Posted Jun 01, 2008 01:05 pm CDT
According to the 2008 client advisory published by the law firm consultant group Hildebrandt International and Citi Private Bank, in a slumping economy, at least one segment is weathering the tempest: large firms with expanded overseas practices.
In fact, the study found evidence of a direct correlation between financial performance and the percentage of lawyers working internationally. Of 58 “higher profit firms”—those with more than $500,000 in profits per equity partner in 2000—the top performers had the largest share of lawyers based abroad.
Based on performance figures disclosed in confidence, the study said superior performers—those averaging 12.6 percent PPEP annual growth since 2000—had 17 percent of their lawyers overseas. Average performers—with 6.2 percent annual growth—employed 14 percent abroad; underperformers—3.5 percent growth—had around 7 percent in foreign offices.
“We’ve been busy building up our headcount growth in non-U.S. markets,” says Francis B. Burch Jr., joint chief executive of DLA Piper. “It’s pretty obvious to us that if you’re going to pursue our strategy—to do recurring high-value work for leading mature and emerging companies, wherever they need it in the world—having coverage in the developed and emerging markets is a big advantage.”
Burch estimates that since 2005 DLA Piper has added some 500 lawyers outside the United States in countries such as the United Arab Emirates, Russia, Italy and Spain. More than half its 3,700-plus attorneys practice abroad in offices as far-flung as Shanghai, Zagreb and Bangkok. International growth has made DLA Piper the nation’s largest law firm, according to the National Law Journal.
Chart illustration by Jeff Dionise
Other large firms, such as Baker & McKenzie, White & Case and Morrison & Foerster, also have increased their operations outside the U.S., making them at least as big, if not bigger, than their domestic practices. In addition to expanding in well-established markets like Western Europe and China, the firms are increasing their presence in places such as Vietnam, Romania, Colombia and Chile.
“In the last five years or so the investment in these offices has started to pay off very well,” says Bradford W. Hildebrandt, the consulting agency’s chairman. “Many of these offices are as profitable or more than the domestic offices.”
A strong foreign presence may be helping to make up for a downturn in the U.S. economy, primarily resulting from a drop-off in banking and finance-related work and, to a lesser extent, similar weakness in Western European markets such as London.
Meanwhile, the growth in litigation that typically accompanies a weak U.S. economy—illustrated early this decade after the dot-com bubble burst—had yet to kick in, Hildebrandt’s research suggests. That makes buffers such as a well-balanced practice and geographic diversity all the more important.
“Unlike previous downturns in the legal market,” the client advisory notes, as of January the economic slowdown had not “been accompanied by upturns in litigation, bankruptcy or reorganization work … related to the downturn itself.”
Law firm leaders say they are betting on continued international success. While layoffs among prominent U.S. firms have captured headlines this year, several global firms say for now, at least, they will stay the course on domestic staffing. Often they are able to assign more international work to attorneys in the U.S., and some even have plans to add positions overseas.
“We’re being cautious as we always are with lateral growth, but we’re not pulling in our horns and saying, ‘Batten the hatches and stop looking at good opportunities,’ ” says Keith C. Wetmore, chairman of Morrison & Foerster. “In those international markets that are important to us, we continue to see a lot of robust activity.”
The firm’s extensive practices in the Pacific Rim, including China, Hong Kong and Japan, have been busy with initial public offerings, private equity investments, joint ventures, restructuring and intellectual property matters, among other work, says Wetmore. MoFo’s clients are skewed toward companies in the technology, life sciences and financial services industries, he says.
“I’ve studied all of our numbers very carefully now and our bottom line is that the overall volume of business remains the same as it was in ’07,” says Hugh Verrier, chairman of White & Case, citing first-quarter results.
White & Case employs some 2,300 attorneys, with roughly two-thirds practicing abroad. The firm is operating with a surplus of associates after increases in 2007, Verrier says.
But its geographic reach allows for the redeployment of staff to more active parts of the world. For example, he says, some lawyers in London, the hub of European banking activity, may be reassigned to other international markets.
The firm is considering bolstering its presence in parts of Europe, including Scandinavia, Italy and Spain. It recently opened an office in Abu Dhabi and is eyeing additional markets in the Middle East to help cash in on finance-related work such as state-run sovereign wealth funds, Verrier says.
“The area is awash in petrodollars that need to be invested,” Verrier says.
Managing partners of global firms emphasize that their international offices do not operate as isolated businesses. Cross-border activity, highlighted by the ramp-up of international mergers and acquisitions transactions by state-backed corporations such as the China National Offshore Oil Corp., requires increased collaboration among attorneys throughout the world. That teamwork, which U.S. attorneys often coordinate, may keep domestic lawyers at global firms active when those at largely domestic firms are sitting on their hands.
“I think that our business in the United States is very much intertwined with our business in some of these other economies,” says John J. Conroy Jr., chairman of Baker & McKenzie, whose 3,700 attorneys operate in 38 countries. “So frankly, we are not experiencing the downturn that I think others are as a result of our very deep and extensive global platform.”
Conroy says the firm’s presence in international markets dating back more than 30 years has helped win contracts in places where capital market activity remains strong, such as Brazil and China.
In China, for instance, Baker & McKenzie’s securities team earlier this year advised China Railway Construction Corp., among the world’s largest public works contractors, on an initial public offering that raised more than $5.4 billion for global expansion.
When the bourse in Dubai—the fast-growing financial center in the Persian Gulf—agreed in September last year to buy a stake in the Nasdaq Stock Market, DLA Piper performed the compliance work. These types of transactions have come under increased scrutiny since the Foreign Investment and National Security Act of 2007 went into effect.
“We’re doing a top-to-bottom review of the global compliance program for a major global financial services company and I think we’re probably looking at 100 countries,” says DLA Piper’s Burch, declining to name the client. “So we’ve got lawyers all over the place.”
Firms are also picking up legal work related to labor and workers’ rights. DLA Piper, for example, last year represented royal families from the United Arab Emirates in lawsuits filed under the Alien Tort Claims Act. The 1789 law gives U.S. courts jurisdiction in suits alleging harms committed abroad in violation of the law of nations or U.S. treaties.
Last October, a Florida judge dismissed a case filed on behalf of boys allegedly trafficked to the Middle East and forced into the sport of camel racing.
Another factor working in favor of global firms is the U.S. dollar’s weakness against currencies such as the British pound, the euro and the Japanese yen. Most U.S.-based international firms bill their clients in local currencies, and then translate them to greenbacks when they report profit.
“The effect of that is there’s a huge benefit to the appreciation of those currencies,” says White & Case chairman Verrier.