When Bryan Wilson joined Linklaters at the turn of the millennium opportunities were abundant. An ambitious young associate, keen to make his mark, Wilson was posted to Prague in 2001 to help establish the real estate practice. “It went really well for the first two years, and I was asked to stay,” he recalls.
He had every reason to be optimistic. The firm was growing rapidly during this period. Wilson assumed an increasing amount of responsibility. He proved himself capable of leading transactions and was promoted to managing associate.
In time, he took the helm of the regional property group. But then his rise was checked, and a deep disillusionment kicked in. “Over time, it became apparent to me that, no matter what I did, I was never going to become partner,” the 37-year-old Briton recalls. “I felt I was banging my head against the wall.”
Wilson ended his frustrations early last year. He resigned, taking seven other Linklaters lawyers with him to form Prague-based independent Wilson & Partners. “Colleagues at Linklaters were disappointed and angry at us,” he recalls. “But what did they expect?”
Linklaters’ Eastern European operation has grown accustomed to mass exits. In the last few years, an ever-growing stream of lawyers, disgruntled by scant partnership prospects, have quit for pastures new.
Partnership, especially in peripheral jurisdictions, remains painfully elusive. Linklaters has made up six partners – just two of which are equity partners – in the Czech Republic, Slovakia, Hungary and Romania since it opened offices there eight years ago.
Building a global network, coupled with a tight lockstep, presents inherent pitfalls. Linklaters has more than 2,500 lawyers – but makes up about 30 partners each year. It has, naturally, focused on high-yield locations, like London, Beijing and New York, at the expense of jurisdictions limited by turnover and workflow.
“For places like Prague, there is obviously a maximum number of partners you can have,” concedes Wilson.
This lack of opportunity is the driver behind a slew of exits. Romanian managing associate Adrian Bulboaca, who ran the finance group, was one of the Bucharest office’s rising stars. But he left last year to launch his own firm, taking six associates with him. “The office’s future depended on locals having a realistic chance of becoming partner,” he says. “Expats bring a lot of value, but many go back after a few years. It’s critical to have a strong local partnership because its interests align with the office’s long-term success. But Linklaters never committed to such an approach. It never saw CEE as a strategic market. As such, it was inevitable the Bucharest office would shut down eventually.”
Bratislava-based Pavol Blanvár is another disenchanted former associate. Like the others, he quit to set up his own firm. “There was a lot of disillusionment among the young lawyers at Linklaters,” explains Blanvár, who resigned three years ago.
“People work extremely long hours and need to feel they are working towards something. Linklaters has many talented lawyers, but too many are unable to progress their careers. Some offices get left behind.”
Back at its London HQ Linklaters’ management has gradually come to terms with the problem. “It was not possible to give enough equity away so that young lawyers in the four CEE offices had the right kind of career path,” admits Nick Eastwell, Linklaters’ London-based regional chief.
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By spring this year the situation had come to a head. Jason Mogg, Linklaters’ CEE boss, had repeatedly pushed for new partners, with only minimal success.
The deadlock was hindering the four offices’ prospects. “We needed new partners to sustain the practice over the long term, but Linklaters was unwilling to invest,” Mogg admits.
Moreover, staff he did have were quitting in frustration. Mogg, a 45-year-old Canadian, has lived in Eastern Europe for 15 years. He put roots down, married a local, and has spent the last eight as a managing partner at Linklaters building the firm’s local operations. But, unfortunately for him, the firm didn’t share his commitment to the region.
Linklaters’ new leadership – senior partner David Cheyne and managing partner Simon Davies – were even less inclined to invest in secondary jurisdictions. Instead, the firm redoubled its focus on select markets. London remained more important than ever, and internationally, New York, China, Dubai, and increasingly Moscow, were at the forefront of its strategy. Prague, Bratislava, Budapest and Bucharest were distant concerns.
To Mogg, this seemed unfair. The offices reaped healthy profits and served a loyal client base. Prague’s turnover hit about €8.5 million last year. Bratislava saw about €6 million. The four offices combined reached €27 million. But this must be put in context. Moscow, the region’s boomtown, made more than all four combined. In the end, the firm’s top brass put an end to the conflict. In April it decided to axe its offices in Prague, Bratislava, Budapest and Bucharest. “All the major investment banks are focusing on Moscow and Warsaw,” explains Linklaters’ regional chief Nick Eastwell. “But very few, if any, now have on-the-ground operations in the Czech Republic, Hungary, Slovakia and Romania. In light of such changes we had to consider whether it made sense to continue having fully fledged offices in these countries.”
This put Mogg in a bind. He could walk away from Prague to a new role in the Warsaw office, but this was a bitter pill to swallow. He had spent the last decade building up the firm’s CEE operation piece by piece: hiring local lawyers; developing client relationships; amassing regional expertise.
Mogg had the livelihoods of 125 staff to think about. “Once Linklaters made its decision [to axe the offices] we looked at shutting the door, turning the keys and laying everybody off,” he admits. “But it didn’t make much sense.”
“I thought a lot about the years I had spent building up these practices. I thought about the people. I felt a sense of commitment to them. I realised I had a big decision to make.”
Mogg weighed up the pros and cons of establishing a new firm out of the framework of the old. There was a lot to think about: the logistics involved; the hidden costs; how best to maintain the practices; persuading the staff; convincing the clients. He had a lot of sleepless nights.
“I knew at a certain point I had to decide. But I waited for as long as I could. I hemmed and hawed, bounced every angle around in my mind. It was a very difficult decision.” In the end Mogg decided to strike out as an independent.
The Prague, Bucharest, Budapest and Bratislava offices will reopen on November 1 as a new firm led by Mogg. The 125 staff will keep their jobs.
