5 September 2011
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There are a good many ways a global law firm can structure itself, but the aim is always to present a single point of contact to its clients. Joanne Harris reports
An awful lot of law firms are members of one of the many networks now in existence, but an increasing number are choosing to establish global structures that are, in essence, proprietary, exclusive networks.
Sometimes these networks function well for a few years before splintering as member firms go their own way. In other instances, what begins as a network of allied or associated firms becomes a single, integrated entity.
There has been a considerable amount of debate in recent months over what makes a law firm a law firm. Cross-border mergers are often only possible through the use of structures such as the Swiss verein, and many ’merged’ firms have several profit pools.
Carrying out mergers this way has its critics. Perhaps the most outspoken has been K&L Gates chairman Peter Kalis who, in November 2010, memorably described Norton Rose’s three-way merger as a ’Noah’s Ark’ structure.
Two of the largest firms that operate globally through network-type structures are Eversheds and the group of European practices unified as CMS. Eversheds’ UK LLP owns its UK, French, Danish, Middle Eastern and Asian offices, and is part of the network agreement with another 27 offices worldwide. Meanwhile, the CMS member firms form a European Economic Interest Grouping (EEIG) incorporated in Germany. Across Europe, the network has nine firms.
“The history behind our structure is one of necessity rather than make-up,” says Duncan Weston, managing partner of UK member firm CMS Cameron McKenna. “If you’re joining firms you can’t really do it any other way.”
Weston says the CMS structure started life as a “cocktail brigade” of loosely associated firms that got on with each other. The EEIG structure does not limit the liability of members, but the network does have a constitution and, over time, has developed a common IT infrastructure and common conflicts of interest policies.
Although the network does not profit-share, it is able to use revenues to invest across the member firms. Weston says the CMS firms have jointly invested in building practice group and sector lines.
“Where we’ve got to on partnership is that most of our partnerships conform to a lockstep-type system with a bonus element,” he explains.
Weston is an EEIG convert for a number of reasons, but he says liability is key.
“The fundamental thing is that it’s a grouping that’s transparent for a liability purpose,” he says.
The EEIG broadly limits the network to Europe, although there is a representative office in Shanghai, while French firm CMS Bureau Francis Lefebvre has several North African offices.
“Our mantra is that we’re distinctively European and our origins are totally European,” says Weston, while conceding that, should CMS look at expanding beyond the continent, it would have to convert the network into a verein.
However, vereins are not essential for running a network-type structure globally. Eversheds head of international Stephen Hopkins believes the firm’s association model, which sees the member firms clustered under a private limited company incorporated in the UK, provides the right service to clients.
“The starting point for all this is looking at things from a client perspective - client experience and client relationships - and how they perceive us, the service we deliver and the brand,” says Hopkins. “This drives an awful lot of what we do. It’s the same for all law firms and professional service providers.”
Both Hopkins and Weston point out that the navel-gazing over structure is unique to the legal profession. In contrast, they believe users of accountancy services pay little attention to the structure of their advisers. The so-called ’Big Four’ accountancy firms (plus Grant Thornton) all operate in a similar way to Eversheds, with hundreds of member firms working under a global umbrella name.
“The client doesn’t worry too much on the whole about how you’re structured internally,” adds Hopkins. “The client will hold you responsible for the delivery of the service levels you’ve said you’ll deliver. You have to deliver high-quality service in a consistent way across offices, whether they’re badged ’Eversheds’ or not.”
This drive for consistency of service has pushed Eversheds and CMS to centralise their pitching. At CMS, two or more member firms pitching for a client or piece of work have to do so under the single name CMS. Eversheds, meanwhile, has a central pitch team to compile documents on behalf of the firms bidding for work.
By and large, both networks are exclusive, with the proviso that should a member firm need to refer work to a different jurisdiction and the corresponding member firm
lacks the required expertise they can go elsewhere.
Hopkins says each Eversheds member has a couple of ’best friend’ firms in other jurisdictions. Partners are encouraged to use these best friend firms and Eversheds monitors closely the traffic between firms. This information is then used, where possible, to expand the network into new jurisdictions.
Eversheds’ most recent expansion efforts have been into the Middle East and North Africa. The May tie-up with KSLG in the Middle East saw the local firm absorbed into the UK LLP, but the firm’s move into Morocco in March is beginning as a cooperation agreement.
