_lb222 capital connections

At times it can be fashionable to bash Washington DC. For most US senators or congressmen, berating the lobbyist-fuelled, back-scratching political

climate in the US capital can do wonders for their re-election prospects. In his State of the Union speech in January, President Obama summed up the popular sentiment. ‘I bet most Americans are thinking the same thing right about now: nothing will get done in Washington this year, next year or maybe even the year after that because Washington is broken,’ he declared.

But domestic politics aside, DC’s place as a vital nexus in global business has arguably never been stronger. In a world where regulators have been emboldened with greater powers and a willingness to act cross-border, a market that has always been a crucial American centre now enjoys a far more signifi cant global role. The advent of Dodd-Frank, the legislation signed into law by Obama in July 2010 that proposes to radically overhaul the fi nancial sector, means that having regulatory expertise on hand in Washington has never been more crucial.

London fi rms have traditionally focused their US strategy on New York but a presence in Washington DC has become increasingly popular. Can the growing band of UK fi rms thrive in the US capital?RICHARD LLOYD

CAPITAL CONNECTIONS

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March 2012 Legal Business 47Photograph SHUTTERSTOCK

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48 Legal Business March 2012

Opening a DC outpost for any international law fi rm would seem perfectly logical. However, most UK fi rms have viewed the US through the prism of New York and focused their efforts on building corporate, fi nance and litigation practices in the Big Apple. That should come as no surprise say some. ‘Every English fi rm goes to New York fi rst because their core client base is fi nancial institutions and because New York is a fabulous legal market,’ comments Akin Gump Strauss Hauer & Feld chairman Bruce McLean. ‘Once they’re on the ground they can really see the infl uence of the US government, which ultimately leads them to DC.’

The logic for being in DC has never been clearer. ‘English fi rms have a fascination with New York but for what they want to do then DC may be a better bet,’ says Michael Ellenhorn, head of recruitment specialist Fox Rodney Search’s US practice. ‘It’s a lower cost jurisdiction and English fi rms tend to be very strong in global litigation and compliance and for those practices it makes more sense to be in Washington than New York.’

The message has clearly been getting through. Ashurst’s 2009 hire of a 12-partner team from McKee Nelson handed it a small DC presence. Last year Allen & Overy (A&O) followed with its own greenfi eld site, focusing on project fi nance and regulatory work. Plus Lovells’ 2010 merger with Hogan & Hartson, a US practice headquartered in DC with almost 500 lawyers in the US capital, signalled that not everyone in the City was focused on doing a deal with a New York fi rm.

Finding lawyers for start-ups is not exactly a challenge; Washington is awash with them. According to The National Law

Journal, Washington’s largest 150 offi ces are home to just under 15,000 lawyers. Throw in the numerous lawyers who work for the US government and in smaller practices, and you have a very deep recruiting pool.

Supply may not be a problem but growing a successful practice in Washington is another matter.

NEW ARRIVALSDavid Slade admits he had been banging the DC drum for years. As a New York-based A&O project fi nance partner, Slade’s practice often took him south to the US capital, advising the likes of the Export-Import Bank of the United States and the Overseas Private Investment Corporation (OPIC). Given that DC’s major multi-lateral agencies have become even more

important sources of capital for project fi nance work in the downturn, Slade felt that the time was right to launch a practice there.

It became increasingly clear that A&O had the appetite to do something in DC but a more sophisticated strategy was needed than just opening a new branch of the fi rm’s successful projects practice. That strategy crystallised last summer when the Magic Circle fi rm announced in June that it was hiring a team of two partners and one counsel from O’Melveny & Myers’ Washington offi ce and would open a new offi ce in the US capital. The O’Melveny team comprising partners Barbara Stettner and Chris Salter and counsel Charles Borden, who joined A&O as a partner, was a classic DC play. Both Stettner and Salter had spent part of their careers at the Securities and Exchange Commission (SEC) and built their practices to focus on regulatory work in the fi nancial sector.

‘We were waiting for a strategic opportunity to combine practices,’ Slade comments of the fi rm’s move into DC. ‘With the new global regulatory environment we’re entering into, plus the fi rm’s background in acting for fi nancial institutions, it just made sense for us to be in DC.’ Since Stettner, Salter and Borden joined, the Magic Circle fi rm has added a fourth regulatory specialist from O’Melveny with Bill Satchell joining

WASHINGTON’S LARGEST FIRMSAlthough an increase in government regulation and litigation prompted by the economic downturn may have been expected to fuel a boom in recruitment, the 150 largest fi rms in Washington have actually seen their numbers drop. According to The National Law Journal their numbers have fallen by almost 1,000 in the last two years. Of the largest fi rms in DC, just two out-of-town practices make the top ten – Skadden, Arps, Slate, Meagher & Flom, which has its second-largest outpost in the US capital, and Latham & Watkins.

