The global imperative

The rationale is simple. New York and English law are virtually fungible when it comes to capital markets transactions. A New York law capability is crucial for any issue distributed in the US requiring an opinion letter confirming compliance with SEC strictures. Clifford Chance realized this in the early 1990s and was in the vanguard of UK law firms to recruit New York lawyers. However, as more law firms detected the need, demand outstripped supply. So such firms as Clifford Chance were taking too long to build a US capability with the requisite depth. A merger was the logical option.

Observers have questioned whether Rogers & Wells is quite the top-tier US Wall Street law firm they would have had in mind. Such criticism misses the point. Rogers & Wells, although it is a small firm by international standards with under 100 partners, has a respected international securities practice and has transformed itself over the past decade into something of a powerhouse. More important, this is probably the only merger that could have been consummated at the moment. For cultural reasons, the likes of, say, Slaughter and May and Cravath Swaine & Moore would find it very difficult to contemplate loss of autonomy, given their long and glorious histories.

It is not being unkind to say that Clifford Chance has no such baggage and is much more open to being a multicultural, global law firm. It was itself the result of a merger 10 years ago between Coward Chance - a respected firm specializing in banking but weak in corporate finance - and Clifford-Turner, an upstart corporate practice. Both had an international network that neither, alone, had the resources to expand. Discussions about pooling networks led to the full merger.

The latest mould-breaking move means that there is no single accepted way of achieving global ambitions - although a combined New York/English law capability is a sine qua non. Linklaters & Alliance, for example, is forging a European law firm out of the best individual practices in the principal continental European jurisdictions. Freshfields spotted the importance of a German leg - confirmed by the inclusion of Pünder in the Clifford Chance merger - when it established a strategic alliance with German firm Deringer, now to become a full merger: Germany, apart from its prominent EU role, is Europe's largest investor in Asia, the scene of much of the battle between US and UK law firms over the past decade. Allen & Overy, for its part, has been cherry-picking bits of European firms that it wants.

"Globalization is one of the current 'big issues' in legal practice," says Stephen Mayson, professor of legal practice at the Centre for Law Firm Management at Nottingham Law School in the UK. "One of the problems, however, is that the concept appears to mean different things to different people. I would draw a distinction between global finance and cross-border trade. Broadly speaking, global finance includes finance, banking, capital markets, privatization and project-finance work. Cross-border trade incorporates a larger portfolio of work - some of which might be described as corporate finance - and includes mergers and acquisitions, joint ventures, competition/anti-trust, shipping and insurance, intellectual property, information technology, entertainment, energy and environment, and commercial arbitration."

Law firms competing in global finance need to have offices in major financial centres and to be able to access emerging markets. Very few have the level of resource or brand strength in capital markets and banking work to pursue this strategy successfully. By contrast, "trade opportunities are many and varied," says Mayson. "There are generally no real 'markets' for business in these areas that suggest that firms should establish in particular locations. Firms following a cross-border trade strategy will establish wherever they see a sufficient client need or market opportunity to justify the investment - a 'dots on the map' approach. Baker & McKenzie has been very successful in creating a cross-border trade practice. Of course, some firms will simultaneously be following both global finance and cross-border trade strategies. So, for example, Linklaters & Alliance, which is one of the leading global finance firms in the world, is established for cross-border trade practice as well."

Mayson points out one further distinction between global finance and cross-border trade work. "Many global-finance transactions follow a pattern and structure that is independent of the law in which they happen to be written. In this sense, the client has a choice about which governing law to apply to the transaction (usually English law or New York law): the transaction will be fundamentally the same, the choice of law being essentially between two or more commodities that will deliver the same business result. On the other hand, cross-border trade work is nationally differentiated in legal terms because it is more tied to clients and transactions that originate in distinct jurisdictions. The choice of governing law is therefore fundamental, and will lead to different legal results and consequences."

A survey published last month by CSS, suggests that the sort of transatlantic merger pioneered by Clifford Chance and Rogers & Wells is welcomed by the market. Based on interviews with 100 buyers of international legal services at banks and companies, it concludes that they still tend to select lawyers by jurisdiction, but like the idea of merged US and UK firms. They are also open to "one-stop shopping" for combined legal, accounting, tax and management consultancy services from multi-disciplinary practices (MDPs) such as Arthur Andersen, PricewaterhouseCoopers and KPMG.

Whether these MDPs can break into global finance as opposed to cross-border trade remains to be seen. But if an external investor can take a stake in one of them - a stake in KPMG Consulting was bought this summer by computer networking company Cisco - there will soon be a time when an investment bank such as Goldman Sachs contemplates investing in, say, PwC or, possibly more to the point, Clifford Chance.