British firms cannot avoid the Wolves of Law Street
An American culture is coming for the politer British model, warns our anonymous City insider
UK law firms’ financial results season has made for some interesting reading.
On the surface, it looks like the Magic Circle might be striking back against their US competitors’ home turf. Allen & Overy is the clearest example of this. In this year’s results it generated over half of its global revenue growth from its activities in the US. Freshfields is the other prominent example. The firm confirmed that it has been on a US hiring spree, doubling the headcount of its Silicon Valley office that opened in 2020. So, as US firms become yet more prominent in the City market (Latham & Watkins and Kirkland & Ellis now both generate more revenue from London corporate deals than the Magic Circle), is the fightback on?
In the past, British firms have struggled to gain traction across the Atlantic. Linklaters and Freshfields’ efforts date back to the 70s, whilst A&O first launched in New York in 1985, but have failed to weaken US firms’ grip over their Wall Street clients. Still unsatisfied, these firms were left racking their brains over possible mergers to try and find a solution — A&O got close to one in 2019 though in the end its talks with US outfit O’Melveny & Myers fell through when sterling moved sharply against the Dollar during the final stages.
Clifford Chance‘s disappointment after it went out in pursuit of the Californian dream is a particularly telling parable. The firm made a foray into California in 2002, only to find itself closing its new offices in Palo Alto, Los Angeles and San Diego by 2007. At the time, Clifford Chance was the world’s largest law firm by revenue. Yet it appears it could not consolidate its position in Silicon Valley. Why?
Legal recruiters in the area at the time could easily identify the problem: the Magic Circle firm was not able to recruit enough lawyers owing to its inability to break away from its culturally engrained lockstep pay structure which saw partners paid by seniority rather than the revenue they had generated for the firm. In short, the more polite British tradition of respecting firm elders couldn’t cut it in the face of dollar-eyed pinstriped Americans.
This comment from a midlevel associate across the pond at Kirkland & Ellis for American Lawyer’s Midlevel Associates Survey really sums up the US mentality: “I used to think that I was the most money-hungry person out there, but working at Kirkland has made me realise that, as much as I love money, there are A LOT of people that apparently love it more than I do.”
Since then, these British firms seem to have seen the error of their ways. What has followed is a tweak to salaries where the US office becomes an exception to the lockstep system. In June last year, A&O matched the Davis Polk pay scale for its offices in Los Angeles, New York and Washington D.C. (see below). Davis Polk have since moved to Cravath scale (the standard-setters for law firm pay). Linklaters felt compelled to follow suit just a few weeks later at the beginning of March.
US payscales
| Class year | Davis Polk scale | Cravath scale |
| 2014 | $350,000 (£287,000) | $415,000 (£341,000) |
| 2015 | $330,000 (£271,500) | $400,000 (£329,000) |
| 2016 | $305,000 (£251,000) | $370,000 (£304,000) |
| 2017 | $275,000 (£226,000) | $345,000 (£284,000) |
| 2018 | $240,000 (£197,500) | $295,000 (£242,500) |
| 2019 | $215,000 (£177,000) | $250,000 (£205,500) |
| 2020 | $205,000 (£168,500) | $225,000 (£185,000) |
| 2021 | N/A | $215,000 (£177,000) |
The Magic Circle have also been pushed to make ambitious hires with multi-year salary guarantees. Intellectual property lawyers have proved to be some of the most sought after with A&O offering lucrative deals to raid Goodwin Procter and White & Case IP partners for its Silicon Valley clients. IP litigation with jury trials is notably much bigger bucks than in jurisdictions like England and Wales or Germany.
Both UK-headquartered firms and US Wall Street firms have made head turning hires in their competitors’ heartland. For example, back in 2017 Kirkland & Ellis grabbed the attention of the City legal market by knabbing Freshfields’ star partner David Higgins in a reported $10 million-a-year deal. Freshfields hit back in 2021 by hiring M&A hotshot Damien Zoubek from Cravath which very rarely suffers from any lateral raids (Cravath has a mystique comparable to Slaughter and May in the UK for those unfamiliar with the US firm that gave its name to the top-end payscale).
But, in the midst of the battle, it is clear that the winner from all this is currently US law firms’ culture and strategy. US firms are amongst the most profitable in the world with the likes of Wachtell, Lipton, Rosen & Katz, Kirkland & Ellis, Davis Polk, Sullivan & Cromwell and many more drumming up PEP figures that the Magic Circle could only dream of.
The US firms also have other tricks up their sleeves. Their practice of speedily promoting associates to salaried partners allows these lawyers to bill at a partner level sooner than their British counterparts. This is why looking at the marginally lower partner billable rates at US firms, as covered by Legal Cheek last week, is somewhat misleading.
The ‘eat-what-you-kill’ model — whereby partner compensation is based on the revenue they generate for the firm — appears to have consumed British manners. And this may be causing the tectonic plates of global megafirms to shake. Although giving way to US payscales in their American offices might feel like an amazing magic trick or a special exception for the good of the firm, the spell of the sacrifice could be wearing off.
Talking to the Financial Times, A&O’s US Senior Partner Tim House recently noted: “I don’t know what [London-based partners’] tolerance is to watching other people get huge pay cheques. It’s a bunch of sensitive fragile egos in this industry.”
