Top 5 predictions for the future of law firm networks

Over the past 12 months the main global law firm mergers tracked by The Lawyer including Eversheds Sutherland, Norton Rose Fulbright and Chadbourne & Parke, have opted for structures similar to those of independent law firm networks. Is this trend set to continue? Our panel shares their predictions.

Prediction: All growing international firms will adopt the law firm network model (to some degree) to manage their global businesses from now on

Harry Trueheart, chair and CEO, Terralex: Most global firms are structured like a global network; usually it’s a Swiss verein with limited connectivity across the top of structures and separate operating units. These firms that got put together took a long time push up the pool of jointly generated revenues, which were then allocated in different ways. They try to put a common brand on the firm and give clients the perception that it’s is an integrated operation when often, it’s not.

Carl Anduri, president, Lex Mundi: All firms with a substantial clientele (not just growing international firms) will, to serve their clients, need to have broad international reach and will therefore become part of a network of independent firms or form their own network (more formal than a best friends arrangement) of firms with which they work.

Michael Siebold, chair, Interlaw: Already the waters are getting muddied in terms of large firms adopting the network model and it’s a trend that will only grow. For instance, many international law firms’ global expansion through best friends arrangements or the verein model is essentially a network model under another name. Some global law firms have already even set up their own networks to better manage their conflicts.

However, whereas global law firm brands often impose their culture and priorities on newly joining firms – often only paying lip service to integration and collaboration – in a network all firms are on an even footing. This fosters a culture of collaboration that allows firms to work together while still being able to value their independence.

And, while big firms effectively have to pass the costs of expansion on to the client – leading to potentially inflated prices – we can focus on investing in improving collaborative working practices, which ultimately means a more personal, efficient and effective client service.

Adam Cooke, executive director, Multilaw: I 100 per cent agree with this prediction. In fact, it has come to fruition already. All law firms engaged in international work are already involved in a network of some kind, whether it be a formal network such as Multilaw, a best friends network such as the one run by Slaughter and May or a loose network of connections derived from membership organisations such as the IBA, AIJA or INTA. And it’s not just the independent law firms who are using networks; Dentons has had to create the NextLaw Global Referral Network to try to compete with the coverage offered by networks.

Michael Hatchwell, director, Globalaw: Networks are increasingly important. Given the extent and spread of jurisdictions that are meaningful from an economic perspective the network model provides a way of ensuring the global coverage essential for a firm to remain relevant. It’s virtually impossible to create and manage effective offices in so many jurisdictions; newcomers to the international market will not be able to afford this in terms of either money or time.

Prediction: Networks will develop bespoke technology as a top strategic priority over the next five years

Anduri: Some networks will; many will not have the resources to do so in the medium term.

Trueheart: They will use more tech, absolutely. But networks, including the likes of global law firms that are networks, have limited capabilities for developing high-level tech and often choose to custom fit or maybe use technology developed elsewhere and adapt it to their own needs. The actual ‘build it from the bottom up’ is rare and not a strategy law firm leaders are looking to take on from a cost perspective. Could any network that could conceivably exist create a Watson? The answer is no.

We have a number of tech pieces in place; these can be service tools that are client-focused and/or things that may facilitate service to clients and member-to-member connectivity. We’re not going to invent it. This is not a strategic priority for anyone. I don’t think people are shooting to dominate.

Anduri: We are in an era of transformation, when companies with a disruptive impact on their respective sectors are evolving at an unprecedented pace. The legal sector is not immune to this and, in a bid to support today’s multinational, 24/7 client, we’re looking at and implementing new delivery models and new resourcing and technological applications that best meet the future needs of clients.

Capitalising on the capability of new technology is key, and existing networks are in a sweet-spot in this regard. Like a small boat making a turn more quickly than a big ship, the independence of their member firms means networks can be more agile and open to new ways of working than behemoths like the big international firms.

Caroline Kerr-Martin, marketing and business development manager, Multilaw: Technology is already high on the agenda for some of the top legal networks and I agree that bespoke technology will be a priority to drive better engagement and communication among members but also to provide clients with solutions such as client extranet platforms, project management software and AI innovations.

Global law firms have set the benchmark and if networks want to compete they need to match them in this area.

We were the first network to invest in an online referrals reporting system, which provides firms with intelligence on their referrals across the network, including billing figures. From this we developed a CRM system with client data to drive cross-selling initiatives and ensure that our business development activity is aligned to the right sectors and markets.

This has already yielded results in terms of new business. Clients are the driving factor behind our implementation of a network-wide project management platform this year and we believe it will be crucial for other networks to offer a solution that provides members and clients with a platform to communicate and engage on multi-jurisdictional work. We’re always looking to stay one step ahead when it comes to tech innovation and an AI pricing tool is our next pilot.

Hatchwell: Technology solutions that help networks work better and handle the intricacies of multi-jurisdictional cases are available now. Networks will use technology to be more effective and make the most of the opportunities that such technology presents. 

