The latest chapter in the independent firms’ story sees them, for the most part, flourishing across Europe and using techniques learnt from their global counterparts to satisfy clients’ higher expectations.
The sensational collapse in May 2006 of Spain’s bastion of independence, Mullerat, occurred at a speed even France’s Rambaud Martel in Autumn 2005 could not match. Following a rapid series of partner moves to rival Spanish firms, Mullerat and its founder, the respected Ramon Mullerat, were effectively abandoned in just a matter of weeks. Much to the surprise of market watchers, the pro-independence advocate Mr Mullerat has now joined KPMG. But it should be stressed that despite widespread shock at the firm’s sudden collapse, unlike a few years ago, such break-ups are now an exception to the overall pattern of improvement among independent firms. Most say they are benefiting from better management and rising to the challenges of fierce local competition; they have learnt many lessons from the global firms’ ‘institutional’ methods and are applying their management practices to strengthen their own market position.
The last 12 months have also shown that the European legal market is undoubtedly very healthy in terms of work, as witnessed by a series of eye-catching, if not controversial, corporate deals from Mittal/Arcelor to GdF/Suez to Eon AG/Endesa. In addition, there have been swelling capital markets in most financial centres, growth in private finance initiatives (PFIs), such as in Poland and Portugal, and privatisations in France. Law firms also report an up-tick in recruitment and organic growth.
With a vibrant market there is a renewed focus on improving the running of legal practices, not just for the sake of it, but to ensure success and a better end-product for clients. A recent example of modernisation can be seen in top Portuguese firm PLMJ which has moved this year to ease its founders out of fee-earning (see last month’s cover story, ‘Long live the king’). While JeantetAssociés has just trimmed its management committee from six to four in a bid to speed up decision making.
This buoyancy also creates more competition for the best work. Manuel Barrocas of Portugal’s Barrocas Sarmento Neves says: “The legal market in Portugal and in particular Lisbon has seen significant and positive developments over the last five or six years and competition is now fiercer than it ever was before.” Things have certainly changed in Portugal. Spain’s Uría Menéndez, Garrigues and Cuatrecasas have all forged links with Portuguese firms or merged locally in recent years. “We have also seen an increase in the establishment of Spanish law firms in Lisbon, with the arrival of more expected in the future. This will require Portuguese players to respond to the challenge of new competition,” Mr Barrocas says. It is interesting to note that the key competitors now in the Portuguese market are not in fact global firms, but other independents, in this case Spanish firms.
Edith Hlawati, founding partner of Cerha Hempel Spiegelfield Hlawati, says that in Austria the battle is between the local outfits, not with the globals. In fact recently, international entrants have been stepping away from thinking about taking over Austrian firms. At the end of 2005 Lovells even cut its alliance links to long-term ally Mondl Trummer Thomas & Partners. Mrs Hlawati says the issue now is how to compete locally by offering a legal product that is of an international standard. Clients today expect much more from their lawyers. “Twenty years ago you could have a client for 20 years. However, at the high end of the market, life has got tougher. The clients have changed and we have to adapt with them: that is a fact,” she says, warning, “Those firms that don’t move too will fall back.”
This is borne out by major European blue chips that function across borders, like Société Générale and ING, increasingly relying on panels for legal advice across the continent over the last 18 months. This puts added pressure on law firms to develop pan-European, and quite often English or even New York-style, deal and documentation standards. For example, Stibbe’s Belgian managing partner Olivier Clevenbergh says that a Belgian contract today looks more like an English contract, simply because of the influence of UK firms in Europe. This is despite just a handful of London practices opening new offices in Western Europe in the last year, like Bird & Bird in the secondary market of Lyon. The fact is large clients now expect a certain standard of product which is today heavily influenced by what UK and US firms offer, even if they have no fixed presence in that particular country. Mr Clevenbergh admits: “In the past UK and US firms could claim to be the ones capable of offering the best service here. Belgian firms had good lawyers, but were not organised.” Yet he continues that things have changed in the last couple of years and independents are now modernising fast, which in turn creates great competition between the other independents to catch up.
José Miguel Júdice, founding partner of top Portuguese firm PLMJ, says that it is essential for local concerns to move with the times and match global levels of expertise and practice management. He says firms could lose their clients “if they fail to adapt, modernise and bring new talent to the partnerships”. However Dr Ralf Wojtek, a partner of Germany’s Heuking Kuhn Luer Wojtek, adds that the global firms also have made some mistakes, namely high fees: “In the past couple of years the position of independent players has improved in Germany. Clients are looking for law firms with qualifications similar to global outfits but which are more cost efficient.” Guido Testa, partner at Vita Samory, Fabbrini e Associati, says: “Clearly, it is not possible to compete with large international firms in terms of quantity. To be successful, an independent player must offer top-quality legal services, a personalised approach and innovative solutions.”