Firm No. of lawyers 2011 No. of partners 2011 % change in (2010 numbers) (2010 numbers) lawyer numbersCovington & Burling 485 (468) 138 (133) 4%Arnold & Porter 438 (454) 122 (133) -4% Hogan Lovells 424 (481) 219 (231) -12% Wilmer Cutler Pickering 385 (397) 106 (102) -3% Hale and DorrSteptoe & Johnson 302 (294) 109 (105) 3%Crowell & Moring 288 (294) 120 (127) -2% Skadden, Arps, Slate, 285 (285) 70 (72) 0%Meagher & FlomPatton Boggs 264 (259) 137 (139) 2%Latham & Watkins 264 (264) 85 (93) 0%Wiley Rein 262 (263) 125 (122) 0%

Source: The National Law Journal

‘Every English fi rm goes to New York fi rst because their core client base is fi nancial institutions.’Bruce McLean, Akin Gump

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in October 2011. In February, the fi rm hired IP litigator Steven Adkins as a partner from Orrick, Herrington & Sutcliffe. It has also added an associate, Jason Abel, who was formerly the chief counsel to Charles Schumer, chairman of the Senate committee on rules and administration. His political experience and focus on political law and regulatory issues is the kind of background fi rms prize in a market where connections can go a long way.

Today the offi ce comprises six partners and 15 lawyers, although Slade predicts that in a couple of years the offi ce could be home to somewhere between 40 and 50 fee-earners. Small compared with the city’s largest fi rms, which can number close to 500 (see boxout, ‘Washington’s largest fi rms’, page 48), but signifi cant nonetheless.

Such is A&O’s commitment to making the DC offi ce work, Slade points out, that in the autumn of last year it seconded capital markets rainmaker and partnership board member Boyan Wells to the city for six months. The fi rm also expects to add expertise in antitrust and litigation and to build out the project fi nance practice.

While A&O’s business bears the hallmarks of a traditional DC practice, Ashurst’s local offi ce is something of an outlier. The fi rm opened in 2009 as part of the deal that saw a 12-partner team, predominantly focused on structured fi nance, jump ship from McKee Nelson in DC and New York. Opening in the US capital with a core of fi nance specialists is not the chosen strategy for most new entrants. However, Ashurst offi ce head Scott Faga insists that the location is not an impediment for the practice and stresses the overlap that exists between DC and the eight-partner New York offi ce.

Since the original McKee deal Ashurst has added the requisite regulatory piece, with partner Margaret Sheehan joining from Alston & Bird in 2010, bringing the number of partners in DC to fi ve out of a total of nine fee-earners. ‘It was our intention from early on to add regulatory expertise both because of its obvious value to our DC offi ce but also as part of the fi rm’s ongoing push to have that expertise integrated globally,’ explains Faga.

What the McKee deal hasn’t been and doesn’t look like being, at least in the short term, is a springboard to signifi cant growth in DC. The fi rm’s recruitment plans for now remain largely reactive. ‘It makes more sense to be nimble as opposed to having fi xed plans for growth,’ Faga insists.

WASHINGTON BY THE NUMBERSBelow are key fi nancials for fi ve of the largest fi rms (by revenues) headquartered in Washington DC. Although they are fi rmwide numbers, they give a good insight into how the DC market has fared through the downturn. Most of the fi rms have managed to grow revenue every year and while profi ts per equity partner (PEP) lag New York’s, their bottom lines have also improved over the last fi ve years. The PEP fi gure can also be more than a little misleading – the gap between the top and bottom of equity tends to be particularly stark in DC practices. When Eric Holder, for instance, was appointed Attorney General by President Obama, public fi lings showed that he earned $3.3m in his fi nal year at the Washington offi ce of Covington & Burling, well in excess of the fi rm’s PEP.

TURNOVER BY FINANCIAL YEARS 2006 TO 2010

Source: Legal Business Global 100

PROFITS PER EQUITY PARTNER BY FINANCIAL YEARS 2006 TO 2010

Source: Legal Business Global 100

0

$200m

$400m

$600m

$800m

$1,000m

20102009200820072006

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over

Arnold & Porter Covington & Burling Patton Boggs

Steptoe & Johnson Wilmer Cutler Pickering Hale and Dorr

$600k

$900k

$1,200k

$1,500k

20102009200820072006

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quit

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Arnold & Porter Covington & Burling Patton Boggs

Steptoe & Johnson Wilmer Cutler Pickering Hale and Dorr

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March 2012 Legal Business 51

EARLY ADOPTERSGiven the recent moves of some of their competitors, Clifford Chance (CC) and Freshfi elds Bruckhaus Deringer’s early moves into DC look particularly prescient. However, each chose very different steps.

