How the Magic Circle Lost the Battle for New York
Despite decades of effort and millions of dollars spent, the U.K.'s Magic Circle firms still haven't made a dent in the New York market.
But even if the Magic Circle firms had the head count necessary to handle the biggest-ticket M&A transactions, they typically lack the client relationships needed to win the work in the first place. Earlier this year, global research company Acritas contacted 815 senior in-house counsel at global corporations with annual revenues of at least $1 billion, and asked them to name the first five law firms they thought of when it came to awareness, favorability, and those they would be most likely to use for multijurisdictional transactions and litigation. While more than 99 percent of European respondents named at least one of the Magic Circle firms, just one in eight U.S.–based in-house counsel named them. A mere 5 percent of U.S. corporate counsel mentioned the Magic Circle when asked which firms they liked best. Surprisingly, the Magic Circle firms are more than twice as well-known in Asia as they are in America.
"[The Magic Circle firms] have all grown through the [practice] areas of least resistance, but in every market, success is ultimately defined by your ability to attract top corporate work," says Conrado Tenaglia, U.S. co–managing partner at Linklaters. "For us to be able to claim that we are making significant progress in the U.S. market, we would definitely need to have better capability and track record in M&A. It's fair to say that we haven't gotten to that level yet."
In fairness to the Magic Circle, even U.S. firms based outside New York have found it difficult to enter the Manhattan market. "To be successful in New York, you need to either have a tremendous strength in a particular practice area, or a strong relationship with one of the top clients in town, and one that is committed to sending you work," says Robert Dell, chairman of Latham & Watkins, one of the few out-of-town firms widely considered to have cracked New York. "If you don't have at least one of those things—or at least a good amount of luck—you're going to find it very hard."
When Latham opened its New York office in 1985, it did so purely to advise two existing clients in two practice areas: private equity deals for buyout firm KKR & Co. and high-yield bond work for the now-defunct U.S. investment bank Drexel Burnham Lambert. Both private equity and high-yield debt were relatively new practice areas at the time, but they were growing rapidly. Latham quickly established itself at the top of those markets and used that strength as a base upon which to develop a full-service offering, with New York now the firm's largest office worldwide. Kirkland & Ellis, which launched in Manhattan in 1990, followed a path similar to Latham's by building out from an initial focus on private equity. Today, New York is Kirkland's second-largest office.
The Magic Circle firms believe there may be an opportunity for them to pursue a similar strategy using the fast-evolving practice of global investigations and regulation, where their greater international presence compared to most U.S. firms could give them an advantage. With regulations being enforced more aggressively and agencies working more cooperatively across borders, it's a growing market, and the duration and scope of multijurisdictional investigations makes it extremely profitable work.
"The U.S. has been very extraterritorial in its approach to regulation," says Clifford Chance's Cohen. "Clients all over the world are now having to look at how regulatory changes in the U.S. affect their business. We think that plays well to our strengths."
The U.K. firms have been actively investing in Washington, D.C., opening offices and bringing in laterals to bolster their expertise in areas such as regulatory enforcement, white-collar crime, and Foreign Corrupt Practices Act (FCPA) work. A&O launched its base in 2011 with the hire of a two-partner team from O'Melveny & Myers, while Linklaters reestablished a D.C. presence last year. (Linklaters was the first Magic Circle firm to launch in Washington, in 1992, but the firm closed the office a decade later, telling U.K. publication Legal Week at the time that it no longer made economic sense to remain in the capital.)
Freshfields, which opened its doors in Washington, D.C., in 1998, has the top-rated white-collar crime and government investigations practice of the Magic Circle firms in the U.S., placing it in band two in Chambers. This April, it further deepened its practice with the hire of Boies, Schiller & Flexner partner Matt Friedrich, a former acting head of the U.S. Department of Justice's criminal division. A Freshfields spokesman says the firm is currently working on more than 30 FCPA investigations.
A&O's O'Shea says the U.K. firms have found it easier to recruit partners in Washington, D.C., than in New York: "Frankly," he says, "it's more affordable."
Despite this, the Magic Circle remain small players in the U.S. capital. Even the largest of the group in Washington—Clifford Chance, whose office has been open 15 years—still has fewer than 50 lawyers in the city, less than a tenth of the number at Hogan Lovells. (As with its New York office, this is another sharp decrease: In 2000 Clifford Chance had more than 80 lawyers in D.C.)