Editors' Blog

US firms in London – time to forget Sonnenschein

Posted 14/07/2008 by Alex Novarese

Being in its own way such a tight community, a few isolated episodes can have an impact for a very long time within the global-yet-narrow confines of the commercial legal profession. As such, the experiences of just two US law firms nearly a decade ago - Chicago’s Sonnenschein Nath & Rosenthal and Weil Gotshal & Manges - still to a certain extent define the image of American firms in London.

For those with short memories, Sonnenschein ‘enjoyed’ possibly its only moment of substantial influence on the global legal market in 2000 when it closed its 11-lawyer City arm. Almost as dramatic, the very public spectacle of internal wrangling between Weil Gotshal’s London arm and New York HQ, had a similar impact around the same time.

The response of many City lawyers was that this was proof of the flaky nature of the UK ambitions of America’s top law firms despite five years of substantive investment by a host of major US firms. On one level this was a truism with some truth; compared to the bet-the-business commitment to cross-border expansion seen at the time by London’s leading law firms, US ambitions were timid indeed and American lawyers were grudging globalisers at best.

Yet at heart, the conclusions drawn from such early reverses were wide of the mark and ultimately misleading. Sonnenschein turned out to be a practice ill-prepared for international expansion and its fate proved indicative of very little for the wider market (ironically, the firm publicly spoke of its hopes to relaunch in London just two years after pulling the plug). The same could not be said for Weil Gotshal and the 2000 finance exodus led by Maurice Allen did underline one issue that has continued to define US firms’ efforts: the challenge for London arms of winning enough support for heavy investment in a market in which many in the US have little understanding of.

Yet the predicted retrenchment never materialised, not even in the M&A drought of 2003, a period during which American firms, if anything, upped their City commitments.

So considering the history, perhaps it is worth taking US law firms at their word when they pledge to maintain investment in the Square Mile, as they did in such a wide majority in Legal Week’s US law firms in London survey.

The survey not only found no evidence of scaling back - nearly two thirds of the 51 respondents said they were aiming to expand their practice by up to 25%. Only four firms – Mayer Brown, Reed Smith, Weil Gotshal and Simpson Thacher & Bartlett – said that headcount would likely rise by 10% over the next year.

Of course, such declarations have to be treated with caution. Since such surveys emerged a few years back, US firms have habitually overestimated their ability to grow. Largely this has been due to overestimating their ability to recruit and the distance that their brand will carry them abroad; the point when hard-bitten London lawyers spoke in hushed reverence of their New York counterparts has long gone.

It is also true that with the dollar in a prolonged slump, the US economy facing challenging times and top 20 UK law firms having improved their profitability, this breed will find it harder to make the ground than they did between 2003 and 2005.

But times have changed. Since the last slump, New York has seen its position as the world’s leading finance centre come under assault from London and the rise of new economic powers has shifted the centre of gravity of the world’s economy a little further away from the utter US dominance of the 1990s. Indeed, that now decade looks like the high water-mark for America’s overwhelming economic power. Likewise, strides made in recent years by the London law firms, poster boys for a different kind of internationalism, has had some impact.

The bottom line is that attitudes have shifted in the US profession, ushering in a more international perspective. And while surveys can be taken with a pinch of salt, the string of US law firms this year that have upped their pay bands for City lawyers – despite arguably facing the most uncertain domestic conditions since the early 1990s - speaks of this renewed commitment.

Barring some surprise revival in the global economy, it is going to be a bumpy ride when so many US firms are still struggling for critical mass. Some will see their practices challenged and it would not be that surprising if some weaker performers go the way of Sonnenschein eight years ago. But, as a breed, they’re here to stay, and they’ve had more than a decade to learn from their mistakes.

alex.novarese@legalweek.com