CC’s merger with Rogers & Wells in 2000 gave the fi rm around 80 fee-earners in the capital. Although the legacy US fi rm was predominantly focused on New York, in DC it was known for its litigation expertise and as the home of name partner William Rogers, formerly Secretary of State in Richard Nixon’s fi rst administration and, before that, Attorney General under Dwight Eisenhower.

The DC offi ce suffered its own big-name defections such as antitrust specialist Steven Newborn who left for Weil, Gotshal & Manges following the Rogers & Wells deal. More recently the offi ce lost US litigation head Juan Morillo who last year jumped ship for Cleary Gottlieb Steen & Hamilton.

Despite these setbacks offi ce head David DiBari is bullish, revealing that the fi rm has space for a further 25 lawyers and is very much in recruiting mode. ‘There’s no question that whatever image problem there may have been, no longer exits,’ he insists. He points to the hire of three white-collar law partners in New York last year and the addition of two M&A partners from Dewey & LeBoeuf, also in New York, as evidence that the fi rm still has pulling power in the recruitment market. In DC the fi rm has also enjoyed its own hiring successes, such as antitrust specialist William Blumenthal, formerly general counsel at the Federal Trade Commission, who joined in 2009.

The DC offi ce is now mainly focused around two practice areas: litigation

– encompassing civil, regulatory and white-collar crime; and energy and project fi nance with a particular Latin America slant. The projects practice is seen as a particular strength. For instance in 2008 it advised the lenders in the multi-billion-dollar expansion of the Panama Canal. The projects team also continues to advise the US Department of Energy on a range of deals, including the construction of the world’s largest land-based windfarm in Oregon.

On the litigation side, CC’s DC lawyers have been involved in advising one of the world’s largest fi nancial institutions in an ongoing investigation by the Department of Justice (DOJ) and the Offi ce of Foreign Assets Control (OFAC), a branch of the US Treasury, into potential violations of US economic sanctions and export control regulations, money laundering, fraud and conspiracy statutes. They also acted for China Construction Bank in the bank’s victory in the US Court of Appeals for the Second Circuit, which affi rmed the dismissal of a human rights case against the bank.

The spin now is that the DC offi ce is an important part of CC’s aim to be the leading international fi rm in the Americas – designed to take into account New York, Washington and CC’s offi ce in São Paulo. Of course, as US fi rms, such as Latham & Watkins and White & Case, have globalised and UK fi rms, such as Freshfi elds and A&O, have developed their own US practices, CC’s initial advantage of having a large US presence coupled with its international network looks to have been lost. Not so, insists DiBari. ‘I disagree that other fi rms have caught up, they’ve caught on,’ he says, optimistically.

Freshfi elds’ steps in the US have been a little more modest. The fi rm’s fi rst foray into the DC market came in 1998 when it hired project fi nance partner Thomas Hechl from Chadbourne & Parke. The hire of a four-partner team from Milbank, Tweed, Hadley & McCloy in the same year, which included current chief executive Ted Burke, added tax partner Gregory May to the nascent Washington offi ce. Since then the fi rm has added antitrust, arbitration and, most recently, litigation expertise to bring the offi ce up to eight partners and 30 fee-earners.

‘We’ve built New York and DC with an eye on aligning both offi ces with the rest of the fi rm,’ explains Washington antitrust partner Bob Schlossberg. So as the fi rm has most recently placed an emphasis on growing its global litigation practice, hires have followed in the US, with the DC offi ce picking up Tim Coleman in 2010 from Dewey & LeBoeuf.

GAME CHANGEOf course, the relatively modest Washington businesses that UK fi rms

THE ENGLISH CONTINGENTFirm Total lawyers Partners DC practiceAllen & Overy 15 6 Having opened in the summer of 2011, A&O has been quick to grow its DC partnership around a fi nancial regulatory practice and project fi nance group. A target of 40 to 50 fee-earners on the ground is ambitious but doable.Ashurst 9 5 With a structured fi nance core, Ashurst’s DC business has eschewed a typical Washington strategy. That said, a fi nancial regulatory piece has been added since the offi ce opened. Just don’t expect spectacular growth – until perhaps a US merger materialises.Clifford Chance 48 14 CC insists it’s back in growth mode with space in its downtown DC offi ce for up to 75 lawyers. The outpost boasts notable strength in project fi nance.Freshfi elds Bruckhaus Deringer 30 8 Freshfi elds has been a slow burner in the DC market but wins plaudits for focus on key Washington practice areas.

‘It is absolutely possible for less established UK fi rms to recruit top talent in DC.’Danice Kowalczyk, Laurence Simons u


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have established have been more than a little overshadowed by Lovells’ merger with Hogan & Hartson. It wasn’t the fi rst transatlantic deal to offer a UK fi rm useful DC connections – DLA’s three-way 2005 merger between DLA, Piper Rudnick and Gray Cary Ware & Freidenrich gave the national practice an excellent DC outpost and Denton Wilde Sapte’s merger with Sonnenschein Nath & Rosenthal has given it similar expertise – but it was the fi rst involving a US fi rm headquartered in Washington.

