Clifford Chance’s Peter Charlton explains to ALB why being an international law firm means nothing unless you have that local touch
The global financial crisis has affected international law firms as much as any other industry. Staff have been laid off and revenues and partner profitability figures are down. Even some big-name firms have fallen under the weight of the worst global economic slump seen since the Great Depression.
But one year on from Black September, the ‘green shoots’ of recovery appear to have grown into sturdier seedlings. Stock markets have rebounded, government stimulus packages have stirred ailing economies to life and mega-deals are starting to re-enter the pipeline.
It is Asia, with its dynamism and hunger for continued growth, that is leading global recovery. But as the world’s attention turns more and more towards the region, Charlton says that the key to emerging stronger from the crisis isn’t simply about leveraging one’s internationalism.
Rather, it is about striking the right balance between having international excellence and offering local knowledge.Charlton shares his strategy with ALB.
Following the storm
Appointed to his new role as Asia managing partner only six days before Lehman Brothers filed for bankruptcy, Charlton has been tracking the ensuing storm ever since.
After finishing work on Barclays’ post-bankruptcy acquisition of Lehman’s United States and European operations, he arrived in Hong Kong in November 2008. “When I arrived my first task was to look at when the financial crisis would hit Asia and just how large an impact it would have on both the firm and its clients,” he says. “We got a fair idea of how things would unfold by the end of December to January.”
“Oddly, in many ways waiting for the crisis to reach Asia was actually more difficult to deal with than the crisis itself.” But when it did hit, its impact on all aspects of business was just as profound, Charlton explains.
“By the new year, deals – even if they were well-advanced – had been put on hold as financing dried up. No law firm escaped the turmoil and all aspects of their operations have been affected: staffing, revenues and profits,” he says. Putting trite clichés about the presence of opportunities in crises aside, Charlton believes that the GFC presents firms with a rare opportunity to assess issues like strategic direction.
Staying true to strategy
The key to success in Asia remains staying true to strategy and resisting the temptation to abandon Asia plans, as many international law firms have sought to do in the past. “The upside is that crises such as these allow one to take stock of the direction in which the business in heading – people may come out a little worse for wear but certainly all the wiser,” Charlton says.
‘Wiser’ isn’t necessarily about abandoning the strategies that have worked in Asia for Clifford Chance for the best part of 30 years, but rather about ensuring they are malleable enough to adjust to, and succeed in, broader economic trends. “We are not planning strategic u-turns or wholesale changes to our Asia strategies, but instead a recognition that the fundamentals in this part of the world remain strong,” Charlton says. “There is an inherent dynamism in Asia which won’t be shaken by financial crises. At the same time, as much as business in Hong Kong, Singapore or Shanghai is becoming more international, it is also locally-based. Strategies need to be built around this fact.”
A strategy, it seems, which is at the heart of the firm’s expansion in the Lion city, since being one of only six foreign law firms to have been granted a Qualifying Foreign Law Practice (QFLP) license by the Singapore government in December 2008.
Partner numbers at the 30-year old office have doubled in less than 18 months. Key lateral hires across all of the corporate areas have been brought on board. Recently dispute resolution specialist Nish Shetty joined from Clifford Chance’s former joint-law venture partner WongPartnership. This is growth which Charlton says is by no means complete. “Our Singapore office is a classic example of how we like to operate,” says Charlton. “To take international standards and build in local excellence and relevance.”
Best of friends
If Singapore is a perfect example of this strategy in action, so too are the firm’s activities in India and parts of south-east Asia, albeit here, owing largely to regulatory restrictions, the format is a little different.
Clifford Chance became the first of the Magic Circle firms late last year to institute a workable strategy to penetrate legal markets, where international firms are currently prohibited from establishing offices – the ‘best friends’ model.
“The ‘best-friends’ model is crucial to our expansion in Asia,” says Charlton. “We have chosen to align ourselves with firms we feel are the best in their respective countries – countries which are of strategic importance to Clifford Chance and where our clients do a lot of business but where we cannot set up due for regulatory reasons.
“We have had longstanding relationships with leading firms in Indonesia (Mochtar Karuwin Komar), Vietnam (VILAF Hong Duc) and most recently have very quickly built an impressive partnership with leading Indian firm, AZB & Partners. All of these arrangements involve us sharing referrals and resources with the firms but not necessarily on an exclusive basis. We may have more than one firm which we do this with in a particular country, and it may vary from transaction to transaction.”
What of the long-term prospects, are they forerunners to eventual mergers? Should regulatory prohibitions be relaxed, are we likely to see Clifford Chance swallow one of its smaller friends – or a not so small friend? Charlton deflects the question with a deliberative pause and a rueful smile, saying only that the firm has no intention of subsuming any of its current allies. “The relationships we have with our select firms across the region have been successful so far and we expect that to continue so mergers aren’t in our plans at the moment,” he states. “The arrangements are being well-received by our clients and the synergies are simply excellent.”
Asia’s powerhouse economies
India and China remain at the forefront of most international firms’ expansion plans. Clifford Chance is no different and Charlton is only too keen to reveal to ALB where the subcontinent fits into the firm’s plans.
“India remains one of the key focuses of our expansion strategy in the region and we remain hopeful that we will be able to practise in India soon, if the necessary legislation is passed by the government,” he says. “The recent election results are being seen as a favourable indicator so it could be sooner rather than later, although international firms have been waiting on this for many years.”
The emphasis is changing, says Charlton. Where transactional lawyers once talked of India as a destination for inbound investment from the US, Europe and UK, now it is talk of Asian interest in the subcontinent and Indian outbound investment that dominate discussion. “A major part of the move East we have seen over the last five or six years is more interest in India as a destination for Asian investment, and at the same time as a generator of outbound investment,” he says. “[India] has a number of large conglomerates with extremely strong balance sheets that are capable of making strategic investments or targeting distressed acquisitions.”
According to Charlton the same can be said of China, where a marked increase in outbound investment has been a defining feature of the current economic downturn. “China is the bright spot on the horizon for commercial practices in Asia, there is no doubt about that,” he says. “It has the potential to provide the fuel to keep engines running smoothly. Chinese companies have shown their willingness to provide leverage and strike strategic M&A deals, although the increase in outbound investment we are seeing now will not compensate completely for the global downturn.”
Aside from the standards for measuring global transactional activity like market volatility, company balance sheets, acquisition financing and capital markets, Charlton says that the political imperatives weighing on Chinese acquisitions also have the potential to affect deal flow there. “All things being equal, China investments often have political elements which create a different dynamic,” he states.
“When economies slow, there is more attention paid to domestic issues, and protectionist sentiments tend to become prevalent as a result.”
While he stops short of predicting any Harley-Smoot type reactions in China, Charlton does say that current attitudes are likely to affect fresh investment. “The tensions between protecting domestic industry and encouraging foreign investment are being played out in China now, and for that matter in emerging economies throughout the region,” he says. “Having said this, there is a recognition of the need to encourage investment where investment is needed while limiting exposure to the West. The consequence is that we may well see a situation where only low-key investments go through and high-profile investments are put on hold for calmer times…”
“But these calmer times are closer then we may think.” ALB