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Cleary Gottlieb
The new face of Cleary Francisco Enrique González Díaz is the new face of Cleary Gottlieb, a tough, no-nonsense lawyer hired from a controversial EU posting. He’s a prime example of the transformations the conservative firm is being forced to effect in Europe CHRIS CROWE
42 Legal Business March 2004
FRANCISCO ENRIQUE GONZALEZ DIAZ, who joined Cleary Gottlieb Steen & Hamilton last October, is the firm’s most controversial lateral hire to date. In his five years at the European Commission’s Merger Task Force, many a partner in private practice came up against his assertive personality. González Díaz is the antithesis of the firm’s traditionally conservative values, but he does encapsulate the modern Cleary Gottlieb. ‘He’s very opinionated,’ one Magic Circle London partner says. ‘He’ll walk into a room and declare he’s only got two minutes,’ adds a Brussels partner at a US firm. González Díaz’s profile in the European Commission could hardly have been greater. Now he’s part of the new toughened-up Cleary Gottlieb, a firm that is reacting to an increasingly competitive European and global market. González Díaz is surprised by the formidable reputation he has acquired. The 42year-old thinks his style will suit Cleary Gottlieb. ‘In the Commission, and in private practice, you have to form an opinion and convey that to the Commission or the client,’ he explains. ‘If the opinion is endorsed by the client you must stick to that as much as you can.’ He will give Cleary Gottlieb a tougher edge as it evolves from a cautious animal to a more dynamic beast. Cleary Gottlieb – that veteran of international legal services – is expanding its partnership. Eight new faces have arrived in the last two years, partners are being elected with urgency and the firm’s management is identifying further gaps to fill. A new Cologne office is the latest development. The firm’s collective ethos and decentralised management is under threat.
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RECENT LATERAL HIRES
Klaus Riehmer 2004 Frankfurt Haarmann Hemmelrath Brought necessary M&A expertise to the firm, which will increase its market share in the sector.
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Dirk Schroeder 2003 Cologne Linklaters Was head of Linklaters’ German antitrust practice and supplied missing piece in Cleary’s EU and competition jigsaw. Launched the firm’s new Cologne office.
According to Legal Business in November 2000, Cleary Gottlieb had 143 equity partners. In January 2004, it boasted 169 partners – that’s 18.2% growth in a little over three years. At that rate, the firm will have some 200 partners in 2007. Back in 2000, Cleary Gottlieb only hired partners in extreme circumstances. It was enough for partners to assert – in private at least – that the firm wasn’t in the recruitment business. Conservative firms are changing tack. Think of London’s Macfarlanes, which broke its longstanding nonrecruitment precedent by hiring two finance partners last year. But Cleary Gottlieb isn’t content with growing its partner numbers merely through recruitment. On 1 January 2003, the firm elected 11 new partners and four new counsel, the largest number of promotions to the senior echelon in its history. It promoted a further five new partners on 1 January 2004, and six new counsel. For a firm that has a small partnership compared to internationally minded rivals, that is quite an expansion – and a radical turnaround. This rapid growth should be a concern for those like former Linklaters tax partner Nikhil Mehta who joined Cleary Gottlieb in July 2002 for the collegiate culture. ‘Cleary Gottlieb is much like Linklaters used to be,’ Mehta says. ‘There is a feeling that this is a group of select people
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Romina Polley 2003 Cologne Linklaters Schroeder’s prodigy at Linklaters. Regarded by many as the most talented young individual to practice antitrust in Germany.
and a cosmopolitan society. You feel like a partner, whereas I came from a firm that is highly managed.’ Mehta says that the partnership is still small enough to be self-regulated. ‘If we get to 200 partners, these are the [management] challenges we’ll have to address.’ Cleary Gottlieb is wedded to the idea that it must grow. ‘We have to recognise the increasing competition. We are smaller in some markets than we should be,’ London partner and executive committee member Ed Greene admits, himself one of the rare lateral recruits of the last few decades. Greene was general counsel of the US Securities and Exchange Commission before he joined Cleary Gottlieb in 1983. His new partners already knew him by name, sight and even sound. Unlike Greene, recent recruits have not already been part of the Cleary Gottlieb fabric. So here is the quandary. Cleary Gottlieb has the most cohesive partnership of all truly global firms, but is desperate to bolster its once pre-eminent European business.
