Report Card On The Merger Of Jones Day And Gouldens: A Model Marriage

Thursday, January 1, 2004 - 01:00

Editor: I am pleased to speak jointly with Russell Carmedy and David Clossey to get an overview of how the newly merged firm has performed in its first year. But first, Russell, may I introduce you to our readers and would you share a bit of your background with us?

Carmedy:
In 1999 I became the managing partner of Gouldens, following in 1997 the retirement of the long standing senior partner of Gouldens, Hugo Scott. He was a strong individualistic leader. Following Hugo's retirement, we reevaluated the character of the firm and decided to reconfigure it much in the mold of Jones Day on a smaller scale and strictly as a London firm.

I started with Gouldens in 1982 directly from college and qualified as a UK lawyer with Gouldens in 1984. I was away for seven years until 1991, when I returned as a partner in the M&A group and since January of this year have been a partner with Jones Day. In London the merger in terms of the level of expectation has been perceived by partners in the enlarged London office as a major success. The amount of client assignments, whether from the London office or internationally, particularly that of multi-office assignments, is staggering.

Our merger was a groundbreaking deal in the UK. Through 2003 the same strategy pursued by a number of large firms within the UK has not been successful. It makes us feel that our merger was ahead of its time, a market-leading deal.

Editor: I gather there are many unquantifiable benefits also that have come to Jones Day's London office?

Clossey:
We want to be one of the relatively small number of law firms which practice on a global scale. To successfully do this we must have a major presence in the important business and financial centers in the world. The hardest of all cities in which "to get it right," is London because it is such a competitive market. Gouldens met our objectives perfectly because it was a good size, had very good English lawyers, had a very strong work ethic and had people we had known for years. They were a meritocracy in terms of compensation and firm recognition, not a lock-step hierarchy. They also had a tradition of a strong managing partner. All those things fit us very well. Because of the great fit, we seized the moment.

Editor: David, did you ever consider any other model for growing Jones Day?

Clossey:
We have had some familiarity with "affiliations" and "associate relationships," and our conclusion is that most of those structures do not work very well because you do not have coincident economic interests. These types of relationships take a great deal of time to maintain, there is need for a lot of communication between firms, and at the end of the day we decided that they were not effective. Our view is that if we are going to build a successful relationship with lawyers, they need to be part of our firm. We are structured in a multi-office format so that it is not all that hard to expand the size of our offices. We have nearly thirty offices Ñ in the U.S., a number are in the two hundred to two hundred fifty lawyer range. Adding people in London is a challenge, but it is not an oversized challenge. Many of the large firms with one dominating office are finding that if you bolt on a group of foreign lawyers, it does not necessarily mean you have anything that will work smoothly as one firm.

Editor: Russell, in terms of having the benefits that Jones Day can bring to your partners, do you concur with David's analysis?

Carmedy:
I do. We had a theoretical debate about merger structures in 1998, reaching a conclusion as a Gouldens partnership at that time that all these alliances and lack of coincidental economic interests were doomed for failure. The issue we had to come to terms with as a single-office London firm was whether or not we were prepared to become part of another firm, and we decided that we were. We also recognized that we would one day do a deal with a U.S. firm. In terms of our own ambitions as the Gouldens firm, we could say absolutely that Jones Day offered us huge value-added. From our point of view the access to global clients and the resources for lawyering globally was truly compelling. The strength of Jones Day within Europe as a distinct business area and the ability to become part of an established strong European structure as well as a global structure offered a huge value for both us and our clients.

Clossey: One other related point is that Gouldens and Jones Day were a good match because Gouldens was a very strong firm of young people situated in London only. Our office in London was a good office, supporting much that we had done in Europe, but we really were not on the screen in London. So one way to think about this is that Jones Day has largely become Gouldens in London.

Editor: Would you care to comment on any impediments, cultural or otherwise, to a smooth integration of the two firms?

Carmedy:
The issues were what you would categorize as transitional and operational. Jones Day maintains a very sophisticated global network of communications internally and externally. We had previously just run a one office IT operation. So coming to terms with a global IT network and a centralized procedure was probably the most daunting thing, which caused only temporary glitches. I regard that as a positive statement because we shared the substantive values like cultural integration, common views of client service, common views of lawyer quality.

Clossey: Last weekend Jones Day moved into a beautiful new building of its own in London. I look upon this move as a metaphor for who we are and what we have done in London. In Cleveland, New York, Washington D.C. and Paris we have our own building. And now in London we have our own building. I think this is a real statement about our commitment to London and our capacity in London.

