Nitzkowski spells out strategy

Managing partner of Paul Hastings discusses plans for a new office in Korea and legal reform in China.

Greg Nitzkowski, worldwide managing partner of law firm Paul Hastings, recently flew in from California for a pow-wow with his senior partners in Asia. Top of the agenda was the firm's strategy towards ensuring continued growth in China's young legal market. FinanceAsia pulled him aside, along with top Hong Kong-based partners Neil Torpey and Donald Koo, to ask a few questions of our own.
China is a fairly restrictive legal market. Would you like greater freedom?
Nitzkowski: Actually, when you look at markets around the world, China is right in the middle of the spectrum in terms of what it permits non-Chinese lawyers to do. Do I wish it was more open? Of course. It would make it easier to serve clients, but I'd say that China is not aberrant in those restrictions and will move to greater liberalization of those rules just as we've seen in Japan. In comparison to South Korea, China is much more open. As you know, foreign firms can't even have a representative office in Seoul.
Chinese firms are not as developed as their Korean counterparts. Would the legal industry in China actually stand to benefit from greater openness towards international firms?
Nitzkowski: We understand why in a nascent service industry protections are pretty strong – UK and US law firms have obviously been at this for a long time and are aggressive competitors. But ultimately what you find is that their presence ends up bringing a lot to those markets; tremendous experience and expertise in transactions, which helps bring up the quality level of everyone in the market. US firms also have a tradition and history of giving back to the community: pro bono activities, scholarships to law students – those things largely didn't exist outside the United States until they were created in foreign markets through the presence of the US model. Those are all very positive factors in the market overall.
China's development, and in particular Shanghai's, has been so rapid – is there any sense that Hong Kong is becoming less relevant?
Koo: Hong Kong and China work hand in hand. If you look at the market in new products, for instance, Hong Kong still serves a very important purpose.
Torpey: China is a huge market with a lot of sub-markets; just like Europe has important financial centres in London, Paris and Frankfurt there are absolutely going to be a number of important financial centres in China. Shanghai will be one, Hong Kong will be another. From that perspective, Hong Kong will be at least as important as it is now for the remainder of our professional careers and well beyond that. There's a huge amount of infrastructure here: lawyers and accountants and investment bankers. From the Chinese government's perspective, there would be no sense in allowing that infrastructure to whither away.
Nitzkowski: Look at the IPO market. There is no vehicle at present for access to that kind of capital in the Chinese financial markets for obvious reasons relating to regulatory structures and convertibility of currency, so we think Hong Kong and China will be hand in hand for as far as we can see in the future.
How competitive is the market for legal services in China?
Nitzkowski: It's intensely competitive. China is a focus of all of the leading global firms. The Magic Circle firms are all very focused on opportunities in China, notwithstanding a few tough years, and they are formidable brands and formidable competitors. We expect that other US firms like us, with global ambitions, will continue to make long-term investments in China, so we think the market's just going to get more competitive.
The question for all of us will be whether there's enough talent in the market, with the necessary substantive skills, cultural skills and language skills to make a successful office of a global law firm. The competition for talent is the most important competition we face. That's the real limit on how we can grow in any market, but we're optimistic and we believe we can find the talent.
Koo: If you look at China, it is moving very quickly compared to Hong Kong. Hong Kong developed into an international legal and financial market over about 40 years. China is compressing its development maybe 15 or 20 years and it has already entered the international phase. The market sophistication is increasing and it's becoming more international, so you really require a lot of talent.
What does that competition mean for fee levels?
Nitzkowski: Price competition is intense in this market, in part because there are a lot of firms investing in global practices here and the size of the market probably doesn't support all the investment that's been made and that absolutely puts pressure on pricing. The slowness in M&A and capital markets transactions has led to very aggressive pricing.
Torpey: Another one of their responses, and the response of some US firms, has been to desert some markets. We see firms closing down in Bangkok, Singapore, moving people from here back to London. Those things highlight how challenging these markets are.
So is your China practice profitable?
Nitzkowski: We don't analyze our offices in terms of individual profitability. Obviously, over the course of any four- or five-year period some offices are up and some are down. Profitability in a global law firm is a very complex picture. We try to proceed cautiously when investing in new lawyers and staff; we try to manage ourselves as tightly as we can as a business but over the long term we are confident that we will grow and prosper. We have already had a substantial return on our investments in Asia, in general, and in our China offices, in particular, and we just think the opportunities in Asia will continue to be tremendous.
Does Paul Hastings still consider itself a Californian firm?
Torpey: No, it's really not accurate to say we're a Californian firm. You could say we don't have a headquarters. Our chairman, which is an elected position, could be in any office in the firm – he happens at the moment to be in New York. Greg, our managing partner, happens to be in California. The fact that we have our roots in southern California is historical and interesting, but not reflective of our practice, which is global in nature.
Nitzkowski: We consider Paul Hastings to be an international firm. We have 15 offices worldwide with over 200 lawyers in Europe and Asia. While the Firm was started in California and we have a large presence there, presently, New York is our largest office. We would also be delighted to have our largest office in Shanghai if that's what our business demanded and where the opportunities were greatest.
Why is it that so many firms with their roots in California have grown out of that market?
Nitzkowski: In particular, the leading Los Angeles firms are distinguished as being much more successful out of their initial market than firms from any other market, whether it's in San Francisco or Chicago or New York. Why that is I don't know. Los Angeles is a relatively small market in terms of its corporate business, so we had to be a little scrappier and more aggressive, and seek opportunities outside of Los Angeles earlier on. That probably explains some of it.
What distinguished Paul Hastings was that we had founding partners who had a vision that extended beyond their own immediate situation. They were very focused on building an institution and ultimately becoming regional, then national. The firm was created post-World War II – as our founder used to say, after all the good clients were already taken – so those times demanded a more individually entrepreneurial culture.
Do you plan to open offices in any other Asian markets?
Nitzkowski: We'll likely have an office in Seoul if Korea opens up in 2007. Our goal is to get bigger and stronger in the world's key markets, but I don't think we'll ever be like some other firms with 35 offices worldwide. From our perspective a key challenge as we grow is to remain a worldwide partnership that is cohesive and shares a commonality of purpose.

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