Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
Tweet us @Fides_Search to let us know your thoughts.
1. DoJ settles a number of investigations this week, with Credit Suisse, SocGen and Legg Mason facing consequences
Investigations into individual bribery offences from Credit Suisse and Société Générale came to an end this week, with each bank facing hefty settlement fees for their misconduct.
Following an investigation that kicked off in February this year, Credit Suisse is set to pay $47 million to the US Department of Justice (DoJ) for its questionable hiring practices in Asia.
The Swiss bank was accused of hiring individuals connected to powerful families in order to secure high-value deals and government contracts. The US assistant attorney general was blatant about the corruption that took place, stating that: “The so-called sons and daughters programme was nothing more than bribery by another name.”
Meanwhile, SocGen has been fined $585 million in relation to bribery payments to officials in Libya. The penalties have been delivered by both US and French authorities, marking the first coordinated efforts acting on a foreign bribery case between these two nations.
In addition to this, a $475 million penalty has been agreed with the Commodities Futures and Trading Commission (CFTC), amounting the bank’s total fines in excess of $1 billion.
“For years, Société Générale undermined the integrity of global markets and foreign institutions by issuing false financial data and by fraudulently securing contracts through bribery,” said Acting Assistant Attorney General Cronan of the DoJ.
Also involved in the bribery scandal, which took place between 2004 and 2010, was Permal Group Ltd, a subsidiary of US-headquartered investment management firm Legg Mason. The firm has been charged $64.2 million for Permal’s actions, which involved partnering with SocGen to solicit business from state-owned financial institutions in Libya.
SocGen’s $585 million resolution awarded the bank a fifth place ranking on the FCPA’s list of the top ten enforcement actions of all time, based on penalty sizes. The bank now sits amongst the likes of Och-Ziff, who agreed to pay $412 million for its bribery practices in 2016, and BAE, who were sentenced to pay $400 million in 2010 for making false statements to U.S. investigators concerning its compliance with the Foreign Corrupt Practices Act.
2. Milbank boosts NQ salaries to record high
Milbank Tweed Hadley & McCloy has set a new bar for US associate salaries, increasing newly-qualified pay to a record high of $190,000.
Announced on Monday, the changes involve all of the firm’s 500 associates – including 100 in London – and will take place from the 1st July. This will see first, second and third year associates receive a rise of $10,000, where associates in their fourth through eighth years will receive a boost of $15,000.
Milbank associate payscale:
1 PQE: $190,000
2 PQE: $200,000
3 PQE: $220,000
4 PQE: $250,000
5 PQE: $275,000
6 PQE: $295,000
7 PQE: $315,000
8 PQE: $330,000
This intensifies pressure amongst the Wall Street elite to further boost their associate pay, after Cravath Swaine & Moore increased associate pay to $180,000 in 2016. With this being the first mass pay hike in New York since 2007, a number of firms immediately followed suit with Kirkland & Ellis, Latham & Watkins and Milbank all putting its associates on the new US pay scale.
In an interview, Milbank chairman Scott Edelman said, “What we’re trying to do is set fair, market-leading compensation for our associates. We’re not in a race with other firms, but at the same time, we thought this was an appropriate time for an increase, and we want our associates to know how much they’re valued.”
He said the firm wanted to recognize associates’ contribution to Milbank’s success and its ability to handle high-stakes, complex work. “Our people are our greatest assets. We’ve been working hard, we’ve been very busy,” he said. “We’re committed to offering compensation at the top of the market.”
When asked about the impact of the pay rise on the firm’s profits, Edelman said the change would not have “a material effect on firm finances,” adding that he didn’t expect partner capital contributions to change.
The 690-lawyer firm’s 2017 financial results mark its fifth straight year of solid growth, according to ALM’s reporting. Milbank saw its profits per equity partner rise nearly 11 percent last year to $3.46 million, while its gross revenue rose 7.1 percent to $916.54 million. Revenue per lawyer increased 3 percent to $1.33 million.
Response from the market has been muted, with many commentators expecting rival firms to match Milbank’s pay increase, but in fewer numbers than those who raised their salaries in 2016. So far only Simpson, Thatcher and Bartlett have announced that they are to match Milbank’s associate pay, along with the distribution of generous summer bonuses.
The associate pay rise in particular puts increasing pressure on the London market, as it widens the gulf between pay at magic circle firms and that of their US competitors.
For example, Allen & Overy and Clifford Chance both increased their bands for junior lawyers by 3% in 2017, with newly-qualified (NQ) solicitors earning £81,000 at A&O and £87,300 at CC. Linklaters on the other hand pays its first-year lawyers in London around £90,000 when salary and bonus are combined, with Slaughter and May paying first-year associates in London a basic salary of £80,000 with a potential performance bonus of nine to 16 per cent.
Furthermore, the London-headquartered magic circle firms typically pay their US-based associates on the same scale as the leading US firms and will now be under pressure to match Milbank’s pay rise.
Milbank’s move comes as law firms are heavily competing to attract and retain talented associates—a crucial element in building a large firm’s profits and the next generation of lawyers. Last week, Weil, Gotshal & Manges told associates it will shorten the path to partnership by two years in order to retain more talented associates.
However, many legal observers consider Milbank’s move to finally lead to a differentiation among firms in associate pay.
“The economy is going to cool. Demand will decrease for many firms, firms will have overcapacity issues,” leading to a burst bubble that could result in layoffs or other consequences, said New York management consultant Kent Zimmermann.
“Most firms around the country, with the exception of the super elite, are facing pressure to reduce rates,” agrees Dan Binstock, a partner and recruiter at Garrison & Sisson. The demand for legal services hasn’t been increasing at such a level that would justify a number of firms increasing associate pay, he said, whilst also pointing to the fact that a rise in associate pay leads to more pressure on associates to make billable-hour targets and less flexibility for underperforming.
Movers & Shakers of the week
Mayer Brown hires Simon Brinkworth to join City office
Firm recruits Freshfields’ former global co-head of transport and infrastructure Martin Nelson-Jones
Former Lloyds regulatory head Chris Brennan joins White & Case after six years at Addleshaws
Mergers & Alliances