I spent a fair amount of time over the past two weeks reconnecting with some Asia regional heads of U.K. law firms. A lot of those conversations will feature in upcoming articles so there won’t be any spoilers here.
These dialogues are timely, as many British firms have released—or are starting to release—their annual reports on revenue and profit. As it should be, my primary interest is how much do their Asia practices contribute to their global pots? Some of the leaders I spoke to were willing to provide percentage breakdowns for Asia, but unsurprisingly, most were not. (Again, no spoilers here, so you will just have to look out for our coverage next week.)
Back to the numbers.
Clifford Chance’s Asia-Pacific revenue for the financial year 2022 was £344 million, up £301 million from the year before. The firm’s global revenue grew by 8% and APAC contributed 17% to its total income. I think it’s safe to say that most of that APAC revenue would have derived from its five Asian offices. (Clifford Chance shuttered its Seoul office in the middle of last year, and the firm has 18 partners in its two Australian offices—lean when compared to its Magic Circle rivals, but it has never been that much about scale and head count anyway, at least not in this part of the world.
Allen & Overy, Herbert Smith Freehills, and Ashurst have also posted their financials this month. All three firms grew in overall revenue, profits and profit per equity partner, though none provided immediate percentage breakdowns for Asia.
Notably though, Allen & Overy’s press announcement stated particular growth and “strong financial performance” in the U.S., U.K., Europe and the Middle East, as did Ashurst although Australia took the place of the Middle East and the U.S. For both firms, there is a curious absence of an Asia mention, although Ashurst did separately tell Law.com International in an interview that it delivered double-digit growth in continental Europe and Asia, specifically noting that its growth in Singapore stood at around 20%.
Initially, I thought the modest growth or lack of growth in Asia could be attributed to the fact that these firms are reliant on the Chinese market, which took a massive beating earlier this year due to a complete COVID-driven shutdown. But I can’t definitively say that Clifford Chance, compared to the other three, has been less dependent on China, or that it is flourishing elsewhere in Asia more so than its counterparts. In fact, Clifford Chance has nine partners in Beijing and Shanghai. So does Allen & Overy. Ashurst has four.
Also, all four abovementioned firms suffered some fairly painful partner departures over the past financial year, though it’s important to note that that this can also reduce costs and increase PEP. So how did Clifford Chance manage a 17% growth in the region? How does its strategy differ from its competitors?
I have been thinking a lot about firm strategies in Asia. My recent discussions with the law firm Asia heads reminded me that many of them still suffer the same chronic frustrations they have endured over the past decade. Many are still laboriously justifying their Asian practices and desperately explaining the potential of the market to their Western headquarters. Each time there’s a blip (think Hong Kong national security law or the zero-Covid strategy), that grating justification process is triggered.
All of that is even harder to do when the market is in a lull. How do you convince the powers that be that it’s time to establish a digital asset offering, hire more restructuring lawyers, invest more in ESG training, or pump in money to build technology add-ons when Asia practices are failing to deliver quick and handsome profits? Not to mention firms almost always are pressured to act (or react) quickly, as the talent pool is shallow and the market is ultra-competitive.
Implementation is also tricky. Asia is not a region where you can enforce a wholesale strategy. A firm’s value proposition to clients in Japan, for example, would be entirely different in Hong Kong or Singapore. Try explaining that to the folks in the U.S. or the U.K., the biggest legal markets in the world, where client expectations spanning the states and cities are still fairly consistent.
One Magic Circle regional managing partner told me that life used to be much simpler a decade ago when the market was flush with Chinese state-owned companies making massive outbound acquisitions—part of the country’s Go Abroad strategy. All international firms broke into the region with gusto and all were gunning for the same type of work. At that time, the sector, target clients and regions were the same select few and there was plenty of work to be had.
Texas’ Vinson & Elkins, for example, flourished in Greater China back in those days. The firm acted on some of China’s largest outbound energy acquisitions. But when the market went through its many transitions, the firm failed to pivot and shuttered in 2019.
Pivoting, I think, is what U.K. firms tend to do better than U.S. firms in Asia. Their investments in a broader offering and commitment to the region are often more long-term and apparent. That also means that as the market ebbs and flows, its contentious and non-contentious practices can hedge against each other to weather stormy days.
U.S. firms, on the other hand, tend to be more focused, be it on representing financial sponsors, institutional relationships with private equity giants, or having specific sector expertise in life sciences or technology. U.S. firms will break into Asia with a big bang, lured by dry powder and billion-dollar deals. But they will just as readily downsize in dramatic fashion or pull out completely to cut their losses. It is obvious that this irritates the Brits. Over the past year, scores of senior and junior lawyers have defected to American firms for higher salaries. But these lawyers are not questioning the longevity of their careers, the British firms argue.
One law firm’s Asia managing partner this week told me that U.S. firms have a culture of “throwing a lot of money at lawyers, eating them whole and then spitting them out. We don’t do that,” he said.
He, of course, leads a U.K. firm.