Enter the Pacific Century
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31 March 2014
It is received wisdom that the global legal landscape will be dominated by a few mega players, but more detailed predictions are scarce. The smart money seems to be on firms like Clifford Chance, Linklaters & Paines and Freshfields in the UK, and Baker & McKenzie, White & Case and maybe Skadden Arps in the US grabbing the lion's share of the action.
The Lawyer asked a few leading players to sketch their impressions of what the future holds.
Nigel Carrington is London managing partner of Baker & McKenzie, the world's most international law firm.
"I believe there will be a small group of firms dominating the legal market place with the centre of their operations based either in New York or London," says Carrington.
"Ten years down the line, there is every possibility of multidisciplinary partnerships, but the top end of the market will continue to be dominated by law firms. You have to bear in mind that just because multi-disciplinary partnerships may become possible in the UK, it doesn't mean they will be available in other key centres in which you are operating.
"Law firms will carry on growing, although there is not much going on in the UK at the moment. Most of the growth being recorded by significant London firms is taking place outside the UK. They are adding offices and operations in other jurisdictions.
"The difference between Baker & McKenzie and other key international players is that we almost always have strong local lawyers working on domestic issues as well as people handling cross-border projects. The long-term goal is to serve the major multinationals with big operations in those jurisdictions, to provide them with the standard of advice they would expect to receive in their home jurisdictions, for a competitive price.
"The main observation that I can make about the future is that the sheer costs of becoming an international firm have dawned on many major firms in London and New York.
"There is quite a noticeable lack of real progress by large players in both those markets, with a few firms which have got the resources and practices necessary successfully opening foreign offices.
"Asia Pacific is the growth area of the future. The 21st century has been dubbed "the
Pacific century" and I think that's right. Latin America has also made huge advances in the past couple of years. If they can get their exchange controls and regulatory environments sorted out, there is no reason why the continent should not become a much more significant area for development," adds Carrington.
It is fashionable to talk about the inevitability of multidisciplinary partnerships and how accounting firms are going to steal a march on the lawyers if they do not watch out.
But at least one managing partner of a major London law firm is unfazed. He says: "The accounting firms are certainly a growing force, but it is a long, hard slog to get into the higher reaches of the market.
"I don't think in the next five years they will have done anything more than increase their hold on domestic middle-market deals unless they do a major acquisition of a UK or US law firm. They certainly won't get there by organic growth. They have got to attract a lot of very good practitioners so that they reach a critical mass.
He adds: "The main point for us is that our clients tell us that they would rather source their legal services on major issues separately from their accounting firms. The challenge for the accounting firms will be creating the demand."
Freshfields' managing partner Ian Terry is also sceptical. "Combining with accountants doesn't really feature on our menu of things to do," says Terry. "That sort of initiative is client-driven if it is going to succeed and our clients simply aren't pressing us for a one-stop shop approach. The other point is that joining forces with a major accounting firm would bring the most horrendous conflict problems because they have such a huge client base."
Patrick Bignon, in charge of Arthur Andersen's legal network in Europe, unsurprisingly tells a different story.
"We will be a leading player in the market in five years' time in every European country that is necessary to service our clients' needs. Our intention is not to be a traditional legal network but a multidisciplinary network, providing legal and tax services."
Not all lawyers believe the international market will become quite so concentrated in the hands of a small oligarchy. Charles Lubar, chair of the international section at Morgan, Lewis & Bockius, believes it is sensible to talk about 20 or so major firms sharing the work.
He says: "There are firms like Slaughter and May in England and Sullivan & Cromwell in the US that have an undoubted international presence but have gone on record to say that they are not out to conquer the world."
Lubar is sceptical about the value of making predictions. "A list of names you would have made 10 years ago would be totally different to one you would have today," he says.
One of the main problems faced by internationalising law firms is that markets vary considerably in their profitability.
Terry says: "In some you can break in and start to make money fairly quickly. Others are notoriously difficult to make profitable in their own right. Tokyo is a very high-cost centre where we cannot practise local law, but a number of firms are there because it is the world's most important capital market.
"We want to be able to service the major commercial centres in which our clients operate. That does not mean we will be opening in every significant country but in the leading ones. We already have about 16 offices in the network. I think it likely there will be one or two additions, but we want to consolidate and build up our presence in Europe and Asia.
"Over 30 per cent of our people now work overseas. Our philosophy certainly won't take us to all the far-flung places around the globe, but we want to be where the major international work is."
Another hurdle for firms may be raising sufficient capital to realise their ambitions. According to Terry: "It always more difficult to persuade the owners of a business to invest than shareholders who put their money in and leave it for the management to spend it.
"If a firm is motivated to build an international business, you can persuade partners to invest but they have to be able to see there is a realistic chance of success. That is where a number of firms have retrenched. If you are starting from one or two offices and trying to build a competitive international network, you are really going to have to make a 10-year commitment."
Making such a commitment in an uncertain world is not for the faint-hearted.