Despite years of struggling to be taken seriously across the pond, Britain’s so-called Magic Circle of elite law firms refuse to give up their American dream.
Clifford Chance, Linklaters and Freshfields Bruckhaus Deringer are going full throttle with expansion efforts in America’s lucrative legal market by aggressively poaching rainmakers to fill burgeoning offices in New York and beyond.
Linklaters senior partner Paul Lewis last week even suggested that the firm is open to a transatlantic merger, just months after Magic Circle member Allen & Overy and New York’s Shearman & Sterling combined to create A&O Shearman.
It raises questions about the future of the Magic Circle’s homebody and remaining member: Slaughter and May (S&M).
It’s been 20 years since S&M closed its New York base. The 135-year-old firm has offices in only four cities: London, Brussels, Beijing and Hong Kong.
By contrast, its Magic Circle rivals have competed for world domination by opening as many offices in different countries as possible.
Critics now argue that S&M’s lacklustre presence beyond the UK jeopardises its long-term growth amid increasing competition from US law firms in London.
Christopher Clark, director at legal recruiter Definitum Search, says: “If you can’t offer a full service internationally in the US, in the Middle East – which is a big growth point – in Asia and across Europe, then you’re limiting your capacity to monetise your clients.”
S&M has instead spent decades building a sprawling global network of independent law firms in key jurisdictions used by members to pass lucrative advisory work to one another.
This allowed the City stalwart to maintain its US ties by receiving work referrals from New York’s so-called white-shoe law firms which lacked English law expertise.
However, the invasion of US firms including Davis Polk, Paul Weiss and Cravath Swaine & Moore into London puts this mutually beneficial relationship into question.
City sources say that Paul Weiss and Davis Polk are likely to end their reliance on S&M, having spent millions of pounds poaching top UK partners to fill their London offices.
It means these US law firms will pocket fees from work which would have previously been referred to S&M.
S&M sympathisers have downplayed the threat. Many of London’s US newcomers are not one-stop-shops, lacking S&M’s expertise in disputes, investigations and competition law.
However, the rapid growth of foreign law firms on British soil also exposes a crucial chink in S&M’s full-service offering.
US law firms have spent the past decade capitalising on the rise of London’s private equity scene, where investors fuelled by ultra-cheap credit embarked on buying sprees.
Private equity veterans claim that S&M is rarely the top choice on high-end deals, unlike other Magic Circle members. One even claimed that S&M traditionally saw the work as “rather grubby” done by “lesser mortals”.
Others defend S&M’s deliberate decision to focus on mid-market players and highlight its work with US private equity giant Blackstone.
S&M is instead famed for being London’s top dealmaker for listed companies, acting for more FTSE constituents than any other law firm.
This year alone, the firm was hired to work on Barratt’s £2.5bn takeover of rival housebuilder Redrow, Nationwide’s £2.9bn acquisition of Virgin Money and International Paper’s £5.8bn merger with packing company DS Smith.
However, many argue that London’s stock market decline, accelerated by a surge of private equity buyouts, now leaves S&M vulnerable.
“They’re very focused on UK plc. As less things in the UK go down as companies are taken private and private equity becomes even bigger, ultimately their ability to grow and continue promoting talent will diminish,” claims one US law firm leader.
With S&M at risk of being left behind by its Magic Circle rivals, critics now more than ever question its claim to the coveted title.
However, the real challenge is finding a S&M lawyer who cares either way given that none of the firms seemingly want to be club members anymore.
Instead, the quartet are desperate to be seen as “global elite” firms competing with behemoths Kirkland & Ellis and Latham & Watkins, the world’s two largest law firms by revenue.
Georgia Dawson, senior partner of Freshfields, last year signalled the firm’s desire to break away from the Magic Circle brand.
She told Financial News: “I genuinely struggle to understand or to have a strong view on exactly how the labelling should be applied. I just think for many it connotes something that is London-centric, which I don’t know is entirely appropriate anymore.”
Charlie Harvey, a former S&M lawyer and founder of legal headhunter Harvey and Partners, says the moniker’s meaning can be lost in translation.
“In the US, if someone was referred to as a ‘Magic Circle’, that could look a little bit almost quaint and small and British,” he says. “Whereas actually they just want to seem powerful and international with the same reach as the other firms.”
While other members grapple with an identity crisis, S&M appears confident in its own skin.
Although previously dubbed the “Slaughter House” by overworked associates, the law firm enjoys unwavering loyalty from partners who unlike their Magic Circle peers are not easily bought by US competitors.
Driving this devotion is its highly profitable business model. Without the enormous overheads of managing dozens of offices overseas, S&M’s lean operation allows more profits to be shared among partners.
Equity partners on average are rumoured to earn upwards of £3m each, about a million more than its Magic Circle rivals. S&M does not comment on its finances.
Such secrecy is on brand for the blue-blooded law firm, which famously once frowned on lawyers wearing brown shoes and has a partners’ dining room complete with pigeon holes and personal napkins.
“It’s like Willy Wonka’s chocolate factory, no one really understands how it works,” says one former associate.
S&M also uses a strict lockstep model, where profit payouts are based on how long lawyers have been partners at the firm rather than the business they bring in.
“They’ve stayed true to who they are. They haven’t been sucked into completely overhauling their partnership structure to guard against US departures,” said one City recruiter.
How exactly S&M sees itself will be clear if it decides to match Magic Circle pay rises to newly qualified lawyers from £125,000 to £150,000 this autumn.
“This is a moment for Slaughters to say, ‘we are still Magic circle’ or ‘we’re pursuing a different business model’,” says Harvey.
Slaughter and May was contacted for comment.
Source Agencies