Baier Lambert, which now changed its name to Baier Böhm, recently ceased to be a member of Eversheds International because the partners felt that it was losing referrals by not being perceived as independent. “Being no longer bound by exclusivity gives us the freedom to work with other leading firms in their own jurisdictions which have deliberately decided to stay independent,” says Dr Erhard Böhm. Meanwhile, for partner Robert Furter of Swiss practice Pestalozzi Lachenal Patry, the globals are in fact essential allies. He says the firm gets plenty of work from the UK and US outfits, even if they do try to run Swiss deals out of their London offices. “We still get our fair share. It’s a co-existence with the global firms that we don’t mind that much,” says Mr Furter. Similarly, Andrew Kingston (an American founding partner of Romanian law firm Nestor Nestor Diculescu Kingston Petersen) points out that the last ten years have transformed the way lawyers work together: “Why should a global firm incur the expense of far-flung offices when it can team up with the best local players one project at a time? And why should a reputable local firm indenture itself to a single global outfit? Thanks to technology, we are all global and we are all local.”
This pattern is also seen in Austria and other markets where there are few UK or US players in residence. It would appear the charge into new locations by globals has truly slowed. For example, mid-size UK firm Collyer-Bristow opened a specialist sports practice in Geneva at the start of 2005, but it has had little impact and the move has not been followed by other firms. This undermines the cliché that Europe has been ‘taken over by global firms’. In fact out of the EU’s main national markets, only one today can be said to have been ‘taken over’ and that is Germany. And even that example contains more and more breakaways forming new firms, such as Heymann & Partner or Rittstieg, that offer major clients a quality service. While, as Mr Wojtek stresses, the surviving older firms are also seeing a resurgence.
Peder Hammarskiold of Sweden’s Hammarskiold & Partners says: “The tide has turned now.” It is true that there have been no aggressive mergers between UK and continental firms in 2006, and that London’s elite has been more focused in recent months on defending itself against the cherry-picking of its best partners by New York firms, (such as that of Sullivan & Cromwell’s poaching of Allen & Overy English law M&A partner Vanessa Blackmore); while in another far from expansive step, London’s Slaughter and May gave up its French practice to ally Bredin Prat.
However, the truth may be that the tide has turned for the moment. Partner Philip Haas of Niederer Kraft & Frey in Switzerland warns independents not to think the war is over totally. He says that if the global firms came in force again to his country there could be a rapid series of mergers: “People want to stay independeznt, but if one outfit joins a global firm then the others in the market would all reassess their position.” Most Swiss lawyers also say that one reason for globals not to try and take over local firms is that they do not need to – the standard is already very high and clients are happy with the status quo. In effect, quality has saved Swiss firms from takeover. If one looks at Eastern European countries such as Poland or the Czech Republic, they have been inundated with US and UK firms precisely because, apart from a few top outfits, clients felt they wanted a trusted brand name on the ground.
Like many managers, senior partner Gérard Tavernier of Gide Loyrette Nouel attributes his firm’s success through the turbulent last five years to one key trait: “Quality is the key word. It is absolutely crucial.” To this he adds that “speed and the harmonisation of the legal work produced for clients” are also essential. In effect, keeping quality high and management tight not only ensures profits, but holds the firm together and preserves it as a trusted referral partner for major deals. If one looks at the players advising on deals like GdF’s multi-billion euro merger with Suez, there are today mostly a mix of US and UK firms advising, but they still include some of the best French-based firms such as Gide and Bredin Prat. This is because these two have kept meeting expectations from clients in the top international M&A league.
Martin Brodey, a partner at Austrian firm Dorda Brugger Jordis, agrees that the world is changing fast in terms of client expectations. He stresses that clients need a level of service that was unknown just a few years ago and warns: “People say that speed kills, but clients are more anxious now and they want their answer immediately. If you wait two days to give a response then you are out of it.” Rino Caiazzo, partner at Studio Legale Ughi e Nunziante, agrees: “The level of service that clients expect nowadays is much higher than it was some years ago. A single lawyer cannot meet the expectations – a team is essential. The competition brought by the Anglo-Saxon firms was good since it obliged local players to think in a new way and get better organised.” Meanwhile, partner Christian Herbst at Austrian firm Schönherr Rechtanswalte underscores that the key way to attract clients and high-end work is to be pro-active: “We must continue to be at the forefront of legal developments by having partners develop products or provide solutions which are innovative in the Austrian market and drive the development of law.”
