An alternative route
3 September 2012 | By Joanne Harris
With internationalisation firmly entrenched in the legal market, firms that want to guard their independence are turning to networks
Law firm networks are having to fight for members with international firms looking to increase their global footprint. As the pace of internationalisation picks up, what makes a network relevant to the remaining independent firms and why should a firm pick network membership over a merger?
The trend for law firms to seek an international footprint, establishing a presence around the world through merger or association has been covered extensively in the past few months. The increasing convergence of associations like the CMS network has come under scrutiny as the market accepts that the descriptor ‘a law firm’ covers a multitude of models.
Yet despite the internationalisation story and the ongoing search for merger partners around the world, law firm networks still seem to be thriving. Chances are, if a small firm is not associated with an international practice in some way it will be a member of a global network.
Some are better known than others but all offer a similar carrot to members – the opportunity to market yourself to clients as being able to provide a global service, even if your firm has one office in one country. At the same time, network members can still celebrate their independence.
Those belonging to networks say that interest from potential new members has remained strong over the past few years.
“We’ve actually found the rather weak marketplace quite good for us because it’s really making people think about things,” says James Mendelssohn, chief executive of legal and accountancy network MSI Global Alliance. “The network option seems to be becoming an increasingly attractive route.”
Carl Anduri, president of Lex Mundi, agrees that the globalisation story within the legal market has only had a positive impact on networks.
“The developments have actually proved the Lex Mundi model both in terms of the viability of the firms and their ability to control their own destinies in the years after 2008, not being tied to the predominantly capital markets work that saw firms having to shed lawyers,” he says.
Anduri points out that those member firms in jurisdictions which are being targeted by the international giants, such as Hong Kong and Australia, are actually benefitting by being part of a network and retaining their independence at the same time. As their local rivals become part of the UK magic circle, for instance, the chance of client conflicts increase and more work is going to the remaining independent outfits.
“The other trend is increased globalisation, there’s no stopping globalisation,” adds Anduri. “Our assumption is that over the next five to 10 years every client of every member firm is going to need cross-border service.”
This, Anduri argues, makes networks more relevant than they used to be. If a firm does not become an international branch office of a large global practice, he suggests, then it will need to be a network member.
Simon Rous, chairman of network Advoc and head of corporate at UK firm Ashfords, which founded the network in 1989, suggests that the really huge global firms have stolen more of the limelight than is their due.
“Of course the mega firms grab the profiles and the headlines and have the publicity budgets to make themselves appear incredibly important. The reality is that in terms of numbers of deals - probably not in terms of size by noughts - most work is actually done by law firms that aren’t part of mega firms,” he says.
Rous and others suggest that the network model, as opposed to a global firm model, is better for smaller clients.
“They fear that with a mega firm their rates will be much higher. Why would they go to a mega firm for a mere £50m deal?” he asks, saying that some clients worry not just about the cost but also about the chances of a small deal being delegated to an associate rather than a partner if it is sent to a larger firm.
“Clients don’t necessarily like big. We’re seeing firms that are the typical network member really benefitting from that sort of thing. The recession is making clients be a lot more critical about who they buy,” agrees Mendelssohn.
Firms wanting to join a network have a host of organisations to pick from. A significant number of networks now have over 100 members in as many jurisdictions and smaller, more specialised networks are also popular.
One of the biggest networks specialising in one practice area is employment network Ius Laboris – which, says chairman Franco Toffoletto, prefers to think of itself as an alliance.
“We don’t consider ourselves as a network but something more,” says Toffoletto. “We invest in the alliance and we have common interests for the benefit of all the members, like IT and training. We behave in knowledge and in terms of seamless service to the client as one firm.”
While the Ius Laboris members are united by all having a focus on employment law, many are actually full-service outfits – for example the Canadian member is Heenan Blaikie, one of the larger independent Canadian firms. Another, Australia’s Freehills, is not only full-service but is merging with Herbert Smith later this year.
Toffoletto defends this by saying that it is not always possible to find an employment boutique in every country where Ius Laboris wants to be. He says picking the right firms to be members of the alliance is crucial.
Most networks are growing, also recognising that size gives you more clout. Earlier this year networks Oasis and Legal Networks International (LNI) merged, creating one fairly sizeable organisation from two mid-sized groups.
The merger was driven by Swedish lawyer Peter Danowsky. His firm, Danowsky & Partners, was a member of both networks.
“We were invited by firms that we had contact with first to Oasis and then a couple of years later to LNI,” Danowsky explains.
LNI, he says, traditionally had its strengths in Europe but also in Latin America, while Oasis had a considerable number of members in Eastern Europe. There was little crossover between the two groups but they did have things in common.
“Both worked quite well. The atmosphere and the friendship that developed in both networks were rather similar. So I launched the idea, why not merge,” explains Danowksy.
The suggestion was met with enough approval for the merger to go ahead. LNI went in with 44 members and Oasis 28. The network now has 60 members in 52 countries after a few left, not wanting to be part of the enlarged group. Members range in size from single-office firms with a handful of partners to US firm McGuire Woods, which has 17 US offices plus Brussels and London.
Danowsky says the inclusion of McGuire Woods, despite it being considerably larger than other members, is an advantage.
