The "Global 100" is out, a joint production of The American Lawyer and LegalWeek, which of course are now conjoined under the umbrella of IncisiveMedia.
It ranks the largest firms through three filters:
- Highest gross revenue for the most recently concluded fiscal year
- Most lawyers (or FTE’s), and
- Of firms which place on both of the first two lists, a third list of highest profits per partner
Compiling the first two "Top 100" lists results in a total of 113 firms being covered.
The numbers are impressive: 15 firms are over $US1-billion in total revenue. The median revenue of the 100 is $543,750,000 and the average is $674,485,000. I have been writing for years here at "Adam Smith, Esq." that the time is long past not to treat our firms as sizable enterprises (with all that implies in terms of professional management and even the dreaded "corporate-ization"), but these numbers drive home the point as never before.
The next observation to make is the continuing domination of the lists by firms headquartered in the former British Empire. I wrote about this last year, when it was 98 out of 100, and this year it’s only marginally different: 97 out of 100.
- 75 American
- 17 UK
- 4 Australian
- 1 Canadian
- And the non-Brits: France’s Fidal (88), Spain’s Garrigues (96), and the Netherlands’ Loyens & Loeff (98).
The reason? I believe it’s fairly obvious: Anglo-Saxon common law has a particular genius for innovation. Imagine trying to structure a complex multi-jurisdictional project financing vehicle under French Civil Law. I’m no expert, but I don’t think it could be done. Not only does the common law presume that the wishes of voluntarily transacting private parties should be honored, every time such a transaction is challenged and either enforced or overturned, we have future guidance for our behavior.
The enduring story of note, however, is the powerful rise of the UK’s Magic Circle.
For several years recently there had been a running argument about whether the Magic Circle firms’ investment in building out global office networks was a brilliant recognition of what the economic repercussions of the end of the Cold War meant or, conversely, a desperate and doomed attempt to escape their intrinsically limited domestic market. (The end of the Cold War has precisely what to do with this, you might be asking? The complete discrediting of centralized, socialist planning economies, is what, opening previously-skeptical countries to the marvels, or at least the power, of capitalism. Our former Federal Reserve chairman has a few words to say on this topic.)
Famously, Partha Bose argued in the November 2005 American Lawyer that the elite British firms faced stagnation, or worse, as US firms "cherry-picked" their most lucrative corporate and M&A practices, and as work on debt and equity issues in the EU became commoditized ("The Tragic Circle"). Today, needing to revise his history, Bose says "A lot of the Magic Circle firms’ increase in profitability and new growth has to do with Gordon Brown," referring to the rise in the value of sterling during Brown’s tenure as chancellor of the exchequer. "The big jump in profits has been driven by the pound."
I invite you to scour his 2005 article for references to the weakness or strength of the pound; I did so without success.
For my part, I favored the "globalization imperative" side of the debate, albeit not as strongly as I should have in retrospect. When the Fortune 500 and the FTSE 100 are in pursuit of sizable cross-border transactions, there’s no substitute for law firms with a serious, local, on-the-ground presence capable of matching the scale of the client’s proposed deal. There were reasons" to be skeptical, two in particular. Both have been disproven.
- "The elite New York firms used to say that the big U.K. firms are so big that they can’t get their profits up," says Tony Williams of the consultancy Jomati, who is a former managing partner of Clifford Chance. "Well, they can and they have. The last couple of years have shown that size is not an impediment to profitability."
- The other reservation was that building out a network of offices in places other than New York and London where premium rates can be charged would, per se, be dilutive of profitability. (Managing partners have said that to me, point blank.) But in reality it’s more complex than that.
Sure, if your local offices are doing purely local work, you’ll be collecting local-market rates and be doomed to local-market profitability.
But by contrast if your local offices are deployed as team members on global deals, clients are insensitive to the implicit blend of local rates and, in fact, will pay a premium for the complexity of the deal.
In a profile of how Tony Angel has transformed Linklaters, this very point becomes crystal clear. (The article is by Michael Goldhaber and is in the October 2007 American Lawyer.) One of his avowed goals is to re-orient the firm towards cross-border work and to increase the revenues from such deals. Three years ago Tony began tracking the proportion of billings tied to more than one country (emphasis mine):
"Over the course of last year the firm advised its targeted global clients from an average of 20 offices, across an average of 16 practice areas. More global, Angel has found, means more profitable. For every extra office involved, the effective billing rate rises, because clients demand fewer discounts and agree to more premium fees for cross-border deals. ‘Number of offices is a proxy for complexity.’ If a matter is too small, simple, and domestic, Angel sniffs."
Now, you don’t achieve hard goals like this without some direction from the top, which has predictably alienated a few. The chief complaint is that partners have sacrificed autonomy in their ability to pursue clients of their choosing. And some people value that above what could result from the discipline Tony has instilled: "Says another refugee at a major U.S. firm: ‘By the numbers, I made a bad decision. But I did the right thing. I enjoy my work. I can pursue whatever client I want, and no one will stop me. I admire Tony and his model works. But he made the place into a big machine.’"
But Tony is unapologetic and offers one of my favorite phrases in defense: "’Strategy is not saying yes to everything,’ he says. ‘Strategy means saying no. If we’re going to be a global law firm, there are some things that we must stop doing.’"
A great profile, and a fabulous story. But it begs the big question: Have all the trains left the station? Is it too late to emulate the Magic Circle and establish a truly global footprint?
Some U.S. firms departed alongside the Magic Circle, of course: Baker & McKenzie, DLA, Jones Day, Latham, Sidley, White & Case among them. Yes, each of these firms of course has done "globalization" very much in its own way, but this is not a piece about the virtues and demerits of the paths each of those firms has chosen—that’s for another day. Another—very sizable—cohort of American firms have serious, and admirable, international presences, albeit on a scale smaller than the exploded diasporas of some of the firms I mentioned.
I’m asking a different question: If your firm does not have a credible three-continent international presence today, is it too late?
My answer is: If you’re in a senior position and well into your career, it may well be too late for you to see it.
With vision, tenacity, and discipline, it’s never "too late" in an absolute sense. If you doubt this, look at how Toyota (including of course Lexus) has transformed itself over the past 40 years. Then again, how many Toyota’s are there?