Meanwhile CMS most recently expanded into Albania. Its Italian member firm CMS Adonnino Ascoli & Cavasola Scamoni picked up the Tirana office of Eversheds Bianchini.
versheds also lost Spanish alliance partner Lupicinio Abogados in February citing strategic differences, but was able to swiftly form a new alliance with Nicea Abogados.
It is arguable that the network structure makes tying up with a new firm or firms a quicker process than progressing straight to a full merger.
However, firms using network-type structures take the process of adding new members seriously. SNR Denton recently added 10 local African practices to its network of alliance firms on the continent, partly through an alliance with Portugal’s F Castelo Branco & Associados and partly through individual tie-ups with local firms.
“The new firm is the beneficiary of decades of relationships led by partners, initially in London, who had particular relationships with the leading law firms in each of the nations,” explains SNR Denton chief executive Elliott Portnoy. “We did it firm by firm, ensuring that we would be in a position to make a full-service offering to our clients.”
The level of integration between SNR Denton and each of the African alliance firms varies widely. Some, such as Tanzanian firm Mkono & Co, display the SNR Denton logo and colours prominently. Others, often due to regulatory restrictions, fail to mention the relationship at all in their online presence.
Portnoy says that closer integration is the intention, although local bar rules are likely to be a limiting factor.
“We believe that what we have is as close to a pan-African law firm as you can get,” he adds.
Networks can often be the first step towards a full-scale merger. Pan-Baltic firm Lawin is in the middle of the process. Lawin’s journey towards integration began in the mid-1990s when its three legacy firms - Latvia’s Klavinš & Slaidinš, Estonia’s Lepik & Luhaäär, and Lithuania’s Lideika Petrauskas Valiunas & Partners - began working together on a referral basis. Lawin chairman Rolandas Valiunas says the market pushed the trio of firms towards merger.
“Being small countries, to many eyes in the business community in Western Europe, the US or elsewhere, somehow we’re seen as one market,” says Valiunas. “In many cases, they think we speak one language and have the same history.”
Valiunas thinks the Baltic states’ EU accession in 2004 was also a contributing factor, providing an extra catalyst for the three firms to become one, rather than a network. In recent years an increasing amount of work spanning the region has pushed firms into teaming up, and Lawin is far from the only pan-Baltic outfit now in operation.
Lawin’s merger has been a slow process. The firms teamed up under the Lawin brand in 2004 and seven years on are still not financially integrated, although they now have central management structures as well as pan-Baltic practice groups and financial systems. Lawin has yet to address profit-sharing although, according to Valiunas, this is not essential.
“We don’t think profit-sharing is an essential goal that will make us one firm,” he says.
In this, his opinion is shared by others. Weston and Hopkins stress that in their view, CMS and Eversheds are “single firms” and operate as such, even though many in the market would see them as networks.
Hopkins says Eversheds has an “absolute commitment” to a “single-firm approach”, but adds that this would not necessarily extend to a single overarching ownership structure.
“I don’t think we’ll ever go completely down one approach because the world, particularly from a legal perspective, is so different,” Hopkins explains. He thinks flexibility is the key for Eversheds, while ensuring that all member firms have collective responsibility for delivering services at the level required.
Weston, meanwhile, thinks the CMS structure allows the combined firms to punch above their weight in each market. He says the approach was originally to find only top 10 firms in each jurisdiction, although CMS Cameron McKenna is now the UK’s 14th biggest firm by revenue. This, Weston claims, gives the network a stronger local presence in each jurisdiction as its member firms tend to be considerably larger than the international offices of integrated global practices.
He adds that there is also less internal wrangling over structure than some firms might experience.
“I like the fact that we focus more on our clients and our business than we do on our internal organisation,” says Weston. “As a managing partner I don’t have to think about it and I don’t have to spend hours on remuneration committees and have fall-outs on money grounds.”
Weston, Hopkins and Portnoy all believe that their models are a better way of doing business than being a member of one of the association networks such as Lex Mundi. Sonnenschein Nath & Rosenthal was a founding member of Lex Mundi, but pulled out when it merged with Denton Wilde Sapte. Portnoy says the Lex Mundi structure was “insufficient” to meet clients’ needs worldwide, although he concedes that it works well for smaller firms.
All three Lawin firms were members of Lex Mundi, and the firm remains the association’s Baltic representative. As Valiunas says: “We knew each other and we liked each other - that helped.”
The debate about the optimum model for a modern global law firm will rage for some time yet. The stories of firms such as CMS, Eversheds and SNR Denton show that there are many models that can aid international expansion, but all are striving to be seen as single firms offering seamless advice to clients. To truly achieve that aim, there is still some way to go.