Going global

Not a week seems to pass these days without one of the many US firms in London announcing its latest acquisition of English qualified lawyers. They mean business, pitching for work in lucrative areas such as mergers and acquisitions, and project finance. Some hirings have been top notch and generous salary offers are commonplace.

As one observer notes: “The US profession has taken a leading role in developing international practice.” But US firms are not alone in their global empire building. Moves by UK firms have also been ambitious, if less frenetic, with firms such as Clifford Chance and Linklaters & Paines busily building US expertise. UK firms are also at the forefront of practices in some European countries.

In business terms, the manoeuvrings, although risky, make sense. Underlying the approach is a desire to exploit the status of English and New York law in international transactions. But, just 10 years ago, such aggressive positioning for market share would have been unheard of, and only a few firms, such as Baker & McKenzie, truly merited the label “international”.

Moves towards creating global giants have historically been hindered by powerful barriers, with the result that developments have taken place at a much slower pace than in other sectors, such as accountancy and financial services.

Although the recent decision by EU ministers to liberalise market access for lawyers across the EU brings to an end years of wrangling over rights of establishment, the protracted battle highlights the tensions facing firms in their search for global expansion.

On the one hand, globalisation has presented opportunities to law firms seeking to service clients operating in markets abroad – and many firms have been adept at taking advantage of new openings such as those which arose in eastern Europe with the fall of communism. But the push into new markets has been tempered by the historic protectionism of a profession which felt above the rules that applied to other business sectors in which deregulation has been taken for granted.

On the regulatory front, local Bar associations have been adept at protecting their patch through restrictive rules on foreign lawyers, while, on a cultural level, imbued with the view of the legal profession as a gentlemen's club, firms were also reluctant to tread on the toes of their friends abroad.

But the barriers are being eroded. Some national governments have shown themselves unwilling to defend restrictive trade practices in the legal profession. The Thatcher revolution had an inevitable effect on professional rules, while in Japan, pressure from the US led to some limited changes in favour of foreign lawyers.

Pressure for change is also multilateral. The Uruguay round of trade talks contributed to rule changes in New York and Germany, and the North America Free Trade Agreement opened the doors of the Mexican market to US lawyers.

Sydney Cone, a partner at US firm Cleary Gottlieb Steen & Hamilton and author of International Trade in Legal Services, cautions that each country is different and, in some, changes have moved in the wrong direction. In France, for example, a 1991 law made it more difficult for foreign law firms to set up in Paris.

But Cone adds that the trend towards globalisation will continue. And the general impression is one of an improving regulatory climate, with law firms demonstrating a willingness to take advantage of new opportunities as restrictions fall away. When the English Law Society introduced rules on multinational practices, US law firms with offices in London fell over themselves to take on English lawyers.

But this is not to say that all firms are adopting similar strategies. In the UK, Clifford Chance has become the most expansionist and has been at the forefront of developing local practices in its offices abroad. It has also pushed into new markets such as eastern Europe. Others, including Linklaters & Paines, have concentrated resources on building practices in the main financial centres while some, such as Slaughter and May, have adopted a more conservative approach to opening offices. There are also those firms, including Denton Hall and the former McKenna & Co, which have built a network of associated firms across Europe.

With competition increasing from UK and US firms, continental firms have also had to take on board global concerns and some have devised innovative ways to maintain market share. These include the first cross-border mergers, which created Stibbe Simmont Monahan & Duhot and Loeff Claeys Verbeke, and joint ventures such as the Alliance of European Lawyers.

How effective such moves will be in defending the firms from the Anglo-Saxon invaders remains to be seen. Some argue that it will be difficult for UK and US firms to succeed outside their home jurisdictions because their foreign offices do not provide a critical mass of local expertise.

Indeed, with some notable exceptions, international law firms have been reluctant to build up large teams of local lawyers in their foreign offices, an approach which contrasts with the accountancy firms, which are adopting aggressive strategies in their bid to crack the legal market. Arthur Andersen, for example, has linked up with well-regarded commercial practices in Paris (SG Archibald) and Spain (J&A Garrigues), while in other jurisdictions, such as Denmark, Sweden and Australia, it has picked off lawyers from top firms to front new operations.

The official line is that they do not present a threat. Only time will tell if this will be the case. But as developments in the legal market demonstrate, a lot can happen in 10 years.