For much of its almost 300-year history, Freshfields had little need to look beyond London.
The law firm’s envied client list ran from the Bank of England to oil producer BP, while universities, including Oxford and Cambridge, provided a conveyor belt of graduates to be turned into the next generation of lawyers advising Britain’s biggest companies.
In 2000, Freshfields merged with two German firms to solidify a powerful continental European presence. But for the corporate law firms now battling to be the profession’s global elite, punching like a heavyweight in the UK and Europe only takes you so far: the US is where you need to land your blows.
It is something Georgia Dawson knows more than most. Last month the 44-year-old Australian was elected Freshfields’ first female leader, a rare achievement in a profession whose top ranks are still largely occupied by men. After smashing that glass ceiling, however, Ms Dawson’s challenges are just beginning.
According to partners, ex-partners and lawyers from rival firms spoken to by the Financial Times, her five-year tenure will determine whether Freshfields is able to make deeper inroads in the lucrative US market and cement a reputation as a global powerhouse.
“The election of Georgia reflects a much-needed generational shift at the firm, which needs to find a way to reward rising star partners,” said Christopher Clark, director of legal recruiter Definitum Search. The question for Freshfields is “whether it pushes yet more global expansion, or restructures the current business to focus on the most profitable areas from the jurisdictions it understands”.
The stakes are high. Among London’s elite corporate law firms — collectively known as the Magic Circle — Freshfields has had the most success in the US, where top lawyers can command $10m-a-year pay deals.
But it has come at a price. The dogged expansion has strained a partnership built on a rigid pay structure designed to reward time served over performance — a contrast to some notable American firms. At the same time, deep-pocketed US rivals such as Kirkland & Ellis and Latham & Watkins have turned their sights on London, poaching a string of star partners as they threaten the Magic Circle firms on their home turf.
Ahead of the pack
Ms Dawson, who joined Freshfields in 2004 and has run its Asian business since 2017, is unapologetic that the firm’s horizons must be global.
“We are really keen to use the next five years to take the firm forward and be highly competitive in all the key markets,” she told the Financial Times. “We want to remain highly relevant and ahead of the pack — and that includes with our US competitors.”
If the firm’s global standing is shaping up as a defining issue for Freshfields’ new leader, it will not be the only one when she returns to London in January as senior partner following her election by the firm's 395-strong partnership.
Her elevation marks an important moment for a firm where women account for just 19 per cent of partners. Last year the firm established a committee with the power to dock pay for bad behaviour after one of its senior lawyers was fined for misconduct over sexual harassment and another departed after an internal investigation.
Ms Dawson has assembled a management team from across the firm's practice groups, all of whom are aged under 50. Partners say her focus on making Freshfields an “inclusive and progressive place”, an aim she outlined to the FT, could breed loyalty.
Long known in Europe for its antitrust, M&A and litigation work, Freshfields’ inroads in the US, which it began making in earnest in the mid-2000s, have seen it pull ahead of other Magic Circle firms left scrapping for a toehold in the world’s most lucrative legal market.
The firm has over 200 lawyers in the US, a market turbocharged over the past decade by a booming private equity industry that throws off a huge volume of work. There is a newly established office in Silicon Valley, home to clients such Facebook, Google and Airbnb. Partners have been prised from US firms, notably last year’s hire of Google adviser Ethan Klingsberg, on a reputed $10m pay deal, alongside a team of M&A lawyers from Cleary Gottlieb.
The addition in early 2019 of Aimen Mir, who previously oversaw the Committee on Foreign Investment in the United States, the government panel that can block deals on national security grounds, brought experience in an area of increased importance in global dealmaking.
Out of lockstep
Persevering in the US has helped Freshfields’ global standing — it sits in second place among law firms in this year’s global M&A rankings, according to Mergermarket. However, trying to sustain that position risks pushing the firm’s so-called lockstep pay structure to breaking point, say partners, ex-partners and rivals.
Built on the idea of linking pay to a partner's length of service rather than the fees they generate, the lockstep system has for decades been synonymous among law firms with a culture that prizes tradition and collegiality.
“The deal was there was a lockstep, and as you got more senior you got paid more,” said one ex-partner. “There were never any arguments about money because you got what you got, but there wasn’t some bod in the US getting twice as much as you. That’s the thing that sows the seeds of dissatisfaction.”
Lockstep helped forge Freshfields’ culture, but the firm has already adjusted it on a few occasions in recent years, including when it wanted to persuade rivals from US firms to join.
Freshfields’ equity partners took home an average of £1.8m last year. But following an overhaul three years ago, the current iteration of the lockstep model means a small group of the firm’s leading lawyers can take home around five times more than other partners.
Under the system, partners with a stake in the firm are paid in shares, or “points”, based largely on time served in its upper echelon. In 2017, the number of potential points a partner could be paid — now worth about £55,000 — was lifted from 40 to 60, while the smallest number was cut from 17.5 to 12.5, according to people with direct knowledge of the matter.
Remuneration “is a foundational aspect of strategy and something you need to look at to ensure it continues to support your strategic objectives”, explains Ms Dawson. “That’s why it’s on the agenda [now].”
Deep-pocketed US rivals
If its US ambitions are pulling at the seams of Freshfields’ pay structure, so, increasingly, is the need to keep its top London performers out of the clutches of US competitors.
Ms Dawson was offered a reminder of the threat on the eve of her election, when Skadden Arps poached Bruce Embley, the co-head of Freshfields’ M&A business who had worked on major deals for clients including brewer Anheuser-Busch InBev.
His departure was not the first. In February, Sam Newhouse, an M&A specialist, left for Latham & Watkins. Former star private equity partners David Higgins and Adrian Maguire are now at Kirkland & Ellis.
All of which only injects urgency into the debate over the firm’s pay structure. A promise to better reward younger star partners and outperformers was a crucial part of the campaign Ms Dawson fought to win the top job.
“We are doing a holistic review of our existing lockstep and will remain a lockstep firm,” said Ms Dawson. “But if we think marginal adjustments will help retain our star partners, it is important we make them . . . We are operating in a highly competitive environment.”
Some believe that repeated tinkering with the lockstep will not be enough.
“When you compare the top of the equity at the Magic Circle, it’s barely halfway up the pay scale at the top US firms, so you can’t solve the challenge by playing around with the compensation structure,” said Charlie Geffen, the former senior partner of UK law firm Ashurst and chair of US firm Gibson Dunn’s London corporate practice. “You have to do something more fundamental.”
Freshfields boasts a pedigree private European equity practice, but is still outgunned by the likes of Kirkland & Ellis, which has ridden the private equity boom to become the largest-grossing firm in the world.
“During the election we faced the question of what the firm is trying to be,” said one senior Freshfields partner. “Are we trying to be part of the global elite? We already are, but you can lose that position pretty quickly. Or are we going to stick to our knitting and that’s enough?”
Get alerts on Freshfields Bruckhaus Deringer LLP when a new story is published