#19 The Legal Profession This Week: Lockstep and China’s Politicised Legal Market​


By Dheepa​

Changes to the Magic Circle’s Lockstep System

“These were all measures aimed at addressing the threat of US firms,” said an inside source to The Lawyer. The measures in question are Clifford Chance’s new lockstep model. There are three new elements being introduced. Firstly, its new model will allow the highest performing partners to earn at least $3.5m along with an additional bonus. The firm will also begin to use the dollar currency for its equity partners to ensure the firm’s compensation aligns more closely with US firms in the city. Finally, there have also been changes that allow quicker promotion of younger lawyers in the firm (The Lawyer). These drastic changes once again signify the growing battle between the Magic Circle and US firms for top talent in the market. Freshfields and Allen & Overy have also risen to the challenge with similar changes made to its lockstep model recently.

China’s Politicised Legal Market

The Lawyer reports that strict adherence to China’s ruling party is key for a successful organisation. The ruling party requires all public and private companies to meet the government’s requirements on establishing party branches within the firm. The leader of the party members within a firm, the party secretary, is typically as influential in the firm’s strategic decision making as the managing partner.

While global law firms with associate or partnership offices may be uncomfortable with the extent of political influence on the operation of the firm, it is a necessary part of cross border work with China. For example, the senior partner and party secretary of Dentons' China branch also serves as the firm’s global vice chair. According to The Lawyer, around 38 per cent of the firm’s 8,200 staff in China are party members.

UK counterparts of these firms will have to be extremely cautious of any statements made in connection with the Chinese ruling party. It would be all too easy for the Chinese government to recreate its recent sanctions placed on Essex Court, thereby permanently hampering a law firm’s reputation within the Chinese legal market.

‘Business as usual’ – the notable deals and cases which went ahead this week:

Several City firms are advising on one of the most heated takeover bids this year - the acquisition of supermarket giant Morrisons. According to The Lawyer, just two weeks ago the supermarket turned down a £5.5 billion offer from private equity firm Clayton, Dubilier & Rice citing that the offer “significantly undervalued” the business. This week however, a consortium of investors led by US private equity firm Fortress has upped the ante with a £6.3 billion bid. Slaughter and May (Slaughters) are long-standing advisors to Fortress and have previously acted on its acquisition of Gannett, the company behind USA Today. Ashurst are advising Morrisons on this bid and on a rumoured additional bid from Apollo Global Management. Slaughters has extensive experience in the area, having also advised Walmart on its sale of Asda last year. Herbert Smith Freehills (HSF) are advising the banks, HSBC and RBC (The Lawyer).

Linklaters are advising the underwriters on Mishcon de Reya’s (Mishcon) initial public offering. The magic circle firm is reportedly advising JP Morgan alongside Travers Smith’s role in advising Mishcon (The Lawyer).