Business | Law firms
The bigger the better?
The merger between DLA and Piper Rudnick creates a new global giant
Dec 9th 2004 |
ONE of Britain's mid-market stars, DLA, is to join up with Piper Rudnick, a medium-sized American firm, to form what will be the world's third-biggest law firm in terms of both lawyers—2,700—and revenue based on returns for the first half of 2004. Next year, it hopes to grab the number two slot by revenue, with a projected turnover of $1.5 billion. It will be the only firm with more than 1,000 lawyers on each side of the Atlantic.
Too confident? Some would say so, seeing how Clifford Chance is still struggling nearly five years after its marriage to New York's Rogers & Wells in 2000. Although still the world's number one by lawyers and revenue, London's "magic-circle" firm has lost 84 partners in the past year (out of a current total of 582), half in America—including many of its star "rain-makers". Over the past five years, 271 partners have left, including 80 in America.
Clifford Chance's "lockstep" system of remuneration, espoused by most English firms, seems to have been the main stumbling block to a happier union. Under this, profits are shared among partners according to a sliding scale of seniority. But like most American firms, Rogers & Wells was used to an "eat-what-you-kill" system by which profits are shared according to how much business each partner brings in.
Hoping to keep its American partners happy, Clifford Chance cobbled together what was supposed to be a short-term compromise allowing stars in its main American offices to be paid above the top lockstep rate. But with a top lockstep rate for the past fiscal year of under $1m, compared with over $3m that is paid to top rain-makers by some American firms, Clifford Chance has struggled to compete. Meanwhile, the compromise continues—irritating the firm's English partners.
DLA, Piper Rudnick and Gray Cary, a small Silicon Valley firm that joined forces with Piper Rudnick two months ago, hope to avoid at least this problem, all having similar merit-based compensation. But for all their careful preparations—they say their marriage was two years in the making—there are bound to be other sources of tension, not least over differences in culture. This has been the cause of many an aborted union over the past few years.
Three other British magic-circle firms—Linklaters, Allen & Overy and Freshfields Bruckhaus Deringer—have contemplated similar moves, but failed to find a suitable American partner. New York's top firms, most of them small and hugely profitable, are evidently happier continuing to exploit the world's biggest and richest legal market on their own.
But lesser-known firms, particularly in America, are increasingly exploring the possibility of foreign mergers in order to establish global reach. Like DLA and Piper Rudnick, they reckon that, as their corporate clients become increasingly active across national borders, they will prefer to deal with a single law firm that can offer them a broad range of legal services locally, nationally and internationally. So despite the pain, more attempts at cross-border mergers by law firms are probably on the way.
This article appeared in the Business section of the print edition under the headline "The bigger the better?"
Business December 11th 2004
Divorce Italian-style
Racing certainty
Champ or chump?
Scholars for dollars
The wine war
CEOs and their Indian rope trick
Monopoly? It all depends whose
From the December 11th 2004 edition