Francisco Enrique González Díaz 2003 Brussels European Commission A controversial figure within the European Commission. Clearly an example of Cleary’s all-new less conservative style.
Europe facing Cleary Gottlieb has always been looked upon with reverence in continental Europe. It has serviced French clients ever since its inauguration back in 1946 and has developed market-leading offices in Paris and Brussels, launched in 1949 and 1960 respectively. But the firm’s position as Europe’s master is now looking less secure. A decade ago, beacons of legal excellence shone out of its continental bases of Brussels and Paris. Now these beacons are amongst a Manhattan skyline of other leading lights. ‘It’s not like ten years ago when we were the leading international law firm,’ New York partner Richard Lincer admits. Take Freshfields Bruckhaus Deringer – it is virtually on a par with Cleary Gottlieb in Brussels, but is also the leading global firm in Germany. It’s not far behind in Paris and boasts that Cleary Gottlieb is miles behind in London. And Clifford Chance is there or thereabouts in every core European jurisdiction. These are the new titans of the European map, though both would walk through fire to have Cleary Gottlieb’s New York and Washington, DC business. The fight is also on with US contemporaries like Latham & Watkins. The name was hardly known five years ago in London, Frankfurt, Brussels and Paris, but now its market share and profits have shot up, with the European business playing a pivotal role
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Lewis Liman 2003 New York Wilmer Cutler Pickering Securities litigation specialist with an impressive record acting for bulge bracket investment banks.
David Becker 2003 Washington, DC US Securities and Exchange Commission Another former SEC counsel, a favoured ground for Cleary’s rare recruits (London partner Edward Greene is another).
(see ‘The “Patient” Five of Legal Business’s Global Elite’). According to one Magic Circle senior partner, Cleary Gottlieb’s European partners have been begging for additional resources for some time. Citing Germany as an example, he says Cleary Gottlieb now has its work cut out. ‘If they want the full deal capability, then they need to match a Shearman & Sterling operation, but that would be bloody difficult,’ he admits. The ease with which Cleary Gottlieb recently plucked two leading German figures in M&A specialist Klaus Riehmer and antitrust guru Dirk Schroeder, suggests the target is not completely out of reach. One Slaughter and May partner says: ‘Cleary Gottlieb doesn’t hire crap.’ But New York’s Michael Ryan says that Cleary Gottlieb doesn’t want swathes of feeearners. ‘There are firms that are engaging in serial mergers. We will not engage in that kind of practise. We have a different strategy and that works well for us. We have come off our third successive record financial year and we have a worldwide client portfolio that all the serial merger firms would envy.’ Cleary Gottlieb will continue its vigorous growth of the partnership, but partners are united in their distrust of
Nikhil Mehta 2002 London Linklaters Another Linklaters recruit adding valuable tax expertise to Cleary’s London office.
mergers. ‘The more we hear about disaffected partners at firms involved in mergers, the more we feel comfortable with our approach,’ says New York partner and executive committee member, Mark Walker.
Holding the fort With the more dynamic international development of the firm, management is a far more demanding task than it was five years ago. Managing partner Peter Karasz is into his second term as leader of the firm, which he will complete in December 2005. ‘When I took the job four years ago I told Ned Stiles [his predecessor] I’d do 50% client work,’ he admits.
Pascal Coudin 2001 Paris Jeantet Another experienced tax specialist enhancing Cleary’s flagship European office; he started the new trend.
‘But with 9/11, when the building was closed for three months, it became a fulltime job. We don’t have anyone else.’ Karasz is supported by an executive committee of ten other partners. The committee can technically make decisions, but by convention it encourages agreement amongst the partnership. Ed Greene says: ‘The key people influence consensus. If everyone buys in and we get it wrong, no one gets blamed.’ The committee members serve one term of three years and choose their successors. Only one member is allowed to serve consecutive terms – this is currently Mark Walker. The constant changeover of members is designed to bring fresh ideas to the table. Those currently on the board stress that they listen to the thoughts of the partnership and try to facilitate action. They do not take >
‘There are firms that are engaging in serial mergers. We will not engage in that kind of practice. We have a different strategy and that works well for us.’ Michael Ryan, Cleary Gottlieb Steen & Hamilton March 2004 Legal Business 45
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A CLEARY CAREER Take 14 years to reach the top of the lockstep Law school graduation, join Cleary
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Drop steadily till enforced retirement at 70.