The ability to develop new technology will depend on resource.  The question will ultimately be whether networks have the resource necessary to develop relevant technology; the adoption of available technology may be the more pragmatic way forward.  Being able to harness a large network and its constituent members to take such steps will be a differentiator when it comes to what technology a network can adopt.

Prediction: Deals involving three or more jurisdictions will make up at least 10 per cent of the activity of major law firm networks in the next five years

Anduri: This is true now for Lex Mundi.

Trueheart: Some networks are already there – that’s one of their strengths. Transactionally, we see this kind of thing [over three jurisdictions] on a regular basis. It’s one of the things independent networks do better than almost any other resource out there.

Anduri: Multi-jurisdictional deals are becoming more common. A smaller world of borderless commerce means that even comparatively, small businesses are now being adventurous on the global stage.

We see this all the time and the countries where clients want to do business are becoming more and more diverse. What we do find in these cases is that clients really appreciate working with our member firms, which have the true on-the-ground expertise, connections and knowledge of cultural and business nuances essential to doing business well.

Cooke: This prediction doesn’t go far enough. Law firms have long realised that the more jurisdictions involved in a deal, generally the more profitable the matter will be, and this is why such work is so sought after. In terms of the pitches we see our firms engaged in, the average involves around six jurisdictions, with a significant number involving some 20 or 30. Franchising and trade mark work often by definition involves 10, 20 or 30-plus jurisdictions and we are seeing a lot of them; so I would venture to say that at least 30 per cent of work will involve three or more jurisdictions over the coming five years.

Hatchwell: I would have thought the percentage will be higher than 10 per cent for major law firm networks.

Prediction: By 2020 four independent law firm networks will dominate the space

Anduri: We believe this is already the situation.

Trueheart: First, nobody is going to dominate anything because the space is so big. Second, speciality networks are emerging that I don’t think are going to go away. There are a lot of competitors and the market isn’t easy entry. A lot of this is attracting the organisation and perpetuation of networks.

There are kinds of networks that are more general in purpose but whose members look to them in different ways. Some are content to be a part of a passive network and it’s not a strategic objective to expand their cross-border activities.

There are a limited number of broadly based, relatively strong networks populated by general business firms with the ability to operate cross-border. I’m not even sure there are more than four of them.

Anduri: I agree that we will see a continued consolidation of the legal network market, but don’t think we’ll quite be down to only four market-dominating networks within the next three years. The best networks have already moved away from the club-like status sometimes attributed to the model, and the ones that are struggling to keep up with this evolution will be the first to fall by the wayside.

Cooke: The top 10 networks are marching ahead of the pack in terms of profile and this tendency will increase in coming years. But there will always be a place for the more low-key networks that provide a valuable service to small or medium-sized firms, of which there are many. There is a network for everyone and not every firm is right for a high-octane network. Every firm needs to find its own orbit.

Prediction: There will be a migration of law firms from less active networks, prompting consolidation in the market in the next five years

Anduri: We think it works differently. There will be more networks five years from now than there are now. The policy of most networks is to have one firm for each jurisdiction or market. It’s true that law firms with more than one membership are beginning to leave the less active networks to which they belong. The problem for firms with only one membership is that there’s nowhere to migrate to unless there’s an opening in a more active network or unless a new, high quality network is formed. And when a firm leaves a less active network there are usually firms to take its place.

Trueheart: Going to a more powerful network may not be the objective for some independent firms. A firm might not see the opportunity. We regularly get enquiries in not insignificant numbers, but because we pick who comes in and we’re not looking to populate every jurisdiction with members we’re not going to double in size.

The biggest [law firm networks] have big members everywhere, so what would you accomplish by putting some of the big ones together?

Could some much narrower regional networks become part of a bigger one? That’s a possibility.

Siebold: Long gone are the days when all members could expect from a legal network was a logo to add to letterheads and email signatures, accompanied by the occasional referral. The member firms of elite networks achieve real benefit and a measurable return on investment by dedicating time and resource in their network and are willing to be vetted for quality to ensure firms they are working with are also capable of high-quality work.

Anecdotally, we know some independent firms can generate more work from their membership of a network than through their own individual marketing and business development campaigns.

From the feedback we receive from members we know they also value and appreciate the professional development opportunities they receive at our events, which allow their lawyers to stay at the forefront of knowledge, setting them on a footing to compete with the biggest international firms in their local market.

Cooke: The larger networks are spoilt for choice when it comes to recruiting firms these days. We often receive two or three applications for a vacant jurisdiction and we do get applications from firms who have outgrown their current network. But there is a place in the legal market for all kinds of firms at differing stages of development so I see the number of networks increasing rather than a move towards consolidation. A few law firm networks went down the route of merging with accountants about 10 years ago but that’s an experiment which is generally seen to have failed. We have no merger plans and prefer steady, organic growth.

A longer version of this article is available at thelawyer.com