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The new, as yet unnamed, nine-partner outfit will have a ‘best friends’ agreement with Linklaters. This is quite a U-turn. The magic circle giant has long championed integrated networks as the only sure-fire way to guarantee quality. “Alliances don’t give you the drive, integration and global platform to be really effective,” said then-managing partner Tony Angel in April last year.
“Our message to global institutions is you’ll get the same Linklaters quality wherever you use us around the world.”
“Things have moved on in the last couple of years,” concedes Linklaters’ Nick Eastwell. The jurisdictions facing the chop are no longer central to the needs of the clients Linklaters most values. “We are led by our clients. We go where they go. When we opened the four CEE offices ten years ago they were emerging economies about to join the EU. They represented all sorts of great opportunities. But in the last decade these markets have become much more mature. We have found that clients have moved their focus towards more emerging markets. We can’t possibly hope, as a global firm with limited resources, to have offices in every jurisdiction.”
Linklaters’ rivals pursue a different line. Clifford Chance has had offices in the Czech Republic and Hungary since the mid-1990s and has no plans to pull out.
Allen & Overy has been in Bratislava, Prague and Budapest for a similar length of time. Both firms cite newly appointed local partners as proof of their commitment to the region. “Linklaters’ withdrawal came as a surprise given that Central and Eastern Europe is performing strongly,” says Alex Cook, a Prague-based partner at Clifford Chance.
“These remain interesting markets. The individual countries may not get on the radar, but the region as a whole does well. Linklaters’ actions may prove premature.”
However, Freshfields pulled out of Prague six years ago when local partners assumed ownership of the practice. Likewise, its 28-lawyer Budapest operation morphed into an independent firm last year. Instead, Freshfields works with local outfits in the region when required.
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The wisdom of Linklaters’ decision is now moot. The firm is pressing ahead. Its name will be scrubbed from the hoardings in a few months’ time. The million-dollar question is whether its clients are happy with the new ‘best friends’ arrangement. Early reports look mixed.
Since the change was announced several clients have allegedly contacted rival firms in the region asking for quotes. “Jason Mogg says the new firm will charge the same fees and clients are questioning that,” says a lawyer at a rival firm. Irish property company Ballymore uses Linklaters for real estate and corporate work in the region. But in-house counsel Steven Tennant is undecided whether this will continue. “There’s been a lot of hearsay about the changes,” he says. “We haven’t made any decisions.”
Likewise, Martina Brezinová, a general counsel at Citibank in Prague, is also on the fence. The bank, she says, has a list of approved firms it can use in the Czech Republic. The new firm will have to win its way onto it like any start-up.
ECM Real Estate Investments’ legal counsel Petr Jelinek says it will take time for clients to accept the new arrangement. “We know the work will be done by the same people,” he says. “But it will be difficult to explain to a bank providing us with loan financing that the due diligence isn’t being done by a reputable international firm they have heard of.”
“There’s always risks with a new venture,” concedes a tired-sounding Jason Mogg. He had spent the previous day in meetings from 7am till 2.30am laying groundwork for the shift. “We’ve got to get together with the Linklaters lawyers in London and talk to the clients. We’ve got to explain to them how it’s going to work and why they should be okay with it. “There’s always risk. It’s up to us and Linklaters to keep our relationship strong – we have a mutual interest in making it work.”
Unlikely Support: sympathy for Linklaters over JPMorgan conflicts row
The City’s elite is not exactly known for its magnanimity when rivals are in distress, making the universal sympathy shown to Linklaters after it lost one of its most prized clients all the more striking.
As most readers will be aware, the London firm was unceremoniously ditched by platinum client JPMorgan this summer following a row over its role in suing Bear Stearns on behalf of Barclays Bank.
Linklaters has acted for Barclays since December suing Bear Stearns for fraud, conspiracy and breach of fiduciary duty. Unfortunately for Linklaters, JPMorgan bought Bear Sterns in May and immediately put pressure on Linklaters to abandon the case. But senior partner David Cheyne took the view it could not dump a client once a case had been taken on.
This so infuriated JPMorgan chief Jamie Dimon that he cut all ties. Rumour has it he told staff that anyone using Linklaters faced the sack. This shutout could cost Linklaters millions. The firm makes the bulk of its revenue from a select group of premium clients — and clients don’t come much bigger than JPMorgan.
“It’s not usual I feel sympathy for Linklaters but on this occasion I did. When I heard about it I thought, but for the grace of God we would have been in exactly the same position,” says a senior partner at a magic circle firm. “To be honest, I think JPMorgan has been pretty unreasonable. When Linklaters took on the case there was no indication that JPMorgan was going to buy Bear Stearns. It was completely unforeseeable that they would end up in litigation against one of their major clients. It’s totally unrealistic to beat up a law firm that finds itself in that position.”
And it isn’t just magic circle firms that are sympathetic to Linklaters’ plight. Michael Seymour, general counsel at Lovells, says Linklaters was unlucky. “The firm had no knowledge that JPMorgan would buy Bear Stearns,” he points out. “It was a big call by Linklaters’ management, but they probably didn’t have any option. Someone’s got to act for Barclays in the litigation and JPMorgan obviously had their own strong views it should no longer be Linklaters, but there’s no legal conflict. In fact, it would have been professional misconduct to drop Barclays without Barclays’ consent.”
In other City lawyers’ eyes, the whole affair reeks of arrogance and double standards. “JPMorgan has been a bit heavy-handed,” says a top City partner at a rival firm. “The investment banks are not exactly paragons of loyalty. They play the field pretty hard when it comes to which law firms they appoint. JPMorgan’s actions seem a bit rich considering.”