Why going global will not change the world
11 October 1998
Philip Hoult asks whether the latest trend in the legal profession - globalisation - is such an essential tactic for growth and survival.
BUZZ words come and go in the legal profession. "Globalisation" is the current fad. The dreaded "g" word dominated the International Bar Association's recent conference in Vancouver when it was declared as inevitable. And it cropped up again at The Lawyer's conference Legal Monte Carlo '98.
But this time, the issue did not get such an easy ride. In the conference's keynote speech, Professor John Kay, head of the Oxford Business School, said the need for globalisation was "considerably exaggerated".
The speech struck a chord with many of the 240 lawyers from private practice and the employed sector who were warned by Kay to look at the experiences of the advertising industry before joining the stampede towards globalisation.
He explained: "People in the advertising industry also said 'this is the way the business is going' - but it did not work."
Globalisation develops in different industries in different ways and lawyers were wrong to draw too close a parallel with the experiences of the Big Five accountancy firms, he said.
"While the legal profession is somewhere in between, it is closer to the advertising end of the spectrum than the accountancy end," Kay said.
Kay highlighted the unsuccessful attempts at globalisation made by big advertising companies like Saatchi & Saatchi. Law firms could learn from the underlying differences between accountancy and advertising, he said, which had resulted in globalisation succeeding in one field but not the other.
In accountancy, Kay explained, the core product - audit - was not wanted by clients but imposed by law and regulations. For this reason, an adequate service was often enough. By contrast, companies wanted the best in advertising - not just the adequate.
He said clients in the legal market can be looking for either the best or the adequate. An adequate service was acceptable in some practice areas, like conveyancing, whereas in others, such as premium cross-border M&A work, it was definitely not.
Another major underlying difference was that conflicts of interest, according to Kay, were not as important in accountancy, where "clients might actually be quite pleased if their auditors work for other companies in the industry".
But in the legal and advertising/PR worlds, conflicts were all important - for example, Procter & Gamble would not use the same agency as Unilever.
Kay also pointed out that in advertising the product was generally purchased locally, whereas the choice of accountancy firm for audit was made by head office. Competitive advantage - and not necessarily a global reach - was what really mattered, he said.
For law firms, competitive advantage came from the reputation of the firm, its partners and their particular practice areas.
"Size is by no means the only or most important way of getting competitive advantage," he said. One source of competitive advantage was what Kay called the "internal architecture" of law firms - the co-operative structures of relationships within them.
Firms with good internal architecture developed a collective knowledge greater than that of the individuals who work there, he said.
This made them better able to "institutionalise" their clients and make them loyal to the firm rather than individual partners.
"They will also have a competitive advantage in the labour market as those who are best in the area will be drawn towards them."
Kay predicted that despite the clamour for globalised firms, "there will be considerable ongoing roles for people with geographical and practice specialisms", so long as they are able to maintain their competitive advantage.
But he warned that medium-sized firms without geographical or practice specialisms would continue to struggle to survive.
Given the heretical nature of the speech, a surprising number of delegates agreed with his analysis. A "particularly impressed" Richard Wiseman, Shell UK's legal director, told The Lawyer: "For Shell we feel that we are able to put a team together that does not depend on access to a global law firm."
He added: "Globalisation is unlikely to fulfil the hopes of those firms, either for themselves or for their clients."
Colin Armstrong, in-house counsel at National Express Group, said: "Professor Kay was right to say that firms should not be globalising without giving it some serious thought. At the lower end of the domestic M&A market, the fact that you are a global firm may actually be a disadvantage."
Understandably, Kay's warnings were less enthusiastically received by those firms at the forefront of globalisation. Jeremy Marriage, a partner at pan-European giant Linklaters & Alliance - which officially came into existence on the weekend of the conference - told The Lawyer: "Globalisation is self-evidently not for everyone. But we have been hearing consistently from our clients that a significant international reach and the ability to manage large international transactions is what they are looking for."
For those firms trying to keep up with the globalisation of the likes of Allen & Overy, Linklaters & Alliance, Freshfields and Clifford Chance, Kay's message was certainly tempting.
As they try to decide whether they really do have the resources to keep up with the big boys, he has offered them a way out of the dilemma.
As another Monte Carlo delegate, Jeremy Kriewaldt, London partner at Australian firm Blake Dawson & Waldron, said: "Firms need to face the bright light of honesty and ask what is the nature of their business."
But in a week when BP has announced that it is to cut its worldwide panel from 120 firms to 30, you cannot blame those on the outside for their increasing sense of panic.