Dacheng: We’re not grown up enough to merge – yet

Dacheng, arguably the largest firm in Asia by lawyer number, has elected a new leadership team last month. The firm’s chairman and founder Peng Xuefeng speaks to The Lawyer about his plans for the future

Peng Xuefeng, Dacheng
Peng Xuefeng, Dacheng chairman

Chinese firm Dacheng has turned itself into a 3,000-lawyer firm with 41 domestic offices since its launch in 1992. Most of this expansion came after 2004. Its financial growth is staggering, rocketing from under RMB20m (£2m) in 2004 to RMB1.78bn (£178m) at the end of the 2013 financial year.  

It’s an astonishing achievement in anyone’s book. But founder and chairman Peng Xuefeng isn’t cracking open the champagne just yet, he says there is lots more to be done.

“2013 was a year of important transition for Dacheng following a decade of rapid scaling up. Since last year, the firm’s main focus has shifted from growing in size to strengthening our capability across specialist practice areas,” says Peng.

Doing a King & Wood Mallesons style merger and moving into the international markets is not a priority, he says – unless, that is, the right deal comes along.

“There is still a huge gap between Chinese and international firms in many respects,” he reflects. “I don’t think the Chinese profession has matured enough to the level that they will start going abroad and make mergers and acquisitions in a big wave.”

The focus for now is on maturing and for Dacheng that means installing specialisation across the board.

It started recently with the shake up of the firms management team following a month-long election process (14 April 2014). The new structure is made up of a 17-member standing committee, a five-member supervising committee and an executive committee. It replaces the former set-up of a 15-member management board plus a supervising committee.

“The new management structure can separate and clearly define the four key leadership responsibilities – from proposing new initiatives and making decisions to executing these decisions and supervision of the execution. It makes the management process more defined and effective,” Peng says.

“Another key aspect of the new team is that many partners on the standing committee have strong skills and experience in a particular practice areas This will help the firm achieving its goal to improve the specialisation of our lawyers.”

The aim is for its lawyers to be transformed from being generalists into experts in their chosen field. It might sound old hat to some practising in London, but this is Chinese modernisation at a rapid pace.

“In addition to the management structure, we’ve set up 14 special working groups to support the standing committee,” explains Peng. ”Each working group acts like a think-tank to a specific aspect of the firm’s management, for example, administration, marketing, business development, strategic planning, quality control, risk management, specialisation and integration. They will conduct research, analysis and come up with proposals for the standing committee to discuss.”

The firm is in the year two is of its third five-year plan. Specialisation is the number one priority and then the firm wants to focus on the integration between the Beijing head office and branch offices. Today, most of Dacheng’s branch offices remain financially independent and loosely managed by Beijing.

Peng singles out the top practice focuses for Dacheng as: corporate, capital markets, M&A and investment, IP, energy and projects, sports and entertainment law, as well as dispute resolution.

The firm also hopes that by building a closer ties between partners and lawyers in the same practice areas across the whole network, its 50 offices globally will be better aligned and integrated.

“Our plan is to first integrate about 10 branch offices that already have a similar and compatible management and practice system with the head office. In addition, the process will start by integrating offices that are in the same region, for example the Pearl River Delta region and the Yangtzie River Delta region.”

Dacheng’s determination to transform itself from a federation of separate offices into a unified institution with solid internal systems is partially driven by aspiring partners wanting to build a successful legal brand. It is also driven by some alarming events that hit some of China’s leading firms last year, including Jun He’s legal challenge questioning the Chinese qualification of the firms’ partners (12 December 2013).

“The past year has seen many unprecedented challenges posed to the Chinese legal profession and raised new issues that firms need to face. We’ve also faced some problems ourselves caused by a lack of sufficient internal control and risk management,” Peng recalls.

“The Chinese legal market has been growing at an astonishing speed but firms didn’t have much time to catch up on updating their management at the same pace. We are now at the stage of history when some problems have inevitably started to show and materialise. Having problems is not a bad thing, as these problems can provide the whole industry a valuable opportunity to improve and advance.” 

Global merger is possible

Over the years, Dacheng has established nine offices abroad, including New York, Paris, Singapore, Los Angeles, Moscow (19 August 2013) and Mongolia. 

At the same time, the firm has signed cooperation agreements with a large number of foreign firms, such as PLMJ in Portugal, Minter Ellison in Australia, Siskinds in Canada and Arthur Cox in Ireland.

Will the Chinese giant continue pushing for its international expansion in the next five years?

“We are only at the beginning of globalisation. We have established several branch offices overseas and have entered in to many cooperative agreements with foreign firms. But that is still a long way away from the true sense of global firms,” Peng answers.

The firm is keeping an open mind about its international strategy. “The standing committee will consider various options, such as opening more branch offices overseas and growing organically. But equally, we will seriously consider forming an association with a major global firm which will eventually lead to a full merger,” he indicates.

That is some way off yet, however. For now the firm has got some growing pains to contend with.