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> decisions and impose change. ‘We have to reach a consensus. We’ll hear people out and make a decision as to how strong the opposition is,’ New York partner Richard Lincer comments. ‘We may miss some opportunities as a result. Given our lockstep system, you can’t dilute that.’ It’s an attractive feature of the firm and clients highlight the personal relationships that are built with its esteemed partners. One tax specialist at Barclays Capital says he hopes that Cleary Gottlieb won’t lose the consistent high standards inherent in a relatively small partnership and a firm that has traditionally rooted out the finest graduates. According to Brussels antitrust partner Romano Subiotto, the firm pays the top rates to newly qualified lawyers in each jurisdiction. DuPont’s Swiss-based corporate in-house counsel, Terrence Vandeveld, says: ‘Big for the sake of being big is not necessarily beautiful. We don’t need a firm that knows everything about everything.’ Vandeveld raises a hypothetical example where he would use Skadden Arps in the US for an M&A transaction and Eversheds doing the UK element of the deal. (Eversheds has a strong connection to DuPont, especially in Europe. It is on DuPont’s ‘wheel’ of advisers and handles a continual flow of work in return for modest charge-out rates.) For US antitrust, DuPont has established connections with Crowell & Moring in Washington, DC, but prefers to use Cleary Gottlieb for European aspects. That is how sophisticated clients work these days. If so, Cleary Gottlieb might be better off flaunting its world-class capital markets and antitrust practices, while working on enhancing its solid M&A platform.
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Taking chances Despite the rigmarole of running every key decision past the partnership, Cleary Gottlieb has taken opportunities over the last two years and that intensity has been turned up a notch in recent months. Three new partners in Germany and a new Cologne office are not indicative of a firm that is overly cautious. Although new partners are put through a daunting interview process with some 70% of the partnership, Cleary Gottlieb appears willing to make tough business decisions to bolster resources and grow market share. London is clearly a part of the business that needs work. ‘We need to be a size where we can do two or three sophisticated transactions at the same time. M&A and finance is where we need to grow,’ London
‘The key people influence consensus. If everyone buys in and we get it wrong, no one gets blamed.’ Ed Greene, Cleary Gottlieb Steen & Hamilton
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partner Glen Scarcliffe says. Fellow London partner (and Russia specialist) Daniel Braverman adds: ‘We need to persuade clients who are a bit hesitant to use us that we have the bench strength. But we are not looking to become a full-service UK law firm.’ Braverman is leading the firm’s excellent showing in Russian-related securities work. Cleary Gottlieb counts all the global investment banks amongst its top 15 clients. ‘We are favoured counsel of the house, wherever the house may be,’ quips New York partner Michael Ryan. Although New York holds the largest key to most of these institutional clients, Ryan firmly believes that every office plays a pivotal role. In capital markets, Cleary Gottlieb has exploited its Wall Street standing and New York partner Richard Lincer says this is one of the firm’s key achievements in the last decade. He talks of the traditional New York holy trinity of Cravath, Swaine & Moore, Davis Polk & Wardwell and Sullivan & Cromwell, and insists it must find room for a fourth. ‘Basically, we can offer a global aspect that others can’t,’ Lincer says. ‘Cravath is just US and Sullivan and Davis Polk are only just starting to grow internationally.’ It’s true that Cravath does not have any locally qualified partners in its only foreign office, London. However, Sullivan and Davis Polk have shown willingness to develop locally qualified talent in their non-US branches. In Thomson Financial’s 2003 worldwide announced M&A league tables by value, Cleary Gottlieb ranked a creditable fifth. In the US, it ranked third: New York, unsurprisingly, still holds the ultimate power over Europe and Asia. But global clients demand a more complex set of priorities.
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Take Texas Pacific, a client looked after by Michael Ryan. It accounts for a significant part of Europe’s work – some 50% of the fees is generated by US business, with 25% each in the European and Asian regions. But Europe has delivered its own business. Siemens, Deutsche Telekom, Bank Austria, Vivendi Universal and HSBC are but a few examples of European offices generating clients.
