Foreign law firms face new hurdles in the race to build India practices. Do they have the stamina to stay the course? George W Russell reports from Bangalore
With international financing severely crimped and billions of dollars worth of deals on hold, the international legal industry is facing its worst crises in decades. One of the few bright spots, relatively speaking, is India, which has so far avoided the darkest shadows cast by the worst global economic conditions since the 1930s.
That could put renewed pressure on India practice groups around the world to pick up the slack as law firm revenues plunge elsewhere. “Diversity, both in terms of practice area and geographic capability, remains an important element for law firms in terms of riding out the inevitable ups and downs of the business cycle,” says Greg Conway, head of the London office and a member of the India practice group at Simpson Thacher & Bartlett.
Indeed, many firms look upon geographical adaptability as a key advantage. “We believe that diversification – in areas in which we have core strengths and in areas that are not as badly hit by the global economic crisis as the US and Europe – preserves the health of our firm,” says Talat Ansari, partner and chair of the India practice group at Kelley Drye & Warren in New York.
In the US, where the financial meltdown began, international law firms have been ravaged. Heller Ehrman and Thelen vanished in San Francisco’s 2008 legal earthquake and New York-based firms Thacher Proffitt & Wood and Dreier are closing their doors. Among the survivors, Latham & Watkins cut its lawyer payroll by 190 in February, DLA Piper has shed more than 100 lawyers this year and UK-based Clifford Chance has let go at least 70. O’Melveny & Myers dropped 90 lawyers and Cooley Godward Kronish fired 50 legal staff. Cravath Swaine & Moore and Shearman & Sterling count themselves lucky: they have merely frozen salaries and reduced bonus pools.
Asian economies: Saviours or survivors?
As the economic news from North America and Europe continues to be grim, the world is turning with hope to Asia. Clark Hill is a law firm in one of the most recession-hit regions of the US: metropolitan Detroit. The firm is understandably eager to diversify beyond its domestic base. “India will very much act as a buffer,” says Mahesh Nayak, chair of the firm’s India practice group.
However, plunging demand for exports and global tightening of liquidity has meant that Asia has been unable to escape the havoc wrought elsewhere.
“A crisis of such magnitude in developed countries is bound to have an impact around the world,” Indian finance minister Pranab Mukherjee told his country’s parliament in February. “Most emerging market economies have slowed down significantly and India too has been affected.”
Asian economies appear to be taking cover and waiting for the resumption of demand, especially from the US. The so-called “decoupling” effect – in which major emerging economies such as India’s are supposed to have diverged from those of key developed nations such as the US, and thus become immune to American downturns – is nowhere to be seen. “The decoupling theory has gone out the window,” says Sidharth Bhasin, a partner at Shearman & Sterling in Hong Kong.