US vs UK Legal Market
- Thread starter Lawgirlxo
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- Feb 17, 2018
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Super interesting question that I have tried to investigate myself on several occasions.
I found an amazing article released on LegalBusiness which discussed this (https://www.legalbusiness.co.uk/blogs/guest-post-the-magic-circle-is-doomed-heres-why/).
Taking a look at all the MCs except for Slaughter & May, there are a variety of factors as to why the firms are struggling to break into New York's legal market. Clifford Chance (CC) tried in 1999, merging with PE speciality firm Roger & Wells, resulting in huge management issues and breakdowns in communication between the two main offices in London and New York (https://www.independent.co.uk/news/uk/crime/lawyers-divided-by-a-common-language-7907434.html).
Below are a few reasons as to why UK firms struggle as aptly put in that first article link:
(1) Profitability
NY-based firms or the traditional 'White Shoe' firms are more profitable on average. This article quantifies this well https://adamsmithesq.com/2014/08/the-elite-face-off-ny-vs-london/4/ (keep in mind it's from 2014 so a bit outdated but still relevant).
(2) Salary - which is tied to profitability
I think this summer is a good example as to one of the main reasons why UK firms in general will struggle in the US market. With the recent massive NQ/TC salary increases from Milbank, Akin Gump, Latham & Watkins, Vinson & Elkins and Dechert (there are more than just these firms) this summer in London, we can see that US firms are willing to generously remunerate when compared to its UK counterparts.
Also, many star partners at the New York elite have bespoke remuneration packages with the firms. UK firms would struggle to poach partners from these firms and match the salaries/bonus structures being offered.
(3) US Litigation
This is a new issue that has cropped up this past decade. The US Tort industry is growing steadily every year, pushing in excess of $300bn yearly. This litigation alone, not mentioning highly niche and lucrative specialities such as patent litigation and labor litigation, account for 30% of major US firm income, a number which is half that for UK firms.
Despite the dominance of the English bar, UK firms entering the US would need to bolster expertise in these litigious practices to compete. This is tied to the two prior points of salary (as UK firms would need to recruit US associates/partners to develop these practice areas, which is also dependent on profitability).
And then vice-versa, the two points reign true as to why US firms conversely have been successful in the London Legal market. Interested to see what others have to say about what else separates these two types of firms in the different legal markets.
I found an amazing article released on LegalBusiness which discussed this (https://www.legalbusiness.co.uk/blogs/guest-post-the-magic-circle-is-doomed-heres-why/).
Taking a look at all the MCs except for Slaughter & May, there are a variety of factors as to why the firms are struggling to break into New York's legal market. Clifford Chance (CC) tried in 1999, merging with PE speciality firm Roger & Wells, resulting in huge management issues and breakdowns in communication between the two main offices in London and New York (https://www.independent.co.uk/news/uk/crime/lawyers-divided-by-a-common-language-7907434.html).
Below are a few reasons as to why UK firms struggle as aptly put in that first article link:
(1) Profitability
NY-based firms or the traditional 'White Shoe' firms are more profitable on average. This article quantifies this well https://adamsmithesq.com/2014/08/the-elite-face-off-ny-vs-london/4/ (keep in mind it's from 2014 so a bit outdated but still relevant).
(2) Salary - which is tied to profitability
I think this summer is a good example as to one of the main reasons why UK firms in general will struggle in the US market. With the recent massive NQ/TC salary increases from Milbank, Akin Gump, Latham & Watkins, Vinson & Elkins and Dechert (there are more than just these firms) this summer in London, we can see that US firms are willing to generously remunerate when compared to its UK counterparts.
Also, many star partners at the New York elite have bespoke remuneration packages with the firms. UK firms would struggle to poach partners from these firms and match the salaries/bonus structures being offered.
(3) US Litigation
This is a new issue that has cropped up this past decade. The US Tort industry is growing steadily every year, pushing in excess of $300bn yearly. This litigation alone, not mentioning highly niche and lucrative specialities such as patent litigation and labor litigation, account for 30% of major US firm income, a number which is half that for UK firms.
Despite the dominance of the English bar, UK firms entering the US would need to bolster expertise in these litigious practices to compete. This is tied to the two prior points of salary (as UK firms would need to recruit US associates/partners to develop these practice areas, which is also dependent on profitability).
