The A&O/Shearman merger demonstrates that, in terms of brand reputation, being ‘big in New York’ matters far more for international law firms than a purely rational look at the data suggests it should.

UK Magic Circle firm Allen & Overy’s proposed merger with US White Shoe firm Shearman & Sterling isn’t all about New York, but it’s more about New York than anywhere else. A&O is attempting what will be the most ambitious merger of its kind in history – ambitious not only because of its size but also because of the enormous risks involved for both firms.

What’s the deal? Unlike London — the other global city that counts — New York doesn’t have a total stranglehold on the market for premium deals and disputes. Historically only around 40% of total US premium revenues are sourced from New York — the balance from a range of other major US cities: Los Angeles, Chicago, San Fransisco, Washington DC, etc. Whereas in the UK, London accounts for much closer to 100%.

Yet still, fortunes have been won and lost over decades by firms attempting to build a New York component to their brand.

The key to their initial traction was focus; a lesson in building brand reputation for anyone with eyes on the same prize.

Irrational exuberance

The attraction of New York is undeniable. The major investment banks call it home, and it’s arguably the world’s financial capital (London would argue with this, even after Brexit). Alongside that, it’s perceived to be the city that leads the world in terms of the quality of its advisors, whether management consultants, accountants, or lawyers.

On the other hand, the supply of this top talent is limited and any firm wanting to elbow its way into New York faces paying eye-watering amounts of money for the top talent that is ‘on the market.’

The very public demise of Dewey still serves as a salutary lesson in what can go wrong if you make too many financial commitments to too many top earners – particularly laterals – to secure their loyalty.

Despite this, they keep on coming. Why? Because the stakes in brand reputation terms are so high. And, tough as it is today, it will be even tougher as more firms establish credible New York angles to their historical national identities and raise the bar on price-of-entry.

Elite firms originating elsewhere, such as Latham & Watkins, Kirkland & Ellis, and Gibson Dunn, successfully turned early New York beachheads into credible offices through primarily organic growth (i.e. hiring individuals and teams, not mergers).

Today these firms have established themselves as part of the New York elite in terms of their brand reputations – as the flow of major deals and disputes going their way seems to suggest.

Successful as these firms are in New York today, none of them had it easy. New York wasn’t short of elite law firms before they arrived. The key to their initial traction was focus; a lesson in building brand reputation for anyone with eyes on the same prize.

The strategy most firms seem to adopt in New York is equivalent to throwing mud against the wall to see if anything sticks.

Focus. Focus. Focus

The strategy that ‘non-New York’ premium firms should follow to build their brand presence in New York is easy to define but difficult to execute. They should adopt a laser-like focus on building their New York brand around a very tightly defined set of practices, industry groups, or a very narrow combination of the two.

And, they should also choose those practices with a highly disciplined and realistic awareness of what they are already famous for nationally or internationally.

Quinn Emanuel is another firm that can definitively claim to have ‘made it’ in New York from its original West Coast beginnings. From a brand perspective, their litigation-only strategy helped them gain traction in a city not exactly wanting for litigators.

Cooley’s stellar reputation as a tech firm — with the accompanying Silicon Valley vibe — has enabled it to get a foothold in the Big Apple despite being a relative minnow in overall revenues and practices compared with many other large US firms.

Mayer Brown, originally a Chicago firm, has achieved something similar by leveraging its reputation for market-leading structured finance and appellate/Supreme Court practices.

Despite the obvious attraction of having a focused approach, the strategy most firms seem to adopt to New York is equivalent to throwing mud against the wall to see if anything sticks – a bit harsh perhaps, but not that far from the truth as far as it appears from the outside.

The reason for this is that it’s tough to be disciplined in the execution of a new/growth office strategy.

Premium law firms, even the most ‘managed’, remain partnerships — in terms of their governance and their decision-making cultures — as much as commercial businesses, which tends to lead to leadership teams spreading resources around to take the consensus with them.

In strategy terms, this tends to manifest itself in shopping list length’ priority practices’ and a tendency to invest ‘off-strategy’ as much as in line with it when it comes to lateral hires.

To succeed, these firms need to use their brand as a bridge between their strategy and day-to-day marketing – to ensure their brand makes their strategy visible to the market and avoid dilution.

Despite the strategic challenges, ‘Big in New York’ still retains massive allure in terms of law firm brand reputation.

Keeping in shape

From the other end of the telescope, those firms with a strong New York brand pedigree need to ensure that as national and international firms gain traction in the city, they don’t get demoted to niche or underweight status leaving them with limited options.

This is a nice problem to have compared with building a New York reputation from scratch. Still, given the increasing competitive pressures, any firm that takes its eye off the ball is likely to find itself prey to those actively searching for top talent – arguably Shearman’s fate.

In many ways, although neither firm likes to admit it, the only reason A&O was able to propose acquiring Shearman (aka ‘a merger of equals’) is that the New York firm’s brand had declined significantly since the 2008 financial crash.

Other incumbent New York firms should carefully examine their strengths and focus their brands and strategies on where they can win.

Despite the strategic challenges, ‘Big in New York’ still retains massive allure in terms of law firm brand reputation on a national and international stage. And as long as that continues, more firms will want to make it there.

End.