Please don't mention the dreaded 'g' word

Comment and analysis. The world's domestic law firms are only now waking up to the threat of globalisation, but they may be too late, says Robert Lindsay. Howard Trust, general counsel at Barclays, quietly sipped his coffee amidst a heaving sea of dark suits. “There's something of the feeling of headless chickens here,” he remarked.

Trust, and the international lawyers clucking around him, had just witnessed the first part of an afternoon seminar on “international mergers between law firms” at the International Bar Association (IBA) annual conference in Vancouver.

The room had been packed – all 80 or so chairs were taken and lawyers had crowded in four deep at the back and sides of the room. Dozens more were turned away. Everyone, it seems, was worried about the dreaded “g” word – globalisation. But no one really knew what to do about it. Anxious partners from all over Europe, the US and Latin America, heard first from Phil Brown of Hodgart Temporal – a smallish, unassuming man, with a big message.

Clients were demanding the same levels of legal service in every jurisdiction, he said, and the way to provide this was not through alliances but through a single firm. Brown said an alliance that was not intended to lead to merger was pointless. Clients would not buy into it, because they would see the inconsistency of service.

He did not mention it, but a certain event was likely to have been at the back of his mind. That week, the news had broken that the Punder Group, the pan-European alliance founded by German firm Punder Volhard Weber & Axster, had collapsed with its French member, Depardieu & Associes, looking to merge with Allen & Overy. Punder Volhard's international strategy is in tatters.

The news must have been in the minds of quite a few lawyers in the room that afternoon. It added to the tension. Everyone was wondering what would happen next in Europe.

Stephen Revell did not help. The Freshfields capital markets head was next on his feet talking about his “strategic alliance” with Deringer Tessin in Frankfurt. “We call it a 'strategic' alliance,” he said with heavy emphasis, “to show that it is more than an alliance. A full merger has already been negotiated.”

Revell said he shared “the doubts of the previous speaker over the effectiveness of alliances”. His firm's preferred route was organic growth, he stressed, not merger. But the need to quickly provide clients with a full service in Germany meant only a merger would do.

Revell sat down and a German Deringer partner in the audience stood up to reinforce the message. “From our point of view this is not an international merger,” he boomed into the microphone. “This is a domestic merger in Euroland.” His German clients were now treating Europe as one country and they expected the same from their lawyers.

This was a bit better, the audience felt. At least the German was not using that terrifying globalisation word. They even gave him a round of applause.

Gunther Stratman from Bruckhaus Westrick Heller Lober gave further reassurance. Describing his firm's merger with Austria's Heller Lober, he said: “We needed presence in eastern Europe,” and Heller Lober had offices in Prague, Warsaw and Budapest. That was the deal's simple logic. Never mind all this globalisation business. Asked if a global merger could work without an Anglo-Saxon firm, Stratman said it could. “The way we practise in Germany now is already Anglo-Saxon in any case,” he said. Nobody reminded Stratman that despite Bruckhaus' Anglo-Saxon professionalism, its Frankfurt office had just lost two more partners to Allen & Overy, following the two it lost a year earlier.

During the coffee break, lawyers confidently predicted that the next speaker, Paul Ford of Simpson Thacher & Bartlett, would pour oil on troubled waters. Said one: “His firm is quite happy servicing US investment banking clients. UK firms can nibble around the edges and he won't mind.”

Ford did indeed say he was not bothered by UK competition in New York. But he also said his firm had rejected the idea that it could carry on doing transactions in New York and sending the odd lawyer abroad temporarily to service clients.

Simpson Thacher, the leading “white-shoe” Wall Street firm, was now creating permanent Asian, Latin American and European practice groups, he said, and he even acknowledged: “At some stage we may be forced to move into European law.”

The big issue for his firm, Ford said, was the creation in Europe of a single market that would be at least “as large and as vibrant” as the United States.

Marc Bartel, final speaker and secretary general-to-be at Linklaters & Alliance, the frightening new pan-European monolith, really rubbed in the “g” word. “If one thing above anything else convinces me that Linklaters & Alliance will work,” he said, “it is the enthusiasm for it in all the member firms amongst the younger generation – the associates”. Applause was weak. Too many people in the room had been worried.

For years, Continental and US firms have been blindly servicing profitable domestic markets and clients. They never looked up to see four UK firms – Freshfields, Allen & Overy, Linklaters and Clifford Chance – moving into local law around the world and creeping ahead of them. And if they did see it, they refused to acknowledge its significance – a few US lawyers here, a few Germans there, so what?

This month, Freshfields took four young star partners from Milbank Tweed in New York. Project finance man Ted Burke led them across because he saw that Freshfields had a greater commitment to global project finance than his own firm.

Two weeks ago in Vancouver, some lawyers at least seemed to wake up to the changes that have happened around them. The fact is that for most they have woken up too late. The big four UK firms are already too far ahead to stop.