‘If only law firms were bigger and more seamless. I’ll be honest, it’s a bit of a frustration that they’re not,’ is the line that no general counsel at a large company or bank ever said.
In my 10 years of editing a magazine for corporate counsel, then 18 months of running an executive networking club for GCs, I heard it not once.
And during various bouts of market consolidation, I would ask GCs what they thought when merger news broke. In fact, if they valued the relationship with the firm, their main concern was that things shouldn’t change – that a valued relationship partner wouldn’t leave as a result, that service levels would remain good, and that the fees wouldn’t go up.
Yet large firms always claim their own mergers are a result of listening to their clients. Announcing their intended merger, to form Allen Overy Shearman Sterling, law firm leaders were at it again.
‘We have listened to our clients,’ gushed Allen & Overy partner Wim Dejonghe. Clients, his opposite number at Shearman & Sterling Adam Hakki reciprocated, ‘are calling for integrated global legal solutions and advice’.
Yet try turning these arguments round. When the Hogan Lovells and Shearmans courtship was called off in March, or A&O’s talks with US firm O’Melveny & Myers failed in 2019, no one said the clients had told them not to do it.
Of course the clients hadn’t.
As businesses, those clients go through their own mergers. Seasoned GCs know what drives mergers, and it’s never the customers. In 2000 I was a Vodafone customer – but the company didn’t buy Mannesmann because its board had heard I’d be excited.
First, assuming the decision to created Allen Overy Shearman Sterling is driven by hard heads there will have been calculations around cost.
Shared operations to support fee-earning can cost less (though integration has its own costs). Long term, property overheads might be less. As for the human overheads, there will be one global communications head, where once there were two. The same for compliance and so one.
The cost of ‘innovation’ – developing the use of legal tech and AI, say – will be more broadly borne, and this has become an expensive area.
And of course each will save the cost of trying to grow in the other’s market. UK-origin firms have a chequered history in the US, and US firms found cracking European jurisdictions expensive.
It has been noted that Shearmans has seen high profile partner departures. I’m not sure too much can ever be read into partner moves – many don’t work out, and in reality a fair number who move were pushed, rather than, in the breathless prose of some legal sector press, ‘poached’ or ‘raided’.
Still, a bigger ship may be more stable – not a bad argument for merging. Profits per equity (PEP) partner look comparable, though Shearmans’ PEP has been more volatile from year to year.
Aside from considerations of cost, mergers are also a bet on what clients and customers might want. Clients might want the legal tech offering that a law firm has developed or learned to use. They might want a capital markets lawyer in South Korea for their first deal there. Clients might be induced to pay higher fees.
Or they might not.
Clients don’t have closely involved views on the PEP or ideal partnership size of the firms they instruct, though they likely wish the firms well, just as they hope their own business will thrive.
But what clients really hope on being told about a merger is that a well-liked partner won’t leave, that service levels won’t be affected, and that fees won’t go up.
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