And then vice-versa, the two points reign true as to why US firms conversely have been successful in the London Legal market. Interested to see what others have to say about what else separates these two types of firms in the different legal markets.
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- Feb 17, 2018
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- 8,577
Some thoughts:
It was/is arguably easier to crack the London market than crack the US (NY) market. When US law firms first came to London, it was because their clients were expanding internationally. They used these existing relationships – with US corporations and Wall Street banks – to anchor their practice in London. These firms concentrated on a small number of practice areas, catering to their US clients, which justified the huge costs and challenges of entering a competitive financial market.
Meanwhile, the magic circle law firms are trying to build a presence in the world's most competitive market for legal services. US law firms will be first pick for inbound deals or for overseas clients requiring US expertise and US law (e.g. leveraged finance). The magic circle have struggled to dent these longstanding relationships or differentiate their practices from US law firms when it comes to high ticket deals. Some have done better in niche areas, such as Clyde & Co's insurance practice, but in corporate and finance the New York elite reigns.
US law firms also have the benefit of the world’s most litigious market. For many law firms, litigation contributes as much as 50% to total revenue. Kirkland & Ellis, for example, has not only stormed the London market in private equity, but it also happens to be the world's biggest litigation firm. The global financial crisis also led to a boom in regulatory and investigations work, which meant huge increases in revenue for many US law firms. UK law firms don't have this opportunity. Litigation-derived revenue is far smaller. Although, some law firms, like Freshfields, have tried to enter the US market by focusing on regulatory and investigations work.
The remuneration system for UK law firms is another big challenge. Most operate on a lockstep model, where partners are paid according to their seniority at the law firm. This limits their ability to adjust their pay and therefore attract high performing partners in US. And, even if they tweak their lockstep system, which they have been trying to do, they risk unsettling their existing partners. The top UK law firms also generate far less profits per equity partner (PEP) compared to the New York elite. PEP is a metric that matters when you are looking to attract star partners.
It was/is arguably easier to crack the London market than crack the US (NY) market. When US law firms first came to London, it was because their clients were expanding internationally. They used these existing relationships – with US corporations and Wall Street banks – to anchor their practice in London. These firms concentrated on a small number of practice areas, catering to their US clients, which justified the huge costs and challenges of entering a competitive financial market.
Meanwhile, the magic circle law firms are trying to build a presence in the world's most competitive market for legal services. US law firms will be first pick for inbound deals or for overseas clients requiring US expertise and US law (e.g. leveraged finance). The magic circle have struggled to dent these longstanding relationships or differentiate their practices from US law firms when it comes to high ticket deals. Some have done better in niche areas, such as Clyde & Co's insurance practice, but in corporate and finance the New York elite reigns.
US law firms also have the benefit of the world’s most litigious market. For many law firms, litigation contributes as much as 50% to total revenue. Kirkland & Ellis, for example, has not only stormed the London market in private equity, but it also happens to be the world's biggest litigation firm. The global financial crisis also led to a boom in regulatory and investigations work, which meant huge increases in revenue for many US law firms. UK law firms don't have this opportunity. Litigation-derived revenue is far smaller. Although, some law firms, like Freshfields, have tried to enter the US market by focusing on regulatory and investigations work.
The remuneration system for UK law firms is another big challenge. Most operate on a lockstep model, where partners are paid according to their seniority at the law firm. This limits their ability to adjust their pay and therefore attract high performing partners in US. And, even if they tweak their lockstep system, which they have been trying to do, they risk unsettling their existing partners. The top UK law firms also generate far less profits per equity partner (PEP) compared to the New York elite. PEP is a metric that matters when you are looking to attract star partners.
- Feb 17, 2018
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Ahh yes I read that first article, it had some interesting bits to it!
Thank you for your response too - very useful
Thank you for this!
Also, I remember one of my conversations with a partner (at a silver circle firm). I asked him what his opinion was on the US firms entering the UK market. He said he didn't see any of them as a threat because most of them are not fully integrated, and a lot of them specialise in 1/2/3 practices.
What's your take on this (if you have any?) Having worked at Weil, do you see it (or any other US firm) becoming a threat to UK firms?
- Feb 17, 2018
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It depends on the practice area we are talking about, but some of the elite US firms are already a huge threat to UK firms. Especially in the high-end M&A/PE/finance space.
It is true that many of the US firms focus on a small number of core practice areas. But they have especially made strides in the last couple of years. Was this a conversation you had recently?
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