Maybe it’s just us, but the announcement of the departure from Fried Frank of a former managing partner and some of her department carries with it intimations of several current trends in the law business: the British are coming, the accounting firms are coming, and you’d better take a second look at both your profitability and your mandatory retirement policy.
Valerie Ford Jacob, the head of the capital markets group at Fried, Frank, Harris, Shriver & Jacobson, and until very recently the head of the firm, has left with two partners to join Freshfields Bruckhaus Deringer in New York. After a poor showing in 2012, Fried Frank increased profitability in 2013 by 3.3% and profits per equity partner by a whopping 24.3 %. The question is whether those recent financial improvements will stop the exodus of major partners, with 17 having decamped just so far this year. Shades of Dewey & LeBoeuf and other high-profile implosions are starting to haunt visions of the firm’s future.
On the other hand, Freshfields is succeeding in adding high-powered US lawyers in a strong expansion from across the pond, with now more than 180 lawyers in the US. Prior to the Fried Frank announcement, several high-profile laterals were successfully brought in to Freshfields’ US fold, including from Skadden, Arps, Wachtell, Lipton, and Shearman & Sterling. While competing with US compensation has been a challenge for UK firms in the past, the potential impact of alternative business structures (ABSs) that UK law firms and other service professionals, like accounting firms, now have access to is starting to rebalance and even tip the playing field for future growth in favor of the Brits. And Freshfields has “flexed” its lock-step compensation several times when courting US partners, so that Fried Frank’s recent average profits per equity partner of $1.6 million may not be much of an obstacle any more. Similarly, Fried Frank has a mandatory retirement age of 65. The number of US law firm mandated retirement programs have declined precipitously over the last ten years, helped along by age discrimination lawsuits, as baby boomers rail against them. Those firms who retain them risk their high-performers moving on to fill their recession-depleted coffers elsewhere before going out into that dark night.
One of Fried Frank’s losses last month was tax partner Kevin Keyes, who left for KPMG. When Sarbanes Oxley prohibited accounting firms from offering legal services to audit clients, most accounting firms stopped offering legal advice in the UK and the US, while some continued to offer it in Russia and some European countries. Now that accounting firms can use the UK’s ABS structure to give legal advice, they are standing in line to join the legal fray.
PricewaterhouseCoopers successfully applied for an ABS license in February, and acquired a boutique Canadian law firm the following month. Its law firm arm, PwC Legal, currently employs over 2,000 lawyers in 80 countries and intends to double its global legal revenues to $1 billion over the next five years, which would place it in last year’s American Lawyer’s Global top 30. It recently hired two partners from King & Wood Mallesons, the Australian firm that has put international law firm expansion on the map with Australia’s own version of ABSs, to launch an Australian legal services arm and has opened offices offering legal services in
Both Ernst & Young and KPMG are also considering either acquiring law firms in an ABS subsidiary or converting the entire organization to an ABS. EY, as it is now known, hired 250 lawyers in 2013—including partners from top international law firms, and one specializing in international transactions from Freshfields–increasing its total attorney head count by almost 30 percent, to 1,100. Last year it launched legal services in 29 countries, more than doubling its coverage from 23 to 52 international jurisdictions, with a longer term aim to be in more than 80 jurisdictions by 2020. Deloitte established a Chinese legal arm in early 2013 with hires from several domestic firms. Several partners at the Qin Li Law Firm are simultaneously partners at Deloitte China and Deloitte Legal.
As one reporter points out: “For midmarket law firms and even international giants such as Baker & McKenzie and DLA Piper, the Big Four accounting firms make daunting competitors. They have global networks comprising hundreds of offices; global brands that are far stronger than those of any top law firm; much greater sophistication in technology, training and business support; and client lists that dwarf even those of the largest law firms. The Big Four are simply in a different league when it comes to scale. Baker & McKenzie, the world’s largest law firm by head count, has just over 4,000 attorneys worldwide. Deloitte has almost that many staffers in South Africa alone.”