Editors' Blog

Will Herbies grasp that Euro-nettle?

Posted 14/05/2007 by Alex Novarese

The words ‘strategy’ and ‘Herbert Smith’ are once again being bandied around in the same sentence. This always looks odd, since the firm - never at the cutting edge of law firm management - probably has the most cobbled-together strategic vision in the City’s top 10 (yes, even compared to Slaughters, which at least has a lot of internal debate before inaction).

Still, senior partner David Gold is attempting to wrestle with some of the issues facing the firm, with particular reference to its international ambitions and challenges.

A review last year notably resulted in Herbert Smith deciding to focus its international investment on a clutch of key emerging markets such as China, India, Russia and the Middle East. As Legal Week noted at the time (see comment), this stance had the considerable advantage of maximising the returns Herbies could get on limited investing power. And, with the firm last year securing its long-awaited Dubai launch, the firm has put words into action.

What had remained unresolved is what the firm would do in Western Europe, where its undimmed M&A ambitions risk being undermined by its lack of coverage and the current resurgence in cross-border corporate activity. This year has already given a number of signs that Herbert Smith is finally looking to grasp that nettle, or at least seriously consider its options, with a review of its European coverage.

Currently, the firm has its formal alliance with Germany’s Gleiss Lutz and Benelux practice Stibbe. Since neither has shown much enthusiasm for closer links, this is far from ideal. Large holes also exist in the firm’s coverage, notably Italy and Spain.

However, the firm is at last in talks to sign up a formal Spanish member in the shape of Cuatrecasas and partners have indicated that the firm is interested in having a formal Italian alliance member.

Merger is nowhere near discussion in the short to medium-term, but it is clear that Herbert Smith is considering ways in which it can beef up its coverage across Europe, all the while gently encouraging its allies along the way.

None of this will be remotely easy, partly because it is trying to coordinate so many firms without the whip-hand that larger London firms deployed in previous years; Herbies doesn’t have the leverage to force anything through and it knows it.

Another problem is how the alliance firms get on. Gleiss has generally proved easy enough to rub along with but Stibbe has, in comparison, divided opinions at both its UK and German allies. Cuatrecasas fitting into all this – and there is a contingent yet to be won over by Herbert Smith’s charms – will further complicate the equation. And while some partners talks of close co-operation between the three formal allies, others claim that there is little cross-over or communication within the alliance.

There’s no easy way to see this one panning out. But Herbert Smith should take a cold, hard look at what the alliance has achieved. It has certainly pumped up Herbies’ M&A league rankings, a fact Slaughters partners are still prone to complain about. But that is not sufficient basis to maintain such a restrictive alliance - it has to fundamentally deliver.

Personally, I have always been mystified as to the basis for claims to Gleiss’s top-tier pedigree. Yet many Herbert Smith partners appear to genuinely rate the firm and Gleiss has maintained a decent reputation on Wall Street.

But perhaps the most worrying issue for Herbert Smith is that the alliance appears to have progressed so little in recent years – while larger rivals have had time to polish their European networks.

The firm has two options. If it is seriously committed to its emerging markets push – and there is a good case for that strategy – it should maintain the alliance, even as a sticking plaster solution.

But if the firm is really concerned about competing in Europe’s deal markets and cannot get some substantial moves towards closer co-operation from its allies soon, Herbert Smith should give serious thought to returning to full independence.

alex.novarese@legalweek.com