That challenge is clear in Hong Kong, the one office where the Mallesons and King & Wood sides have actually merged [see "King & Wood Mallesons in Brief"]. The firm's senior management sees the Asian financial capital as a critical market, as evidenced by the decision to station Fuller there. But other major players in the market say they don't see much of a threat so far. Though King & Wood Mallesons is frequently mainland China counsel on big deals, Matthew Bersani, Asia managing partner for Shearman & Sterling, says the Hong Kong team has not been competitive on major capital markets assignments. "We frankly never run into them," he says.
Beijing-based capital markets partner Jin Qingjun acknowledges that King & Wood Mallesons has had a hard time capturing big Hong Kong securities deals, in no small part because U.S. firms like Shearman, Davis Polk & Wardwell, and Simpson Thacher & Bartlett have all launched Hong Kong law practices in the past few years. The largest Hong Kong initial public offerings by Chinese companies are almost always led by U.S. lawyers because global investors demand a prospectus that meets Securities and Exchange Commission disclosure standards. "There's usually Chinese, Hong Kong, and U.S. law," says Jin. "We can do the first two, but the client usually picks based on the last two."
Fuller concedes that challenging the elite Wall Street firms for high-profile capital markets work is probably out of reach in the near future. "Purely as a business proposition, if we added a U.S. securities law capability to our Hong Kong office, could we credibly generate the business to justify that?" he says. "It's not a simple matter of recruiting one partner and going to investment banks and saying, 'Now we can do your U.S. law work.' " Fuller does think that the firm can more realistically upgrade its English law practice to a competitive level. It wouldn't be starting from zero; many Aussie lawyers hold U.K. qualifications. Though U.S. law dominates in major securities transactions, Fuller notes that English law is more common globally in commercial transactions, including mergers and acquisitions.
Still, expanding either its U.S. or U.K. law capabilities presents special challenges for an Asian firm. International committee member Handel Lee says a major fear among the firm's partners is that bringing in a U.S. or U.K. merger partner would result in an "unbalanced" combination. Though the firm is regularly approached by consultants proposing a combination with other firms, Lee says, King & Wood Mallesons would only consider joining with firms that are also market leaders in their respective markets. Rumored merger partner Nixon Peabody is an unlikely choice: "We absolutely have not spoken to them," Lee says. A top-tier American or British firm, however, could easily become the senior member of the coalition. "The firm's center of gravity would inevitably shift to London or New York, because those markets are so big," Lee says.
Wang Ling, the China managing partner for King & Wood Mallesons, agrees. "When you are a small part of an international firm, that is quite different," she says. "A small part can't have an impact on the strategy and development of the firm. And we can't know if the other part will really understand this market."
The firm's strategy isn't written in stone, Lee says, but he thinks a big move in the U.S. or the U.K. is at least a few years off. Smaller markets like Canada might be a different story—although Lee says that nothing is imminent. For now, the firm's plan for Europe and America is to try to win the lead role in deals and then hire local counsel, preferably top-flight firms that don't have Asia offices. It's already happening on some deals. Last year Xu had the lead role advising Shandong Heavy Industry Group on its $1 billion purchase of a 25 percent stake in German forklift maker Kion Group GmbH and its $228 million acquisition of a 75 percent stake in Italian yacht maker Ferretti S.p.A.There is one potential development, however, that would pretty much guarantee King & Wood Mallesons a major share of Chinese outbound work: the mandate of the Chinese government.
Several partners at King & Wood Mallesons say they understand there are ongoing discussions within China's State-owned Assets Supervision and Administration Commission (SASAC), the high-level government body that oversees SOEs, about adopting regulations that would require SOEs to use a Chinese law firm on outbound transactions. The rationale would be to encourage the development of the Chinese legal profession and ensure that China has some "national champion" law firms to compete against the big U.S. and U.K. firms. In the accounting sector, China's Ministry of Finance has already introduced rules encouraging SOEs to use domestic instead of Big Four audit firms.
The scope of any such rule—whether it would require a Chinese firm to be lead counsel or merely one of several firms on a deal—remains unclear. But given that most of China's biggest and most well-known companies are SOEs (think Bank of China Limited, China Mobile Limited, or Sinopec), the adoption of such a rule would be extremely unwelcome by international law firms.
A rule that, in a worst-case scenario, excluded foreign firms "would be absolutely devastating," says Shearman's Bersani. "Think about how much international firms have invested in the idea of China outbound."
There is little question that King & Wood Mallesons would be the firm best positioned to take advantage of such a rule. But Fuller says the firm isn't counting on it: "Do you build your strategy around what government is going to do for you, or what you're going to do for your clients?" Beijing corporate partner Harry Du says the political fallout from foreign firms and their governments would likely scuttle such a rule. Other Chinese firms, many of whom rely on referrals from foreign law firms, would be unhappy at how the rule would favor King & Wood Mallesons. "Do we really have a lot of Chinese firms that can help [Chinese companies investing abroad]? It's really only us," Du says.