Aside from better management and an enhanced end product, all the firms stressed they were more focused on recruiting than before. They highlighted the growing need for associates with LLMs from UK or US universities, or associates who had worked at UK or US firms. As seen by the hire this May by France’s Bredin Prat of a senior New York associate and the entry to the partnership of an English former Slaughter and May partner, the independents are recognising the need to build up Anglo-Saxon experience even if they stay free from merger.
In Italy, Luigi Macchi di Cellere of Studio Legale Macchi di Cellere Gangemi says that the search for more experienced associates is getting tougher there too and they are also becoming more expensive. Ironically, he adds, legal practices now wield fewer lawyers in major deals: “On a big M&A transaction firms would use 20 people, but it’s shrunk now. The idea is not to have so many practitioners but to have ones that are more experienced.” Per Berglof of Sweden’s Delphi & Co reports that with this year’s up-tick in work there is new pressure to raise associate salaries yet further: “We are all looking for lawyers – but salaries were too high in the 1990s and I trust firms have learnt a lesson from this.” He adds that he hopes practices in Sweden will refuse to raise pay rates for associates even if there is another boom in work like there was in 1999.
In the meantime Nicolas Piérard of Borel & Barbey says that the firm has boosted trainee salaries by 20 per cent this year: “This is because Swiss outfits in Geneva are merging with Zurich firms where they pay a higher rate and there has been local wage inflation because of this.” And Bär & Karrer Zürich-based partner Eric Stupp adds: “Over the last six months recruiting has become more difficult.” He explains this is because the large corporations and banks like UBS have started hiring lawyers again and many of the best people now go in-house. Partner Heinz Schaerer of Swiss firm Homburger says: “Recruitment has always been a challenge for us because we like to maintain high standards. Recently we have taken advantage of opportunities to hire lawyers qualified in other countries, such as the US and Germany.” Although Mr Schaerer adds that these associates work in competition and arbitration, fields that do not need them to be Swiss-qualified.
One area where independents are not finding it hard is finding other good firms to work with. As De Pardieu Brocas Maffei partner Charles-Henri de Pardieu puts it: “The issue is more finding at the right time the team, or teams, which we are accustomed to work with. We solved this problem by – and this is not innovative – having a regular relationship with three or four firms in each jurisdiction.” Others such as Delphi, meanwhile, use a global referral network such as the World Services Group, which charges about €10,000 per year to stay in the club and offers vetted referral firms the world over. But not all players are convinced by this: one Austrian concern made the oft-used complaint that referral clubs force firms to give work to other members “not because they are the best choice, but because they are hoping to receive work back in return”. However, the general feeling was that to be independent meant giving yourself the best possible selection of referral partners. Manuel de Andrade Neves of Portugal’s Abreu, Cardigos & Associados says: “We believe that independence is one of our secret ingredients, since it has allowed us to work with a wide variety of other international law firms in a multiplicity of legal matters and operations.”
Positive sign
Another positive sign among independents is their growth, both abroad and in their home market. A good example of home turf expansion is Spain’s Gómez-Acebo & Pombo. Manuel Martín, managing partner, comments: “One of the most highly appreciated assets of the firm is our network of offices in the leading economic and decision-making centres of Spain.” He adds that it now has posts in Madrid, Barcelona, Bilbao, Valencia, Seville, Vigo, Malaga, and Las Palmas de Gran Canaria. This effort to develop national coverage is also seen in Portugal which, although small, is a country with two main commercial centres and has witnessed a number of firms launching extra offices. Partner Luís Branco of Portugal’s Morais Leitão, Galvão Teles, Soares da Silva & Associados says that having multiple locations is vital: “We believe that it is important to have geographical coverage and to have offices in Lisbon and Oporto where 90 per cent of the main legal activity takes place.” The firm has made good on its belief this March by taking a team in Oporto to build a truly national practice.
Taking a leaf out of the globals’ book, some players also stressed the value of opening in under-developed legal markets. For example Portuguese firms have pioneered offices in oil-rich Angola. While Austrians and Italians such as Studio Legale Sutti – which opened in Croatia last summer – have pioneered the Balkans. Horst Ebhardt, senior partner of Austria’s Wolf Theiss & Partner, puts it: “Expansion through new offices does give us the chance to win new clients. We have in the past won a good number of top clients by working in ‘exotic’ jurisdictions like Albania or Bosnia too.”
But not all independents are convinced about the expansion strategy. Enrico Friz, at Swiss firm Walder Wyss & Partners, says: “We are too modest to think that we can offer added value to our clients by opening in other countries.” Many French and Swedish outfits are also very wary about opening offices abroad – also perhaps because they are profitable enough as they are.
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