Deregulation needed for Asia's legal market

Peter Cornell, Global Managing Partner of Clifford Chance talks about his firm''s plans for Asia, the need for de-regulation and how lawyers always make money.

How is the firm doing in these difficult times?

Cornell: We have a financial year that goes from May to April, which we have just finished. Last year was a good year and although profits were down, we actually grew our revenues over the previous year. So without sounding complacent, it was a good performance. It showed how well hedged we are as a business both in terms of geography and practice areas. The obvious areas that were robust were litigation, restructuring and insolvency and to a degree, securitization. We think we had a good year under the circumstances.

So markets go up, markets go down, but the lawyers always make money...

Well, as I said, our profits are slightly down this year, because we've been investing in the people and systems we think our clients will need when things improve. As a balanced, well-hedged business what generally happens is that in really good times we do not do so well as those who are really focused on securities and M&A. But in the really bad times we tend to do better.

What's the view from the top table about the global securities Cornell Petermarkets at the moment given there's so much negative noise?

I spend a lot of time in New York talking to the heads of the big investment banks and only a few months ago they were saying that after the summer things would pick up. Talk to them now and they say it might happen in the next calendar year.

There is huge frustration around and it's ironic given that this is an area which we felt we needed to ramp up in our New York office. We had not got the securities side of Clifford Chance's business to the scale that we needed to in New York. So we have not lost as much as other firms. Had we grown it too quickly we would now have been twiddling our thumbs a bit. Some of the US firms that are heavily geared to this area have had a pretty miserable year. The long-term prognosis is that this market will be difficult. But our strategy is to build our presence in this area, and I believe it is the right strategy. It's a question of when, not if, it will come back, but it is all looking fairly soft at the moment.

When it does come back, will there be new rules and regulations that everyone will have to learn, which could be good business for the lawyers?

It is possible that there will be new legislation out of the US once this has all settled down. And that could be good for lawyers. It is possible that the future will not be a replication of what has gone before.

How does Asia fit into the picture within Clifford Chance?

Asia has always been a very important part of the whole make up of the firm. It was one of the first areas where we internationalized. I opened the Singapore office in 1981 and spent five years there. Asia has always been critical to us. However, it is different from other regions in that we've been precluded from practicing local law in most countries until recently. That means it does not replicate what we have done in continental Europe where we have grown strong local practices to compete head on with the locals.

Asia always has been and will continue to be an important part of the jigsaw. I was speaking to all the representatives of Clifford Chance's offices here recently and I get the impression that they're very confident about building our presence in the business community. We're expecting our Asian offices to have a very busy year. I am also very optimistic about China. Although we have all been saying that China is going to open up for the last ten years, I do sense that it is finally starting to move. That will be very important for our international clients and us.

As you say, there are still many impediments to you practicing local law and competing head on with the local firms in many countries in Asia. Are the fears of the regulators justified in preventing you practicing local law?

Looking at regulation globally, I would have to say no. If you look at what has happened in Europe, openness and flexibility have been good for everybody. Some of the big law firms in those jurisdictions have gone from strength to strength. Others have used it as a chance to merge with an international firm from the US, Europe or even an accounting firm.

All these things have provided big benefits to clients, better cross-border coverage, better service, more competition. If you look at the levels of business and, therefore, legal activity that deregulation has given rise to, it's a good thing. For instance, as Singapore opens up more, that will be good for everyone who works there, good for Singapore as a financial centre and good for raising its profile, I hope they go for it. It's good for the legal market and good for the business market as well.

It is interesting in Singapore how they set up the joint law venture system, with a lot of hassle, and now they might have to scrap it to get the free trade agreement with the US.

It would be ironic. But when you look at it, it is a great local market with great local firms. I think they should embrace liberalization.

Do you think lawyers and law firms should work in a different type of market than other businesses, with different rules and regulations and competitive forces?

It is already different because it is the law, not banking, finance, accounting or consultancy. So you have got a distinct system. But within that you do not have to make it any more difficult or regulated. I don't think it is a good thing to carve it up any more than just requiring local qualifications.

How is the competitive landscape here at the moment? Are there lots of firms chasing not many deals, pushing fees down?

It is competitive. We're competing with firms from the UK and the US and with good local firms, so it is very competitive in terms of the number of players that are here. This has always been a very competitive region with a whole raft of firms from all over the world operating here.

Given that level of competition, is the quality of work very high here?

The quality is very good in Asia. The clients and the deals are sophisticated. There is big demand for good legal work here.

What are your next plans for growth in Asia?

Growth will come particularly from China. We don't have plans to open other offices in the short term, but we might if regulations demand and if client demand pushes us that way.

Many investment banks hate the fact that they cannot use international law firms in Korea.

One or two of our guys spend a lot of time up there. But we can't just say that it is the next place on the map, so we should open an office there. It very much has to be in recognition of what clients want us to do. We would need to ensure quality control and ensure that we have the right type of work and clients.

Are you happy with your client splits in Asia?

It comes down to where the market is. It differs really from jurisdiction to jurisdiction. In Singapore, our business was very much focused initially on financial institutions. More recently we have ramped up the corporate side and in the future I expect that side to grow quicker than the others. The same goes for Tokyo. Initially it was finance work but as we embed our Japanese lawyers, I expect to see more international corporate work.

Generally we do both financial and corporate work but I would day we tend to be a bit underweight in quantitative terms on the corporate side รป that is the case for New York and London as well as Asia.

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