China Watch - inside the Zhong Lun partners' meeting
9 April 2014
13 January 2014
23 December 2013
26 March 2014
9 June 2014
15 April 2014
Zhong Lun’s Robert Lewis gives an insider’s view of Chinese law firm management - neither unmanaged nor unmanageable
A couple of weeks ago, we had our semi-annual Zhong Lun partners meeting in an international conference center on the shores of the East Lake in Wuhan in central China. One item conspicuous by its absence from the agenda, however, was a certain widely reported/rumoured mega-merger of two top Chinese firms.
I am sure that this news is a surprise (perhaps a disappointment) to some readers, and beyond that I have no further comment one way or the other.
Even with that glaring omission, it was still a full and ambitious agenda, and a brief sketch of the proceedings provides a useful window into how a Chinese law firm is managed and operates. The point is worth underscoring since many of my friends in foreign firms in China assume that Chinese firms are either (or both) unmanaged and unmanageable. This rather uncharitable view, unfortunately, does reflect the reality at the vast majority of Chinese firms, but the top four to five Chinese law firms (including Zhong Lun) clearly have put in place sensible and reasonably comprehensive management systems, while a small number of other local firms have also adopted some semblance of a proper law firm management structure.
Before returning to my (for obvious reasons, redacted) account of the recent Zhong Lun partners meeting, a brief overview of the management systems of the top few Chinese law firms may be in order. Each of the top firms has a slightly different approach to management which reflects (and reinforces) their individual cultures. For example:
- By reputation, KWm (the legacy King & Wood firm in China) is more corporatised, meaning more centralised management with a corresponding higher allocation of revenues to administrative and other infrastructure costs. Management is quite strong, even autocratic to a certain degree. The old joke is that at King & Wood, there is one King and everyone else is Wood. In reality, the firm has many very strong partners, but the firm also provides an excellent home for younger partners with strong execution skills who can rely on the power of the platform to deliver business. It is universally acknowledged that one of the key benefits to the KWM merger is that this gives the legacy K&W side of the firm access to international management systems and practices, but it should also be recognised that the original K&W centralised management style (an anomaly in the market) probably made it possible for K&W to take this step in the first place.
- Partners at Jun He, on the other hand, will generally acknowledge that historically their system has been very democratic, almost to a fault. Consensus is the key for even many more mundane matters, which is both admirable as well as potentially frustrating in some cases. The firm’s original founding partners were among the first group of haigui, or sea turtles, in the Chinese legal profession, and having returned from overseas with foreign legal education and training, they quite sensibly staked out a leading position in inbound work for foreign clients from day one. This has driven the firm’s profitability and high practice standards, and this also explains in part the more egalitarian nature of the partnership structure in terms of governance, while the compensation system also recognises the important contributions of the original senior partners who built the platform and continue to bring in the business. At the same time, the firm’s historical heavy reliance on foreign clients creates new challenges (and opportunities) for the firm as the market pivots to address outbound investment by Chinese companies.
- The Zhong Lun model, by comparison, tends to reward strong partners who are able to both generate and discharge the work for top foreign and domestic clients. The firm also takes a light touch to administrative costs, while still providing a robust platform for effective cross-team cooperation. The firm also maintains a comprehensive bespoke firm-wide unified back office case management and financial management system developed for the firm by Microsoft, and is the only firm in China to have full access to the Practical Law online international know-how database. Consequently, ZL has a very high number of high performers among its partner ranks. On the whole, the Zhong Lun partners are happy to give the firm’s management committee relatively wide scope of authority on a wide range of issues, while still pushing for a higher level of participation in other key areas. This natural dynamic should sound familiar to partners in most foreign firms, and it is driving the natural evolution in the firm’s management systems that I will describe in general terms below.
- Fangda is lean and mean and very good. By reputation, this is the most unified partnership structure in China, and this is helped in no small measure by the firm’s overall smaller size and narrower focus of the firm’s practices on high-value work for high-end foreign financial institution clients and other major multinationals. Most observers expect the firm to make another significant step up in terms of scale and scope to be more on par with the full-service capabilities of the Big Three. If they can do that while maintaining their current relatively cohesive management system, that will bode well for them indeed.
Of course, with the exception of ZL, my observations of the other firms are those of an outsider with no special insider knowledge. As for ZL, I have a clear conflict of interest, so you can take my comments above with a very large grain of salt. I may have given each of the firms a little too much credit in some respects, or been a little too harsh in my assessment in other respects. Still, on the whole, I think my observations are fair, and I am full of respect and admiration for what each of these top Chinese firms has achieved, while still aware that each is far from perfect.
