On June 23, 2016, the U.K.'s historic Brexit vote to leave the European Union (E.U.) sent shockwaves around the world and raised many questions about what an exit from Europe will mean for the U.K. and for the broader global economy.
Forecasters feared Brexit's reverberations had the potential to inflict a lasting wound to Britain's economy and send the country into crisis. However, as reports show, Britain is weathering the storm better than expected, at least so far. And in an unusual step, the Bank of England delivered an amended, more favorable outlook for the U.K. economy. The initial shock has calmed, and while still operating in an unpredictable environment, "business" has done what it does best-get on with business, and that includes law firms.
On March 29, as this issue was going to press, the UK invoked Article 50 of the Lisbon Treaty, officially beginning the council's formal process of withdrawing from the EU.
The U.K. remains one of the most important financial centers in the global economy - too important to not be protected. While Brexit will inevitably cause economic uncertainty, the general position at the moment is to remain cautious and take a wait-and-see approach. The U.K. is not out of Europe yet, although Article 50 has now been formally ratified by Parliament, which means there's still time for businesses to adjust and anticipate as best they can. Furthermore, it appears the financial services sector remains relatively robust (give or take the odd multi-billion dollar fine), and many law firms, both in the U.S. and U.K., are continuing to see opportunities in London and across Europe.
The legal industry is resilient in times of uncertainty. Lawyers are helping clients navigate what Brexit means for their businesses by making sense of the regulatory and legislative shifts underway. Many of the major U.S. law firms with offices in London continue to grow their capabilities in key strategic areas such as private equity, leverage finance, arbitration , anti-trust, intellectual property, regulation, restructuring and commercial litigation. These large U.S. firms are betting that London will continue to be an important strategic market, regardless of how Brexit unfolds - but they also see advantages because of Brexit.
After all, uncertainty creates commercial opportunity.
One key advantage for U.S. firms is the liquid lateral market. The lateral market is strong for law firm partners in the U.K., and U.S. law firms are seizing the opportunity to hire top U.K. lawyers who are outperforming their current firms. How long the lateral market will remain hot is an open question - like all markets, the legal lateral recruitment market is cyclical. However, Brexit, it appears, has not satiated the appetite of many U.S. law firms to continue to build top London and European offerings while continuing to erode U.K. law firm market share.
Firms with foresight, planning and an international footprint with top quality lawyers should be well placed post-Brexit, as the transition in itself will create demand for lawyers to help businesses understand and comply with a new regulatory environment and a changing financial services dynamic. Major law firms with reputations for working on large-scale, complex, international regulatory issues will be in demand, as will lawyers who can help clients balance opportunity against risk.
Additionally, there is systemic change in many U.K. law finns, particularly among some members of the Magic Circle that are losing partners to U.S. competitors in London. Sluggishness around modifying traditional lock-step compensation models, too many lawyers in management , and a new generation of British partners who are outperforming their firms provide talent-hungry competitors the chance to offer compelling platforms and strong financial incentives.
Lawyers in London are also benefitting from news that the U.K. government is ramping up hiring of top legal expertise to help negotiate new trade deals and unravel what will be complex legal issues caused by Brexit. Since Brussels is the center of all things "E.U.," most of the major U.S. and U.K. law firms have a presence there. That will continue, but there is an increase in demand by major firms in London for antitrust lawyers to deal with the U.K.'s newfound freedom to draw up its own competition laws. The Competition and Markets Authority (CMA) will play a pivotal role overseeing cross-border cartel investigations, amongst other matters where the European Commission will not have jurisdiction.
Meanwhile, demand for major firms to have a presence in large European markets is also high. Merger activity has picked up in recent years, and signs show that these conversations are continuing. Top-tier firms will continue to grow, albeit with a degree of caution, but U.K.-based mid-market firms may look to merge with other mid -market U.K.or U.S.-based firms in order to compete with their more established counterparts.
By contrast, we're seeing a more cautious approach toward growing legal teams on the in-house side for U.S. companies with a presence in London. Large financial services companies are not adding to their overall teams in London right now, and that goes for lawyers as well. Once there's more clarity on how the U.K. will exit the European Union, companies will be able to better make business decisions that will inevitably affect their in-house teams.
Brexit has, de facto, triggered economic uncertainty for the U.K; it remains in the hands of the U.K. government to negotiate an exit plan which will mitigate economic stress. Nonetheless , sentiment in the London legal market, particularly among U.S. law firms, remains positive. One senior partner from a London office of a U.S. law firm recently said, "Brexit means very little to us other than the fact it throws up uncertainty in U.K. law firms and provides an opportunity to hire great partners in key strategic areas."
As the U.K.'s Parliament deliberates the terms of the country's exit from Europe. more will become clear. But in the midst of this ambiguity, the London lateral market remains extremely busy. U.S. law firms are front and center of what looks to be an unprecedented hiring spree and are seizing the opportunity to strengthen their already considerable presence in London.
Brexit is, and will continue to be, a major event both economically and socially. As business adapts to a rapidly changing commercial environment, law firms will need to adapt with their clients. Uncertainty is never straightforward and the legal complexities that the exit from the E.U. will generate mean legal services will be in demand across practice areas.
Many law firms, particularly those based in the U.S., are remaining focused on hiring accretive, strategically import ant partner s and team. U.S. law firms are part and parcel of the London legal landscape and no longer "new joiners" to the City.
Indeed, U.S. law finns have been a disruptive influence changing the dynamic of the lateral legal market and are well-positioned to take advantage of the consequences of Brexit.
This article was originally featured in Wall Street Lawyer, Volume 21, Issue 4; April 2017.