The 2010 deal may not have delivered the New York corporate fi nance leads that most UK managing partners have obsessed over, but there are few Washington fi rms as well connected as legacy Hogan & Hartson.

The Hogan deal has given Lovells a swathe of DC advantages: access to one of the largest lobbying businesses in the city – The National

Law Journal puts its lobbying revenue at just under $80m. Plus, it is home to a string of DC lawyers who have served in government – last year, for instance, the fi rm added former acting solicitor general Neal Katyal to its partner ranks. Hogan’s DC alumni also extend impressively far – the current chief justice of the Supreme Court, John Roberts, led the fi rm’s appellate practice group between 1993 and 2003.

To Hogan Lovells co-chief executive Warren Gorrell, where the fi rm has an edge over those coming into the market is in its deep knowledge of how DC works. ‘The way in which government regulation and legislation affects legal practices varies greatly according to which industry you’re focusing on,’ he points out. ‘Compared with the larger fi rms, many fi rms in DC are forced to focus narrowly on a few government agencies or a part of the legislative process.’

Where the Lovells merger has given the DC practice a signifi cant boost is in its global reach. ‘As more multinational companies work with fewer fi rms, the ability to advise them in multiple markets across a range of industries and practice areas really helps,’ Gorrell says. The years following the deal in the US have not been completely smooth – the defection of a fi ve-partner energy team to DLA Piper’s DC offi ce in January this year was seen as a particular blow – but so far Hogan has mostly held on to its key Washington rainmakers.

THE REVOLVING DOORWhile UK fi rms are clearly committed to DC, whether they can thrive and continue to grow

depends on their ability to attract top talent. Like perhaps no other market, Washington is characterised by a continual fl ow of lawyers between private practice and government. Every major Washington practice is stocked with fee-earners with government experience and the competition for senior lawyers coming out of the SEC or the antitrust division of the DOJ is fi erce. For example, in the highest profi le move of last year, the DOJ’s antitrust head Christine Varney moved to Cravath, Swaine & Moore in New York.

‘Talent is really critical, being here for a long time is not,’ comments Akin Gump’s McLean. But can the top of a Magic Circle fi rm’s pay scale compete for the top private practice partners and those coming out of government? Last year Freshfi elds’ and Linklaters’ top of equity were both around £1.5m or just under $2.4m. ‘That’s a lot of money. That will get you in the game but the quality of the fi rm and the platform is just as signifi cant,’ McLean continues.

A senior fi gure coming out of government is not allowed to join a fi rm as an equity partner for two years, so most typically secure a two-year guarantee effectively as a salaried member of the partnership. In other words any fi rm looking for senior government talent is committing themselves to a total investment that can easily exceed $4m. If you’re looking further down the food chain, then a junior equity partner in DC can make between $400,000 and $500,000, easily within the UK fi rms’ scope.

What marks out English fi rms, local recruiters maintain, is the strength of their international networks and the security of lockstep, which can be particularly attractive to someone who has had a long career in government and therefore may not boast much of a practice. ‘UK fi rms defi nitely have a number of advantages in the recruitment market,’ insists Steve Nelson, head of the legal and government affairs group at recruiters The McCormick Group.

‘It is absolutely possible for less established UK fi rms to recruit top talent in DC,’ adds Danice Kowalczyk, co-head of Laurence Simons in the US. ‘But they need to be able to show a commitment to the DC market via a long-term plan and a strong practice structure that supports that plan – despite any economic swings.’ Most on the ground expect Linklaters and, possibly, Herbert Smith, to follow A&O et al into Washington.

However, in a statement a Linklaters spokesperson dismissed the prospects of the fi rm opening in the immediate future. ‘We keep an eye on opportunities in various locations and markets around the world. However, we have no fi rm plans in respect of Washington,’ they commented.

Such is the potential reach and impact of Dodd-Frank that it’s increasingly clear that any international fi rm with a large stable of fi nancial clients needs some sort of DC presence. Although the leading candidates for the Republican nomination, Mitt Romney and Newt Gingrich have both said they would try to repeal Dodd-Frank if elected, few expect the tide of greater regulation to be turned back. ‘The regulatory overlay on business may ebb and fl ow with who’s in the White House but it never goes away,’ insists Freshfi elds’ Schlossberg.

For the DC market and its growing band of UK fi rms, not all is broken in Washington. LB

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‘The regulatory overlay on business may ebb and fl ow with who’s in the White House but it never goes away.’Bob Schlossberg, Freshfi elds

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