“The US is a big market. I don’t think it’s a disadvantage, on the contrary if you’re to refer clients to the US it’s an advantage to have a rather large partner to refer to,” he says.
There is some duplication between countries as a result of the merger, but while Danowsky thinks it is preferable to only have one firm in each jurisdiction he says the doubling-up is not too much of a problem.
A few months down the line after the merger, LNI Oasis is now looking to grow further. “There are many jurisdictions lacking. Ten more or so would give us 60 jurisdictions and a few more members,” Danowksy thinks.
Moving into Africa
Australia and Africa are two gaps he immediately points to. Africa seems to be the one region where every established network is looking for more members. Lex Mundi has members in South Africa, Nigeria, Ghana and a handful of other African countries but Anduri says the continent is a key area of focus right now.
“The weakness is in Africa. We’ll be looking at what we should be doing there,” he says, speaking the day before a fortnight-long visit to meet more firms.
Anduri reveals that Lex Mundi’s Ghanaian member firm, Bentsi-Enchill Letsa & Ankomah, has been visited several times by firms looking for a tie-up in the country. The other networks are all on the hunt for African firms to join.
“There are fewer law firms and obviously other large networks have made approaches. Good African firms are spoilt for choice,” Rous says.
On the whole it is law firms which make the approach to networks to join rather than vice-versa. Mendelssohn says it is “extraordinary” how potential members track down MSI. He estimates that around 40 per cent of new members are sourced through recommendations from existing members, another 40 per cent arrive after carrying out an online search, and the remaining 20 per cent are hunted down by MSI.
Rous says Advoc initially looked for members by asking clients and introducers such as banks and accountancy firms for recommendations. Now, like the other networks, it is looking for new members in regions like Africa.
Ius Laboris is hoping to expand to Africa but also China, the Middle East and more countries in Eastern Europe. In China, Toffoletto says the network has ‘affiliates’ in Hong Kong, Beijing and Shanghai, having so far found it difficult to pick a single firm focusing on employment law which could cover the whole country.
Delivering on potential
As they grow all the networks need to ensure that they maintain the benefits and advantages provided for members. After all, there is no point in being a member of a network if you do not get anything out of it.
“The core of everything is to have a few people, not necessarily very many, that are involved and believe that it’s important and also find that it gives some stimulation for them. If you don’t have people who really want to do the work it doesn’t matter how many you are,” says Danowksy.
He believes that having a core team – whether partners from the member firms, or an administration team – to coordinate activities is vital to make sure that the network is delivering on its potential.
MSI is one of the networks with a small but dedicated support team, who do the administration for the network. The business is not-for-profit, but Mendelssohn says the network has been investing in ways to build its presence in recent years, such as social media. However he adds that he sees no point in a network duplicating information or databases which can be found elsewhere.
“Where I think we probably feel that we’re doing better than most is to be absolutely focused,” he says.
Danowksy says for him the network’s regular meetings, which, for LNI Oasis, take place twice a year, are the most important part of what it provides.
“Without the meetings then the value of the network would disappear,” he assets. “The meetings also provide you with the possibility to assess the quality of the members. When you listen to them, when you have discussed issues with them, when you have the presentations you get a feeling for the quality of the firm. Everyone has to perform to get the referral. That fact you’re a member doesn’t suffice, it’s also about how you might perform within the network that’s of importance.”
Networks also provide training for members. Anduri points to Lex Mundi’s hire, earlier this year, of Linklaters’ global professional development head Suzanne Fine as its director of professional development, as an example of the focus the network is putting on training.
“The firms that are going to be the surviving firms are the ones really dedicated to continuous improvement,” adds Anduri.
However one thing that few networks do do is actively monitor how much work is referred between members. Rous says this can be “very sensitive” information, and collecting it “can lead to some firms saying ‘we’ve given you more than you’ve given us, why do you keep giving it to Lyon, why don’t you give it to Paris?’” he argues.
Danowsky says legacy LNI did monitor referrals, and the merged network is planning to keep track of this information on its intranet in the future. Mendelssohn says it is not something which MSI currently does across the network although it has been considered.
Networks which are to continue to fight off the advance of the global firms will have to keep on enhancing the services which they offer to members.
“I think things like quality assurance, training, young lawyer exchanges, joint marketing initiatives, extranets and all the benefits that can be provided by a well-managed network will be the future,” Rous says.
Further consolidation of networks seems a likely possibility. But nobody rules out the launch of more new networks either. These, suggest those already involved in established networks, are most likely to be specialising in a region or practice area.
“There are plenty of good law firms who would love to be part of a network but they can’t get into one,” Mendelssohn points out.
But he adds a note of caution. “It’s tough to start from scratch. Who’s going to join a network of two people? If I was to start a network from scratch now the way I’d do it would be to sit in London and have it comprised of a number of regional networks.”
Anduri is confident the model will survive.
“I think that networks now are becoming more and more relevant. I think there’s going to be more networks rather than less at a range of different levels. I think we’ll see new networks being formed all the time. I think the greater need for mid-sized or smaller firms is going to be networks of full-service firms,” he says.
It seems clear that in just a few years a significant proportion of commercial law firms will either be part of a membership network, in a ‘best friends’ style alliance, or merged with an international player. Globalisation is here to stay and there is no corner of the legal market which will escape.