FX fluctuations: Has BigLaw finally got the message?

As I have written on this blog on numerous occasions since March 2013, big international law firms need to consider – and account for – foreign exchange (FX) currency fluctuations – especially if their P&L is based in one currency – whether that be GB Pounds or US Dollars.

So it was with some amusement that I saw the following article headline in The American Lawyer today:

‘As Currencies Fluctuate, Law Firms Adjust Lawyer Pay and Billing Across the Globe’


But, before we all get ahead of ourselves and start to think law firms have finally figured out that as they approach $2BN+ in global revenue with business operations – in many cases – in over 20 countries, they might want to think about currency fluctuation issues, the real reason this has all of a sudden now become an issue comes out in the article:

‘Firms are taking steps to minimize the impact exchange rates could have on partner compensation, associate salaries and other expenses’

Which itself raises another issue I have mentioned so many times previously on this blog, if currency exchanges do fluctuate over the course of a financial year, what does that do to your multiplier?

Do you go from a 3x multiplier to a 5x? Do you go from a 5x multiplier to a 7x?

And what happens if the FX fluctuation is as a result of a stronger local currency, do you go from a 5x multiplier to a 3x?

Cannot say they were not warned!

As usual, comments are my own.


“A bridge too far” : When international law firm mergers turn sour

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“There were a lot of people who thought there wasn’t a very deliberative process around the decision, and a lot of people wondering how it would help us,” one partner said. “And when it didn’t go well, there were a lot of people who thought it was a bridge too far.”

The above quote is attributed to a K&L Gates partner in a recent Above The Law post by David Lat (‘Barbarians At The K&L Gates?‘), which was then linked to in Bloomberg BNA’s Business of Law overnight (‘Wake Up Call: What’s Going On At K&L Gates?‘), and is said to relate to the firm’s biggest single merger to-date, its deal with Middletons two years ago, which, apparently, has “has failed to bear fruit.

First off, I don’t think K&L Gates’ merger with Middletons is alone here. Market chatter would indicate that a number of partners at international law firms who merged with prominent Australian law firm brands have since wondered what they got themselves into. On the flip-side, a number of the partners in the prominent law firms who merged with the international firms have felt likewise and since moved on.

So while not unique, what probably differentiates the K&L Gates situation is also, in my opinion, one of its greatest strengths – its transparency and openness.

In any event, to my mind what this story highlights is two issues:

  1. mergers between international law firms are akin to the courting stage in any joint venture arrangement: a lot of trust is given on both sides without much due diligence.
  2. when things turn sour in international law firm mergers, lots of reasons get cited by all parties; but rarely, if ever, is the reason that they hadn’t discussed the merger properly with the clients of both (all) firms to see if the client had  any perspective on this merger (e.g., commercial conflicts, lack of trust, etc.) and whether they would support (financially) the merger.

I will add that it would be a great shame if the K&L Gates / Middletons merger turned into a public spat, because I really liked the legacy Australian firm of Middletons and given Australia’s interaction with the US market I believe there is a place for K&L Gates here.

That said with the A$ tipped to go below US70¢, its lowest level since the merger, the partners on both sides of the Pacific need to:

  • reiterate why they merged,
  • communicate this with their clients,

and move forward on that basis.

And do this quickly [preferably at, or before, the next global partners’ meeting] – something law firms are not known for!

Again though, I doubt very much that K&L Gates will be alone among international law firms in Australia having these discussions.