August 19, 2011 3:25 PM
Q&A: Davis Polk Managing Partner Tom Reid
Posted by Julie Triedman
Since graduating from law school (J.D. from University of Edinburgh, LL.M. from Columbia), Tom Reid has spent most of his career at Davis Polk & Wardwell. His only break came when he joined Morgan Stanley's investment banking division as a managing director from 2000 to 2003. In April 2008, Reid was tapped to head the firm's corporate department, and last March he was elected to its top management position, succeeding John Ettinger.
Building on the foundation laid by Ettinger in his 12 years as managing partner, the 47-year-old Reid is moving the 750-lawyer, 162-year-old Wall Street firm—which, according to The Am Law Daily's reporting, weathered the financial crisis relatively well—more energetically into key international legal markets such as Hong Kong, where it now practices both U.S. and Hong Kong law, as well as emerging markets such as Brazil. Reid spoke recently with the Daily about what's ahead for Davis Polk.
Davis Polk has brought in a half-dozen high-profile lateral partners in the past year, something the firm hasn't traditionally done. What's going on?
When I was elected to the management committee as corporate head in 2008, it was a period of enormous change and challenges. Since then, we've spent a lot of time shaping our financial institutions practice. We recently filled the only gap we had left, in the commodities and derivatives regulatory area, with the addition of Susan Ervin, a former deputy director at the Commodities Futures Trading Commission's Division of Trading and Markets.
Asia has really been our most significant push recently, particularly Hong Kong and Beijing. A lot of companies that would have formerly listed in the United States or London are now listing in Hong Kong. A good example of how that is working for us is Prada, which we just helped with its $2.15 billion IPO in June.
I made ten trips to Asia in 2009 and 2010 to look for the right people. Ultimately we were able to bring in Antony Dapiran, former Beijing office head for Freshfields Bruckhaus Deringer; Paul Chow, former Linklaters Beijing managing partner; and Bonnie Chan, former head of IPO transactions at the Hong Kong Stock Exchange. Another milestone was that we just promoted two longtime associates from China, Miranda So and Li He, who attended college and law school in the U.S. We hired them eight years ago with a long-term view toward advancing their careers in China. We also have 20–30 Hong Kong–trained associates. We're going to grow the Asia practice further, but there's no particular target.
Elsewhere, we are expanding in Brazil. It has long been a very active practice for us, and we are in the latter stages of the licensing process to open an office there. A physical presence in Brazil will allow us to grow our already enviable Brazilian corporate client base. Brazilian bar rules prohibit non-Brazilian firms from practicing Brazilian law so we have not hired local lawyers there as we have done in Asia.
How do you compete for talent in an expensive and competitive legal market like Hong Kong with your lockstep compensation system? Are you at a disadvantage?
It’s true that nonlockstep firms have greater flexibility in their compensation structures. I've got to convince people to join the firm based on the quality of the work and the culture. The people we want have already checked that box—money—but are asking themselves, 'Am I going to get the best-quality work with people I respect at this firm?'
The new laterals in Asia came from lockstep firms with fabulous cultures as well. So we have to convince them that they will not lose, that they will do better, that there's a difference in being at a 164-partner firm as opposed to a 400-partner firm. And they have integrated very well into our partnership.
Since 2006, Davis Polk has expanded head count by about 20 percent, added a Beijing office, and added lawyers in several other foreign offices. Brazil is about to open. What's on the horizon?
We'll get bigger, but not much bigger. It's vitally important that everybody know each other. It's a huge selling point for us. We will also be increasingly global. But our definition of global is that we're credible in the world's key financial hubs. We don't need offices in all major population centers.
Who do you view as your main competitors?
It's Cleary, it's Sullivan, and it's Simpson. Sullivan and Simpson are becoming more international, as we are. Cleary has been a bit more international for a while. With the Magic Circle firms, we're not head to head, but target by target. Firms in the Magic Circle work on transactions that take place entirely within markets like Germany and that is not of great interest to us. But if there is a German company with a big U.S. litigation or a joint venture in China or that wants to do a dual listing in Frankfurt and Hong Kong, that is of interest to us.
Given the continuing volatility of world markets and the looming sovereign debt problems in Europe, is the legal market due for another correction?
The overall legal market has corrected, there's no question about that. I think that's a permanent change. Aggregate demand is significantly down in the U.S. and the E.U. The Am Law 100 have had a great time riding the overall market growth of the last decade or two. But with the falloff you have a more discerning consumer. Clients can get better service cheaper. Who wouldn't want that? You're going to see greater dispersion between firms in the next few years. Firms are no longer moving as a block. Some are struggling. Others are doing well.
How is that correction affecting Davis Polk specifically?
I obviously don't know for sure how other firms are doing exactly but, knowing that we are experiencing demand growth while overall demand in the industry has shrunk, we and perhaps a few of our closest competitors are experiencing some uplift in a downward-drifting market. Our M&A practice may be not quite as busy this year as last. It's not an environment in which CEOs are going to make big bets, and our practice is historically weighted towards CEOs' larger strategic deals. But our capital markets and credit practices couldn't be busier. They've been flat out.
Going forward, the macroeconomic picture is a lot worse. In 2008 you had banks failing, with too many mortgage and other assets of questionable value, but you had governments backstopping them. This time around, the question is, are the governments solvent? And it's you and I that are backstopping them. The debate in Washington about the debt ceiling, as tortured as it was, really illuminated the fact that the credit of the U.S. is greatly overextended, but that, notwithstanding the S&P downgrade and the fact that it's overextended, it's still probably the best credit around.Make a comment