Helping hands across the sea
23 July 1996
Weil, Gotshal & Manges breaks with Nabarro Nathanson and establishes its own London office; Dewey Ballantine breaks with Theodore Goddard and does likewise; other US-based firms announce major expansion plans for their London offices; UK firms expand their New York offices by hiring US lawyers.
There has been a major shift in the relationships between UK and US firms in recent years. Going back a decade it was client care that led to the formation of alliances. A firm in one country wanted to ensure its clients received a high quality service in another: so they allied themselves with a firm in that other country.
In some cases an alliance included shared training and provided a base for partners from one firm when they visited the country of the other. It also enabled the home firm to carry out work in another country by sending out a partner who used staff from the other firm. But most alliances were passive and did not increase integration.
Now they have come into question for two reasons. The first is the increasing level of specialisation clients now expect: they want expertise not just competence, and that is provided by those who do particular work regularly.
The need for expertise has meant that some alliances are redundant. Often the requirements of major clients in one country were not areas of expertise for the alliance partner, so either clients moved the work or home firms decided to point them elsewhere.
This aspect is particularly acute for many long-standing alliances. The increase in specialisation required in the US and UK has meant that, in responding to this market, two firms in an alliance might well have developed different areas of specialisation.
The second reason for questioning alliances has been quality of service. Over the past decade lawyers in the US and the UK have been focusing on developing a standard of service tailored to the needs of individual clients.
The lack of integration in many alliances means that while both parties might have raised their standards, there may still be substantial differences in the way the two work.
Both firms' major clients might be happy with the service they receive at home but less than happy when they experience the service quality of the alliance partner. There might not be anything wrong with the latter, except that it is not what they receive at home, but the client can still perceive it as below their expectations.
The weakness of alliances is that addressing discrepancies across the Atlantic depends entirely on the degree of good will between individuals. A partner in one country might agree to a substantial change if there is a close relationship with a partner in the allied firm. But in most cases this is not the situation and a partner will find it easier to refer the client elsewhere.
The fundamental weakness of many alliances is the lack of integration between the firms involved and the possibility of a growing inconsistency in client focus, specialisation and service quality. The firms can grow apart and the alliance, which made sense at one stage, can outlive its use.
The globalisation of some work-types is also inhibiting alliances. Firms that wish to succeed in global work are forced to rely either on their own offices abroad or integrate with another firm through merger.
International finance, especially capital market work, is already global and mergers and acquisitions at the international level are proceeding down the same path. This means the work is conducted under US or UK law only: there is a smaller local requirement.
Clients also want a seamless service in these areas of work and this can occur only where one partner can control the work across borders. This is the main impetus behind international mergers of law firms.
But there are still firms who can benefit from alliances. For example, a medium-sized UK practice with a small range of commercial specialities, some of which have an international dimension but where the work is governed by local law in each country (for example in intellectual property), might benefit significantly from an alliance with a similar firm provided:
both firms have a base of clients who require similar services in the other country;
both have a similar strategic focus;
they are prepared to invest in the relationship;
partners in the 'receiving' firm are prepared to accept direction from a partner in the 'home' office.
The last requirement is crucial: referrals of clients between firms will work only when clients receive the same service quality from the 'foreign' firm as they receive at home.
Alliances require significant investment from both parties and there must be a high degree of trust between the firms if they are to work. They may be of benefit to fewer firms than before but, where they do work, alliances can produce significant benefits.