Thursday, February 21, 2008

Changing Horses Midstream...

Since around 1750 Freshfields has had a nice little earner being legal adviser to the Bank of England. The relationship is close. When the law firm relocated from St Paul's to modern premises in Fleet Street, the governor of the bank was reputed to have warned Freshfields about moving to the other side of town. The was on the City boundary, almost beyond reach of the threat of the governor's eyebrows.

These kinds of links feed into the mythology of the law firms that make up the Magic Circle. They have the appearance of being forged in time immemorial and are effectively inviolate.

It was a huge surprise when Freshfields spurned the Bank's shilling in its dealings with failed mortgage bank, Northern Rock. Instead of acting for its long time client, Freshfields elected to hook up with Northern Rock. The "Rock", crumbly though it is, has been frantically searching for a suitor to protect it from the harsh winds of the subprime fallout. This was a much more lucrative mandate than advising the Bank. And for a couple of months while the Treasury dithered over the offers for Northern Rock, it was wonderful.

But neither of the offers was ultimately acceptable to government and the Rock is to be nationalized. Which means it is no longer looking for white knights. And really there is no need for Freshfields in the capacity it used to have. Linklaters is to advise the Rock's new chairman; Slaughter and May will advise the government, and
Sullivan corporate partner Tim Emmerson commented: “It would not make sense to replace Freshfields. They know the company. The interests may be different but it is the same business and the same legal work - albeit for less money.”

It is perhaps no great surprise that this should pass. A recent article in the American Lawyer pointed out that when it comes to marketing and customer relationship management, lawyers are lost. Freshfields' position is further bolstered by a report issued by Eversheds, which has as one of its key findings:

HEGEMONY OF MAGIC CIRCLE DENTED

They used the caps not me, but it makes dramatic reading. "The legal profession is set for major change and the dominance of the 'Magic Circle' is set to erode, according to a major new study into the future of the legal market...with a third of clients (34 per cent), planning to buy legal services from firms outside the Magic Circle to get better value for money and better client service." Of course the Eversheds report is self-serving and over-optimistic about its own chances of muscling in on Magic Circle work.

Perhaps, however, if Freshfields had possessed the benefits of these insights back in the fall of 2007 when the queues of disgruntled customers were meandering down the streets of Newcastle outside Northern Rock, it might not have acted so fancifully.

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