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Issue 112, January 70
The latest issue of Europe's leading monthly magazine for business lawyers.
The Handbook of Independent Law Firms Bookmark PagePrint Page
Will branches stem networks’ growth?
Richard Tromans investigates what the regionalisation of independent law firms means for Europe’s networks and provides a comprehensive guide to their members, benefits and obligations.
Law firm networks may have multiplied in number and size and become a mainstay for independent practices’ recommendation needs around the world, but a growing enthusiasm for international expansion among their members could threaten the existence of these precious alliances.
The long-held theory of networks is that each firm belongs to a key jurisdiction and is meant to be the first port of call for any referrals. However, this system does not take into account what happens when, for example, a German member firm decides to open a branch in Poland to practise local law, where there is already a Polish member. Bev Weise, the executive director of 5,000-practitioner Interlaw, says: “Branching is a big issue. The market is changing; that’s the reality.” But she explains that expansion should not lead to throwing firms out: “The point is that successful practices grow and we don’t want to lose such members.”
It seems then that networks have a paradox on their hands. They want to attract the biggest and best firms in each jurisdiction, but such leading players often want to open foreign offices that will inevitably encroach on other members’ home jurisdictions. As Mrs Weise says, firms shouldn’t be expelled just for being successful. Interlaw handles the problem using their ‘Dublin Protocols’ – a set of rules agreed in 2001 with the result that UK member SJ Berwin, which has several foreign offshoots, only has its London headquarters promoted as a referral point, not its international offices.
Another example of branching issues can be seen at the World Law Group (WLG), which as well as having UK and European giant Eversheds as a member also has five members of the CMS Cameron McKenna alliance. Most of the CMS firms, aside from being strategically linked to each other, have a number of foreign offices. Eversheds also has more than 15 branches abroad. However, when it joined the WLG in the early 1990s Eversheds was based only in the UK. All of which causes a breakdown in the referral network philosophy.
Anthony Barling, a partner at Finers Stephens Innocent and vice chair of 5,000-lawyer Meritas, says: “If there is a clear corporate conflict (because of branching) someone has to leave and it has to be stopped. The trend towards branching is growing, but it is not insurmountable.” Certainly it does not appear that Eversheds has been asked to leave WLG because of its extensive expansion. The reason why the problem is not insuperable is down to one key factor: all networks are non-exclusive. This vital ability to not refer when you do not want to enables alliances to keep running smoothly and avoid firms treading on each other’s toes – although it will not stop members only referring work in certain countries to their branch offices.
Charles McCallum, chairman of 12,000-lawyer Terralex, says: “We have lived with branching among our US members and it has not crippled our ability to grow.” Although he adds that if a firm was clearly going ‘global’ “it would not be a good fit to be in a network”. In the US, he says there has been a long-running trend for west coast firms to open in the east and vice versa, while other outfits are rapidly building national practices. But he does not consider it “too detrimental” to the structure of the alliance.
Mike Scott, secretary general of the Association of European Lawyers, and a partner in the UK member firm Charles Russell, says that the branching issue may be a fact of life for networks, but that they still have advantages over the global firms. "We have flexibility because we are not exclusive and this is a very important strength of networks. Global firms are not like this and have to use their own offices.”
Carl Anduri, president of Lex Mundi, one of the largest legal networks, boasting over 17,000 lawyers in 160 member firms, outlines its approach: “A fundamental Lex Mundi principle is that all referrals should be made with the best interests of the client in mind. If a Lex Mundi member firm in a particular jurisdiction is not the optimum choice for a particular matter, the referring member is perfectly free to go to the firm that is best.” He also states that at least in the case of his network its members are of such high calibre in their home market, such as Gide Loyrette Nouel and Slaughter and May’s best friend Uría Menéndez, that branches do not cause a problem. The logic is that a client will always be happy to see a firm refer work to the home office of another top-end firm rather than its own branch.
Another factor, as 5,000-lawyer Taglaw’s founder Peter Appleton Jones explains, is that because there is such a high volume of activity in the market, minor worries about other players’ foreign offices do not come up. Effectively, firms are content because there is no shortage of work. In fact, Mr Appleton Jones says that far from networks facing any problems, his at least is doing extremely well. Taglaw, unlike some networks, makes a profit from its operations. Most of the others are ‘not for profit’ groups that feed all their money back into the organisation. Paul Voller, a partner in UK firm Bircham Dyson Bell, which helped found Lexwork International back in 1973, agrees that the market now is so healthy that branching is not a major issue. “Our members are invited in on the basis they will not get into each other’s patches, but, also the legal market is just so huge there is plenty of room for everyone to swim around without taking food out of another firm’s mouth.”
So it seems that while the network model does have some minor flaws, they are not fatal. Their popularity is undiminished, since law firms seem to believe they offer a useful service. For example, if you need a firm in Vietnam or another exotic location that you can guarantee to a client has been vetted and checked, then a network is still the best option if you do not want to pay for an internal department to build such links.
Another distinct advantage of networks is that they are not expensive. None would give their precise fee details but most said that costs were based on the size of the firm and were less than $50,000 a year. The networks also organise regular meetings and, especially the larger ones, practise strict vetting and quality control procedures. This keeps bad firms out and opens up links between outfits that may previously not have known each other. The 5,500 lawyer Multilaw group, for example, has 14 specialist cross-border practice groups to help streamline referrals, and writes and distributes several online newsletters to keep all member firms in touch and up-to-date with new legal developments.
So it appears that as long as there is no interference with how outfits with branches refer work then firms are happy – and no network polices its members’ referrals. Equally, if branching out were a terminal problem it is unlikely there would be so many networks. Rather than seeing a slowing down in their development, they are increasing. As the legal market becomes ever more global and less developed markets link up with the EU and US corporate and finance sectors, more firms want to be part of such groups.
One such example is the relatively new Ius Laboris, a network focused primarily on labour law, which has announced the entry of eight new members since last Christmas – the majority of which are in Central and Eastern Europe.The group now has 36 members. The network as a whole has been appointed to the global employment panel of brewery giant Inbev. Such a success should also speed the group’s expansion as firms hope to gain valuable work from such major corporations by being a part of the alliance.
Also operating with far fewer members but a better known brand name in some cases, are the close alliances between firms such as CMS, or the non-integrated members of the DLA Piper network. However, their long term aim remains to one day merge together with the alliance founder – in both cases UK or US firms, something that networks have no intention of doing. There is also an emphasis on integration of systems such as accounting and billing, as well as trying to be exclusive where possible. Again, this is far from the ethos of networks. These alliances are in effect more global firms in the making, rather than true networks.
Overall, networks continue to play a valuable role for independent practices despite the challenge of expansion. And for those firms resolutely not looking to go global, they look set to continue for many years to come.
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