Carmedy: We have been in our new building a mere seven days. It is a major step and has given Jones Day a very prominent presence on the streets of London, which we are proud to have brought to the firm. The new address is 21 Tudor Street in the City.

Editor: In your earlier interview, David, you spoke about how essential it is to have a critical mass in London - a feat which you have now accomplished. Yet, you are still not of a size of some of the Magic Circle firms. Is this a disadvantage?

Clossey:
It is essential to have a critical mass in London and it is extremely difficult for a U.S. firm to accomplish this. The real question is: in order to be a player in this market how many lawyers do you need? We believe that with 200 lawyers, and moving north, we are able to cover all the major disciplines with very high quality lawyers. The fact that others have three or four times that number in London doesn't diminish the fact that we have the skills and can be just as effective. Since these firms grew up in London, naturally that's where most of their lawyers are.


Editor: What assurance have you given U.S. clients that there will be no diminution in their quality of representation but rather an improved quality of service, now that they have an office of over 200 attorneys representing them?

Clossey:
We have recently been involved in several very large transactions which we were able to handle easily because we now have such a broad capacity in London. Doing them would have been a real stretch when our London office numbered 50 lawyers. From the standpoint of Gouldens these are deals they probably would not have seen. In terms of the quality of services we perform, our clients assume they will be top quality and we work very hard to achieve that.

Editor: Can you tell us about some of the transactions the London office has handled over the past year?

Carmedy:
The two headline deals from this past year were, first of all, the joint venture undertaking between TNK, the Russian entity, and British Petroleum, in which Jones Day acted for TNK. This constituted the largest M&A deal transacted in Europe this year, involving about $15 billion worth of assets. The transaction was originated in the U.S. and executed here in London, precisely what Jones Day - Gouldens was intended to facilitate. The other major transaction which has received considerable attention concerns the disposal of Midland Electric, a large electricity distribution company here in the U.K. under U.S. ownership, which was the subject of a variety of bids for acquisition this year. This was an engagement requiring support from both sides of the Atlantic.

Editor: In what practice areas do you have the largest number of lawyers?

Carmedy:
By way of contrast to the U.S., larger London firms have a greater concentration of business lawyers, i.e., corporate, real estate and M&A lawyers, than litigation lawyers. About two-thirds of our London operation consists of the business practice group, and in addition we have the tax group, the government regulation group and the litigation group.

Editor: Would you tell us about the breakdown of the client base of the London office as to U.S., British and European clients?

Carmedy:
The office has an overwhelming majority of UK-based clients, and, as a result of the merger an increasing number of U.S.-based clients. Our vision in consummating the merger was and is better to serve all of our clients as a result of the increased exposure to the market, both domestic and global, which the merger has brought us.

Editor: While at the same time your offices are connected real-time through your Jones Day communications system, each Jones Day office is separate and distinct reflecting its own indigenous culture. Do you think you have lost any of your Britishness in becoming a part of Jones Day?

Carmedy:
What does matter in the client mind in all the jurisdictions in which Jones Day operates is our ability to convey genuine local expertise. As a policy matter, Jones Day seeks to promote its preeminence in local law and local issues keeping in focus a strong relation to the values of the local market.

Editor: You might say the client has the best of two worlds - the large wealth of global experience of the Jones Day firm coupled with the local knowledge and understanding of a clients particular needs.

Carmedy:
The general counsel of very large corporations are extremely sophisticated lawyers so they need the best advice at the highest levels in all major markets. With our 15 major offices outside the U.S. we have the major markets covered, which is of benefit to a general counsel who doesn't wish to deal with different law firms in different parts of the world.

Editor: We spoke in your earlier interview about a meritocracy which has always existed within both Gouldens and Jones Day. Would you comment?

Carmedy:
We have been operating as a meritocracy at Gouldens for quite a while as has Jones Day. We believe it allows us to be more competitive and focused in providing client services.

Clossey: We sum it up with the phrase "one firm worldwide." Each of those words is accurate and important. Jones Day is present worldwide, and it is one economic entity. Every incentive is to pull together.

On February 8, 2003 the international law firm Jones Day joined with the London firm Gouldens, merging their practices. Initially practicing under the name, Jones Day Gouldens, the London firm is now known as Jones Day with more than 200 attorneys in the London office. Almost one year later the Editor talks with David F. Clossey, Partner-in-Charge, International in the New York office of Jones Day and with Russell Carmedy, partner-in-charge of the London office from his London office. (In the March 2003 issue of The Metropolitan Corporate Counsel the Editor had discussed with David Clossey the synergies which he saw between the two firms.)