Chicago mayer Brown's global ambitions received a much-needed boost late last month when the Chicago law firm announced it will join forces with a 260-lawyer Hong Kong-based firm.
The deal, a rare trans-Pacific legal merger, reflects how the forces of globalization and consolidation are transforming the business models of the largest U.S. law firms. Mayer Brown joins an elite group of firms with major offices in some of the world's financial centers: New York, London and Hong Kong. They are jockeying for position on the world stage, a battle that shows signs of heating up in 2008 as concerns about the American economy grow.
"There's a war going on out there in terms of world position," said Kay Hoppe, a Chicago legal consultant and recruiter. "The game is moving very fast, and not everybody is going to survive."
The world is getting flatter, to borrow a metaphor, for the legal profession in part because of strong economic growth in emerging markets. China, for example, had nearly $70 billion in foreign direct investment in 2006, creating demand for international legal expertise in transactions, trade and disputes. Investment and commercial banks and other multinational clients also want lawyers on the ground, versed in local laws and business customs.
"If your clients need sophisticated legal advice we want to be there so they don't go to another firm," said Robert Dell, chairman of Latham & Watkins, which has more than 2,100 lawyers in 24 offices around the world. His firm's globalization, he said, "is partially offensive and partially defensive."
Mayer Brown's merger capped a busy year for global expansion, especially in Asia. McDermott, Will & Emery, a 1,000-lawyer firm founded in Chicago, kicked off 2007 by entering a strategic alliance with a law firm in mainland China. McDermott said the deal was the first of its kind because it overcame restrictions in China that bar foreign firms from practicing Chinese law. U.S. lawyers in China cannot represent clients in Chinese courts or sign formal opinions, so they generally partner with local firms on a case-by-case basis.
Despite tight regulations mainland China remains the most attractive market for foreign law firms, experts said. More than 40 opened offices there between 2004 and 2006, according to legal consultant Hildebrandt International Inc.
Up to now Mayer Brown, despite boasting that it is one of the world's pre-eminent law firms, had a limited presence in Asia. It had a trade office in Beijing and opened a legal practice in Hong Kong in late 2006 that it planned to increase to 100 lawyers in three years.
Building that kind of scale that quickly was an "aggressive" goal, acknowledged Mayer Brown's vice chairman, Paul Maher, who led the team in merger talks with Johnson Stokes & Master.
Developing foreign offices from scratch is expensive. Firms can expect to invest several million dollars over three to five years before they can hope to make a profit, legal consultants said.
Instant major player
The merger with Johnson Stokes & Master, one of Hong Kong's oldest and largest firms, instantly makes Mayer Brown a major player in the Asia-Pacific region. Johnson Stokes, whose clients include financial institutions such as Bank of China, HSBC Holdings PLC and Cathay Pacific Airways, also has three offices in mainland China. Most of its lawyers are based in Hong Kong, which has more Western-style business regulations and legal practices.
Ralph Savarese, a retired chairman of Howrey & Simon law firm who is now a management consultant, applauded Mayer Brown for making a bold move to achieve critical mass in a new market, but he also cautioned that the merger has risks.
"The challenge is integration and making the new group of lawyers fully integrated into your operation," Savarese said. "It's the execution part that's very difficult."
Mayer Brown has a lot of experience combining law firms. In 2002 it merged with London's Rowe & Maw, which had 250 lawyers. Maher, 48, emerged from London to become one of three partners in the new Office of the Chairman created in 2006 to help manage the firm.
Before the London deal Mayer Brown had about 1,000 attorneys, more than half in Chicago, and revenue of about $600 million. When the Hong Kong merger is completed Jan. 28 the firm will have 1,800 lawyers and revenue of more than $1.2 billion.
Only a handful of firms can match or exceed Mayer Brown in terms of numbers of lawyers and geographic scope. They include DLA Piper; Baker & McKenzie; Latham & Watkins; Jones Day; Skadden, Arps, Slate, Meagher & Flom; White & Case; and Sidley Austin.
Interestingly, three of the firms -- Baker & McKenzie, DLA Piper and Sidley Austin -- are based in Chicago or have strong Chicago roots. Yet Chicago does not have a strong identity as an international legal center, said Carole Silver, a senior lecturer at Northwestern Law School who focuses on globalization and the legal profession.
"People outside of the U.S. tend to think of New York before Chicago," she said.
New York's dominance as a financial center weighs heavily in its recognition. The top Chicago firms have established offices in New York but penetrating the market has been more difficult for some, including Mayer Brown.
DLA Piper also is not considered one of the top-tier New York firms. But it has found that its international legal work can help gain credibility with investment banks and other financial institutions that fuel the legal market in New York.
"Because we weren't an elite New York firm we decided we would look at emerging markets like China, India and the Middle East," said Lee Miller, a joint chief executive officer at DLA Piper. "You can penetrate the investment banks in those markets and circle back to New York."
Maher acknowledges that Mayer Brown is "keen" on increasing its size in New York, after losing a number of New York lawyers to other firms in the last two years. It's a critical piece of Mayer Brown's strategy.
"Our strategy has been focusing on our client base in sophisticated financial markets," Maher said. "We don't think there are that many places at the table for major global legal players."