Law firm alliances in Ireland
22 April 2002
23 June 2014
20 January 2014
16 June 2014
25 November 2013
15 September 2014
A&L Goodbody and Elliot Duffy Garrett managed to stay together for almost nine years, but by this year they could no longer paper over the cracks. The dissolution stands as a salutary reminder to other Irish firms of what can go wrong with cross-border alliances.
In the mid-1990s when the alliance was formed, IRA and Loyalist paramilitaries were still very active. For inward investment, Northern Ireland looked only marginally better than Beirut. However, the UK and Irish Republican governments started the peace process in 1993, and Goodbodys and Elliot Duffy made a pioneering decision to enter into a formal alliance in the hope of cornering the market for all-Ireland work. In 1996, Dublin firm Arthur Cox had the same aim but used a different approach when it set up in Belfast on its own account.
The firms were vindicated in 1998 when the Good Friday Agreement was signed, promising a better climate for private investors plus work from six new cross-border public bodies established under the agreement. At this point, top firms north and south of the border jumped on the bandwagon and formed their own agreements, with the cross-border government work as a key driver. McCann FitzGerald signed up with L'Estrange & Brett, William Fry selected Tughan & Co and Mason Hayes & Curran linked to Carson McDowell. Even after the Goodbodys dissolution, Dublin firm Matheson Ormsby Prentice showed that there was still some mileage in the best friends concept by signing up Cleaver Fulton Rankin.
Any best friends relationship is founded on reciprocal referrals. Nobody outside the two firms will ever know what the trigger was, but the issue at the heart of the split is that one or both parties simply did not get as much referral business out of it as they thought they would.
The surviving cross-border alliances are better equipped to survive than Goodbodys in two ways - structure and size. The Goodbodys alliance used a formal contract as a European Economic Interest Group, a device introduced by EU law in the 1990s. Other firms have adopted very flexible arrangements with no written terms at all; in some cases, the alliances are merely a public rebranding of an existing referral relationship.
The formal structure of the Goodbodys alliance restricted the firms' ability to react to the changing political circumstances when the peace process stuttered and cross-border government work fell off. More importantly, it left some partners feeling that there was no way the alliance could develop other than through a full-blown merger. As with mergers between US and UK firms, there are serious impediments. Different cultures and equity structures are obstacles, but the deal breaker is partner profitability. Partners in Northern Irish law firms make surprisingly good profits, particularly given the relative cost of living in Dublin and Belfast, but they do not make anywhere near as much as their colleagues in the Republic.
Size differential is a further impediment. Goodbodys has over 250 legally qualified staff, dwarfing its Dublin rivals other than Arthur Cox. Top Northern Irish firms have around 10 partners and could find themselves swamped in an alliance, let alone a merger. Surviving alliances between the smaller Dublin and Belfast firms are better placed to make it.
Neither Elliot Duffy nor Goodbodys would call their alliance anything other than a brave experiment. Both firms also claim advantages in going solo. Goodbodys has developed its own Northern Irish law team and will do some work in-house, while Elliot Duffy can now expect to pick up referrals not just from Goodbodys, but also from second-tier Irish corporate firms without a best friend.
However, firms that remain in alliances still look set to reap rewards as devolution and increased stability in Northern Ireland provides more work from both the public and private sectors. What both alliance partners need to remember is that someone at their best friend firm is carefully monitoring referrals, and a lack of reciprocity will result in certain divorce.