With that as background, let’s return to my account of our recent ZL partners meeting in Wuhan. We need to start with the prior partners meeting last fall at which we held an election for various management committees within the firm. Xuebing ZHANG, founding partner of the firm and current two-term president of the influential Beijing Lawyers Association, had just completed his second term as managing partner under the firm’s partnership agreement, so was slated to step down. We had two excellent candidates to replace Xuebing, and Peng WU was duly elected. New candidates were also voted in on the management committee and partner evaluation committee, bringing an important injection of new blood, new energy and new ideas.
The partners meeting last month in Wuhan was the first partners meeting under the direction of the new management team. They, of course, were pleased to trumpet the fact that Zhong Lun was named PRC Law Firm of the Year for 2014 by Chambers, the second time we had been so recognized in the last four years, having also been named by Chambers as PRC Law Firm of the Year for 2011. In fact, for three years running, ZL has led the tables in the Chambers rankings of Chinese law firms, with more band one rankings, more total rankings and (as noted above) more ranked lawyers than any other Chinese law firm. Total revenues were up as were revenues per lawyer and profits per equity partner. Lots of good news to celebrate.
The firm’s management reported on several initiatives that had been undertaken in the preceding six months. One key initiative was the establishment of eight specialist sub-committees under the management committee. I serve on two of these sub-committees, the international affairs committee and the strategic development committee. True to form for any organisation, the first meetings of these sub-committees were held in the couple of weeks leading up to the partners meeting (so there would be something to report), but even so, this is an important new platform to invite more participation and draw upon the talents of more of the senior partners in the firm. We will need to see how active these sub-committees will be and how their recommendations will be acted upon, but that is true in any organisation. The key is that participation is being broadened, and given the make-up of the senior partners (no wall flowers in this group), management will have every incentive to pay attention to consensus views of the committees.
In light of recent high-profile cases involving other top Chinese law firms, further risk management procedures were adopted to strengthen and expand legal opinion committees, conform titles for foreign lawyers (including yours truly) and further strengthen internal IT platforms. New internal partner promotions and lateral partner hires were submitted for approval, as were various amendments to the partnership agreement.
Oh, and before lunch we had a guest speaker, an international law firm consultant, who shared views on trends in the global legal services market. While I am not persuaded that, as our guest speaker suggested, the development of China’s legal services market will necessarily progress along the same lines as in New York and London, and I am not persuaded that bigger is alwaysbetter (a couple of very large Chinese firms come to mind), it was promising to see that we, like our counterparts in top international law firms, were able to bring in an outside speaker to get some fresh ideas (and to give partners something else to complain about other than the true business of the meeting).
After lunch, we held our practice group discussion sessions. These always feature lively debates of the proposals presented by management in the main session. It is not just a matter of letting partners vent; if no consensus is achieved, proposals can be (and are) shelved. I think more advance work could be done to provide information and solicit views well in advance of partners meetings so we all had more time to consider and consult, but this is certainly not the only organization I have been part of to suffer this defect. It’s a work in progress.
After the partners meeting another new innovation (for us) was introduced – partner feedback sessions as part of the annual partner review process. Our individual views on management’s performance, the firm’s overall management systems and processes, and pretty much anything else about the firm were solicited. I suspect all of the other partners were just as brutally honest as I was in my comments [caveat: I am not a partner since I cannot registered as a Chinese lawyer under current rules, but for these internal purposes I am afforded the same rights as a senior partner of the firm]. We were certainly encouraged to be completely candid and frank.
After all, that is part of the Zhong Lun culture – strong partners with strong opinions. And the firm’s management systems are evolving to reflect and reaffirm this culture. But at the same time, when it comes to servicing clients, the current system works very effectively to encourage and facilitate cross-team coordination on a seamless basis. It works for me – in the majority of my client matters I am working side by side with subject matter experts across a range of disciplines, from tax to IP to bank finance to securities compliance. These are all strong partners, who will not be shy about speaking their minds when it comes to internal firm governance, but when it comes to discharging client work, we are able to channel all that energy and expertise in a coordinated way.
In sum, it is fair to say that the management systems of Zhong Lun and the other top Chinese law firms are much better than most outsiders may think but not nearly as robust as they need to be. On a scale of one to 10, with 10 being the highest international standard, our management systems are still only a six, but we are moving in the right direction. Some elements of international law firm best management practices may never fully apply to a Chinese law firm, but we certainly aspire to be best in class in China, and to continue to adopt best practices step by step over time.
Robert Lewis, senior international counsel, Zhong Lun