Report From London

Just back from an abbreviated week in London (essentially Tuesday through Thursday).  Herewith a report.

I met with the managing partners of a good half-dozen firms, fairly representative of the marketplace, and unsurprisingly the top question on most minds is what the economic downturn portends.

Unlike most of life, where a bell curve distribution is the best first approximation of almost any sampling, views on this topic are bimodal:  Either people tend to believe things could get quite bad indeed, or else their  firms are having bang-up first quarters here in 2008.  To be sure, those on both ends of this spectrum are hesitant to predict that their gloomy or sunny outlook will endure:  Uncertainty, in spades, is the watchword of the day.  And so I resolved to try to delve into deeper and more enduring questions.

Primary among them are whether London will overtake New York as a global financial capital, and what the prospects are for a major (as in "headline news") US/UK  law firm merger.

In a bit of contrast to last time I was in the City last November, there's a more cautious and less triumphalist air about London attaining supremacy over New York.  (I will resist the temptation to link this, as rich as it is, to the overwhelmingly delightful, gratifying, and juicy self-immolation of Eliot Spitzer, which occurred during my trip.)  Now, the view  seems to coalesce around a consensus that New York and London will always be transatlantic cousins, each with respective styles and strengths and weaknesses, but neither regnant over the other in capital markets.

Interestingly, one lunch I attended featured a speaker (an American by birth but one who has lived in London for 20+ years) who discussed the cultural  differences between doing business in the US  and the UK.  If you will indulge me in a bit of editorial license, these were the highlights of her talk:

She also told the anecdote of a set of deal documents being jointly worked on by a US and a UK firm.  As drafts were updated, the routine became that the US firm would turn on "track changes," insert its revisions, and email it across.  The UK firm, by contrast, would leave the document untouched but return it with a cover memo suggesting editorial revisions.

After a few rounds of this, the US firm piped up with some exasperation that the UK lawyers were requiring double-work:  First, to read the memo and determine the validity of its points, and second to actually make  the changes.   Why not just  make the bloody changes?  And here, of course, we have a cultural misunderstanding:  The UK  lawyers were merely being politely deferential in not assuming they could trespass all over the so-far-agreed-upon document.  The US lawyers were assuming that  efficiency and expediency were the goals. 

Also anecdotally, in the departure  lounge of my return flight, a woman asked me from behind my back, "How are your dachshunds?"  Having succeeded in getting my attention, she turned out to be a former neighbor on the Upper West Side, in a building catty-corner to ours, who had moved a few years  ago to London with her investment banking husband for a tour of duty.  I told her that I hoped she felt as at home in London as in New York—on occasion I'm tempted to envision it as almost the sixth borough of New York—and then I took the opportunity to ask her how she would  compare the two cities, as someone with a ringside seat to each.  She replied that London is like Brooklyn Heights—unmistakably an urban locale with its own indelible identity, but less frenetic and less dense than Manhattan, lower-rise.

As noted, the other enormous question of interest (well, at least to me) was the prospect for a headline merger.   Previously, I must say, this speculation has  tended to be dismissed with suspicious abruptness on both sides of the pond.

This trip  was a bit different.  People were far less dismissive, and many indeed even owned up to the potential strategic and business logic of a hypothetical US/UK (read:  New York/London) merger.  Culture, of course, will always be the obstacle, but the financial misfit that was presumed to exist heretofore may be eroding as practices converge and globalization truly kicks in. 

One point of view I heard in different contexts and expressed in different ways, but pregnant with potential meaning about the market's readiness for a merger, was this:  Some US firms are relatively strong in Asia and some UK firms are relatively strong on the European Continent.  Wouldn't that make for a potentially interesting combination, delivering the three first-world continents, North America (including New York), Europe (including London), and Asia?

But repeatedly, the reservation was voiced that it is so intrinsically difficult to sustain long-run investments in new geographies and practice areas where partners' expectations are to "strip-mine" the firm of cash at the end of every year and even the most visionary managing partners with the greatest commitment to the long term find it almost impossible to orchestrate continuing, loss-producing, investments.

Pop quiz: Q:  What's the one line item that appears on every corporation's balance sheet that I suspect you have never seen on a law firm's?

A:  [tick-tock-tick-tock.....]  Retained earnings.

This still begs the economic question which applies to mergers and long-term investments in new geographies alike:  Why, if the initiative would benefit us all in the long run—better work from happier and more valuable clients, higher profitability, stronger weapons for recruitment and retention—can we not stomach the short-term sacrifice?

I have no answer to this question.

Which makes me optimistic that, during my career, we shall see a transformative merger.

But, you protest, conflicts will become insuperable the larger firms get?   You know as well as anyone that rules are made to evolve and adapt, and with Chris Perrin, the general counsel of Clifford Chance, calling for relief from conflicts just last week, can reform be far behind?  (He would permit sophisticated clients to waive conflicts in any and all circumstances.)

In any event, I predict that I'll be going to London pretty regularly.  Not the worst duty.