Recent research suggests that the London legal market remains a prime target for US law firms. So the challenge to UK law firm culture is unlikely to change. It is likely that the highly profitable likes of Macfarlanes and Slaughter and May who have not opted for the megafirm model could well become the last bastions of truly British legal culture. However, the Wolves of Law Street are not immune to facing challenges of their own. With a two-tiered partnership made up of equity and salaried partners and a culture centred first and foremost around money rather than personal ties and loyalty can be dangerous… even for a wolf.
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16 Comments
Legal Cheek fell off
Really boring article
Anon
If you think this is boring you might want to rethink a career in law – it’s not exactly exciting generally and certainly more boring day to day than reading this article.
Not boring, a well reasoned piece
This is spectacular compared to what Legal Cheek usually put out….
Swing
Economic nationalism / protectionism is the only answer. The Magic Circle will be gone in a decade.
Throw out the US firms, force foreign law firms to employ only UK qualified lawyers.
City insider 2
These British firms are making a huge mistake – they are essentially subsidising their US offices via their London office underpaying both associates and partners at the latter who are of a much higher calibre than the former. The effects of this will just be to push more talent in London away to US firms and they will only feel the effects in a few years when they are second rate on home soil.
Kirkland NQ
Lol come back when you can afford a Lambo, losers! Magic Circle is the biggest joke I ever heard.
Anonymous
I’ve*
But obviously that was deliberate, right? Because if your partner caught you making those mistakes… it’s game over😬
?
What is the point that this article is trying to make?
Legal Cheek let me write an article pls
I think it’s (trying to) making the following points:
1. US firms are slowly taking over London
2. While U.S. forms expand in London, the magic circle has tried to break into the U.S. FBD + A&O have done better than say LL and CC but at the cost of potentially alienating their fee earners in London. Why? Because they pay Cravath in the U.S. and not near U.S. in London. Especially A&O.
3. In order to achieve point 1, the UK firms have had to change their remuneration structure, no longer lockstep (ie seniority) but instead, eat what you kill centric. This is good because it’s a “better business model” which resembles US power houses, but the question becomes: why do UK firms exist then if they copy American firms?
4. Finally, if the MC wants to regain and retain its notoriety depending on how you look at out, they must watch out not to lose the British mindset which is often seen as more collegial and for lack of a better word, gentlemanly.
Honestly, if you ask me, the MC is in a decline, it’s too bloated and I think that theyll slowly become like DLA Piper. If not, they’ll kill themselves or ruin their upcoming trainee cohorts by not posting London market rate and instead kamikazying into the US market….
Realist
I have pasted a summary of the differences between US firms and UK firms in London here: https://pastebin.com/EZV2Tyim, because I didn’t want to spam the comments with a massively long list of text. It may be informative for people considering where to accept TC offers, or NQ positions.
Hahahahahahaha
Let this not distract us from the news that Mischon spent £12m preparing for its failed IPO – check City AM. What a clown firm
Last recession survivor
The bubble will burst very soon. All those juniors on this ridiculous salaries will be made redundant and scrambling to join your Pinsents of the world
Chewed up and spat out
Clueless.
If a recession hits then M&A, real estate etc. doesn’t grind to a halt. Distressed acquisitions and group restructurings become commonplace, litigation increases.
Firms may reduce their trainee intake and retention rates may drop to around 70%. The greatest sufferers are not going to be NQs but probably senior associates and support staff, though the latter has decreased over the last few years due to working patterns anyway.
Last recession survivor
While you were still secondary school, some of us were in the real world during the last big recession. The market was awash of junior lawyers desperate having been made redundant. I recall very clearly real estate, corporate lawyer being let go from every firm around the country.
Granted under-performing senior associate’s were too! With the huge wages at the junior end they are less profitable and more disposable then they have ever been. You really thing firms won’t be ruthless if they have to be?
On the other hand employment, litigation and insolvency lawyers will be quids in!
Milo Pup
Always enjoy the Insider’s articles – look forward to the next!
Long term legal observer
In all honesty there are very few US firms which practices are on par with MC firms. MC are full service firms and because of that it’s natural that the overall profitability isn’t as stellar as certain US firms which focus predominantly on PE and levfin (areas which generate the most fees).
There is no doubt that US firms are doing extraordinarily well over the last decade as a result of the PE boom. I think the PE boom isn’t going to end in the near term however, when that ends things are going to be ugly for US firms because all they have all their eggs in one basket but are not otherwise diversified sufficiently to withstand any economic downturn.
I’ve seen a strong push by US firms to build their competition, IP and restructuring/insolvency offerings. With the exception of K&E and L&W I honestly can’t think of a US firm that has succeeded in the fields mentioned.
Trainees/junior associates tend to believe that pay alone determines the prestige and market standing of a firm. This is bollocks, and reflects a fundamental misunderstanding of the legal market. Time will prove them wrong.
Last but not least, if asked whether MC firms would lose their relevance in the near future, the answer would be a solid no. US firms can whisk away avaricious MC associates but the spirit of MC firms is what will continue the English legacy.
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