenge of how to deal with the past 30 years of changes for them. (I won’t go into detail here, but return in your mind to the southern California law firm market ca. 1985 and envision the relative rankings of Gibson Dunn, Latham, and O’Melveny then vs. that of today.)
Whether it will happen? Painful as it is for me to report, skepticism was widespread. First and foremost is simply the skittishness of the Law Firm Partner Type. It doesn’t take much to scare the horses, and what it takes need not even be real—it can be imaginary. That to me is the most probable road to defeat, if it’s to defeat it’s headed. Other more hard-boiled reservations were voiced, but to me those are all solvable given a smidgen of creative thinking and a lot of hard work.
As for #2, does it “change things” in an existential way? Probably not, mostly because the industry, fires fanned by the perennially breathless legal press, has been awaiting the merger of [pick one] Freshfields/Davis Polk, Cravath/Slaughters, Links/Simpson Thacher, blah blah blah. If you care for life as you know it, don’t hold your breath—but having been dazzled by the prospect of such far-fetched fantasy, anything less underwhelms.
On the other hand, it would be one more very high-profile milestone following (for example) Eversheds Sutherland, BLP/Bryan Cave, Hunton Andrews Kurth, and more probably in the works as we speak. The transatlantic axis is dead, long live the transatlantic axis.
What Operating Platform?
Here’s a new one: Guess what came up in essentially every single meeting, unbidden? The question, “What’s everyone [else] doing in terms of process management, a back-end platform, the technological infrastructure?” With, first, a palpable degree of uncertainty about what exactly that even meant (hence the different terminology) and, in most cases, the unvoiced fear that other firms simply had to be further ahead.
The first and most obvious observation about this I already made: This is a new topic, certainly in its ubiquity.
Second, and scarcely less obvious, is that it’s an eminently healthy development. Five or even three years ago, if clients asked about process efficiency and how legal work was being optimized, firms could say they were “working on it.” Today they need an actual answer.
Third is the opacity surrounding this whole topic. Whereas firms have a strong sense—even actual data—on what “peer” firms (a) are charging clients; (b) are paying their lawyers and professionals; (c) which are strong and which are weak and which are risible practice areas; (d) pretty much what they’re actually doing for name-brand clients, and a host of other business-side dimensions, firms seem to have no visibility into what others are doing in this area. I can’t say I blame them; some firms find it a challenge to describe what they’re doing about this themselves.
Fourth and perhaps most fascinating, there’s a gigantic glaring void in the market here: No one is offering a coherent, integrated “platform” for law firm operations. Instead, we have a host of point solutions: Billing here, time-keeping there, HR on the left, conflicts and new matter intake on the right, document management in this corner, project management on that shelf and resource allocation in the cabinet beneath.
If markets function as I believe they do, this disequilibrium cannot last: Someone(s) will come along with a universal operations management offering. (And if you think it’s an ERP platform that’s already out there such as SAP or Oracle, that’s fine if you have tens and tens of millions of ££ to spend and a couple of years to be entirely distracted while forcing drastic change in how they do things on everyone across the firm—and all fingers crossed that it actually works at the end.)
Meanwhile, I don’t know about you but I’m keeping my eye on this space.
And Other Reflections from Adam Smith, Esq.
In no particular order, a few notes on other topics that came up and have stuck in memory.
One regional managing partner of a global firm—a Brit, not an American, which will be germane in a second—noted that when he got out of university and was considering where do his training contract, there were “50 plausible” firms in the City of London with perfectly respectable pedigrees. Ten to fifteen years ago he opined there might have been a dozen or two, but today? “Seven. Period.”
Impressionistically, I’d confirm something similar has happened here in New York. The numbers would be slightly different but the direction of change and the magnitudes would be very similar.
Assuming you agree on these observations, “Why? What has happened?”
I must confess, this was a brand-new thought to me, but it surely has the ring of hard truth. So having just started to reflect on it, I have only the most general, and I fear rather unhelpful, explanation: The world has gotten tougher. Clients are notoriously more demanding, institutional loyalty is a distant memory, and the competitive bar among firms for talent and high-margin work is moving up into the thin air. So far so good, so stipulated.
But my problem with this is it’s not an explanation; it’s a description.
Positing that markets move continuously towards higher-performance territory, so this is merely nature taking its course and what-else-would-you-expect, is not exactly true. Some markets are happy to devolve into fungible, commodity offerings—on that theory my friend’s “50” could now be 100 or 150.
In short, a fascinating observation which remains in need of a theory to explain it.
In the context of a discussion comparing New York and London as law firm markets, a Brit (this provides context) asserted with some confidence that “Americans [and a fortiori New Yorkers] just plain work harder than Brits.” For me—or any American/New Yorker—to put this forth so flat-footedly would be the height of political incorrectness, and it would reek self-congratulation and haughtiness to boot. But I have to admit that, as a generalization, he probably has a point.
The specific “hook” for his remark is that this is the week during which England’s “half term” school holidays fall, and a partner had announced that he would be absenting himself from a rather important firm event for the half term observation.
Would that happen in the US? Inconceivable; in New York no partner would even breathe a word of such a holiday if it conflicted with a semi-obligatory work event. (Personally, I confess that in the early years of Adam Smith, Esq.’s work in the London market, I found it baffling that with very few exceptions emails to the UK went unanswered during the 10 days or two weeks around Christmas and New Year’s; now I simply expect it.)
As with the first point above, I have no explanation for this and I’m not so daft as to venture one—I leave it to cultural historians and psychologists—but it has fairly obvious implications for economic performance if you’re fortunate enough to have both New York and London offices at your firm.
Of course, the Brits may be dead right on this one. But ex-pats going on both directions need to know what to expect.
Still in all, my Second Favorite City and it always will be.