Positioning Closer analysis of Thomson Financial’s M&A league tables for 2003 suggests that Cleary Gottlieb is losing market share. Of course, league tables are but a snapshot of firms’ track records, but 2003 was a mediocre year for Cleary Gottlieb in Europe, on the M&A front at least. Mergermarket UK rankings for M&A by value in 2003 have Cleary Gottlieb in 20th position, down from eighth in 2002. In the Benelux region, Cleary Gottlieb failed to rank and in Italy it came 15th – down from third in 2002. In France, it was 12th compared to fourth the year before. Cleary Gottlieb’s managing partner, Peter Karasz, is unperturbed: ‘I don’t think the annual ranking is necessarily relevant,’ he says. Try telling that to juggernauts like Skadden, Arps, Slate, Meagher & Flom, Linklaters or Freshfields. These are the competition, and aggression is their language. Cleary Gottlieb is beginning to drop its shoulder and play the game. But one London managing partner of a rival US firm thinks that Cleary Gottlieb has missed the boat. ‘Our view is that they had a great platform, but they have been standing still for quite a few years,’ he says. ‘Other people have caught up, including the UK firms. You can’t stand still really, can you.’ Think of Latham & Watkins and its impressive momentum from nowhere on a global level five years ago to a major name in the US, Europe and Asia. Yes, it doesn’t have the collegiate lockstep partnership of Cleary Gottlieb, but its aggressive and dynamic opportunism has paid off, financially at least. At year-end 2003, the firm posted gross revenue figures of $1.03bn (£545m) – a massive 14% growth on 2002. PEP reached an impressive $1.27m (£762,000), a 12% growth on 2002. Cleary Gottlieb has yet to announce 2003 year-end financials but, according to the Legal Business Global 100 in 2003, its gross revenue stood at £354m and PEP at £963,000 for 2002.
Cleary Gottlieb must be looking over its shoulder at the renewed aggression of Wall Street nemeses Simpson Thacher and Sullivan & Cromwell. Both are making efforts to build significant businesses in Cleary Gottlieb’s old stomping ground, continental Europe. Their efforts have not gone unrewarded. Sullivan hired three senior French-qualified partners in 2001 and is starting to rake in instructions to rival those of Cleary Gottlieb. Last year it advised the financial adviser for Crédit Lyonnais in its $16.8bn (£9.24bn) acquisition by Crédit Agricole, while Cleary acted for Crédit Lyonnais. Though Sullivan’s Paris office has existed for decades, it has only recently made concerted efforts to win domestic business. Sullivan came fourth in Thomson Financial’s 2003 French M&A league tables by value, compared to Cleary Gottlieb’s seventh. Game on.
Cleary Gottlieb, that’s the overriding issue. Ever more firms are fighting for the same work. Cleary Gottlieb is now appreciating that growing a respected M&A practice cannot be achieved purely through organic development – sometimes tinkering with the machine pays dividends. But retaining its most attractive attributes – a collegiate culture and consistent high levels of expertise – is even more imperative. ‘When it comes to competition, all the people have been groomed in Brussels and you have a unity of thinking. You expect a similar quality,’ DuPont’s Vandeveld says. For Cleary Gottlieb’s softly-softly management structure this will be crucial, but holding onto its prized collegiate culture as the partnership grows will be even more demanding. ‘Every couple of years we raise the issue that we are too big to maintain our management structure, but there haven’t been any changes,’ London’s Glen Scarcliffe says. When it’s 2007 and the partnership hits 200, Scarcliffe’s colleagues will be forced to raise the issue rather more often. Partners like González Díaz are the ideal types to do so. A new Cleary Gottlieb has arrived. LB chris.crowe@legalease.co.uk
THE ‘PATIENT’ FIVE OF LEGAL BUSINESS’S GLOBAL ELITE Equity partners PEP Cleary Gottlieb Steen & Hamilton 169 £963,000 152 £924,000 145 £833,300 Herbert Smith 103 £740,000 101 £662,000 102 £758,000 Shearman & Sterling 189 £850,000 179 £740,000 163 £900,000 Sidley Austin Brown & Wood 256 £543,000 259 £509,000 193 £453,300 Skadden, Arps, Slate, Meagher & Flom 336 £1,070,000 316 £1,091,000 302 £1,066,700 For the full global elite figures, and details of the patient, prudent and potent,
Gross revenue £354.0m £343.2m £306.7m £241.0m £225.0m £209.0m £466.7m £432.1m £393.3m £554.0m £498.8m £315.3m £873.3m £854.6m £769.3m 2003
2002
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see the November 2003 cover story of Legal Business
March 2004 Legal Business 47