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Going global, staying local

News

Cite as: July 2012 86 (07) LIJ, p.18

Law firms are building international alliances while retaining a strong local presence.

The new-look corporate offices of Allens Linklaters on the 37th floor of 101 Collins Street in Melbourne is an ultra-modern, light-filled space.

It’s mere coincidence that the stylish refurbishment coincided with the global alliance between Allens Arthur Robinson and UK “Magic Circle” firm Linklaters, but there’s a timely symbolism in the new open-plan glass interior which delivers the re-shaped law firm eye-popping views of its new horizons.

On April 23, Allens became the latest large law firm in Australia to announce a global alliance. (It will be known locally as Allens.) It will see the two firms provide a fully integrated service to clients while remaining independent. They will also form a series of joint ventures across Asia.

There have been more Australian alliances with global giants of the legal profession in the past two years than ever before.

In 2010-11, two UK Magic Circle firms Allen & Overy and Clifford Chance established operations by recruiting Australian lawyers or merging with small Australian firms. It sent shockwaves through the legal sector and prompted what happened next. Norton Rose, freshly merged with Deacons, became part of the Norton Rose Group in 2010. In 2011, DLA Phillips Fox merged with global giant DLA Piper. In that year, Squire Sanders arrived in Perth from the US and Blake Dawson teamed up with Ashurst. They will vote on a full merger in 2014. In early 2012, Mallesons Stephen Jaques formed an alliance with China’s King & Wood. Mallesons is now called King & Wood Mallesons. Next came Allens and Linklaters.

It’s likely Freehills and UK firm Herbert Smith will be next down the aisle. At the time of going to press, there had been no decision or date set but Freehills CEO Gavin Bell said if it went ahead it was likely to be a merger this year. Partners of both firms were reportedly polled in June.

“Do we need to be part of or merged with an international firm? Not necessarily . . . however, we constantly look at what is going to be best for us in the future, and that is the reason we are talking to Herbert Smith. Our current view is that a tie-up with the right partner on the right terms would be better for us,” Mr Bell said.

Going global has never been so popular and the pace of change has been fast and furious. King & Wood Mallesons Hong Kong-based global managing partner Stuart Fuller said: “The market has moved far more quickly than anybody expected.”

Allens executive partner Paul Quinn said: “If you want to align with somebody, you want to align with the best people in that market. If you don’t get in, you might miss out.”

Nor has the dust settled, in what is already considered an extremely competitive market, on who will end up with how much of the pie.

Beaton Research and Consulting executive chairman Dr George Beaton said: “This is a once in a generation shift. In the 1980s and 1990s, state firms went national. This is the next big wave. It will run for some years and reach its natural plateau. Old dogs have to learn new tricks and sometimes it’s pretty uncomfortable.”

While Australian law firms are going about alliances in ways unique to their position and prospects, they share a common goal: expansion to better service clients in an increasingly global business environment, with an emphasis on rising economies in Asia. There has been a fundamental shift from west to east and, with an eye on the resources-rich future, professional service providers are shifting, too. Primarily UK law firms are attracted by growing trade flow between Australia and Asia, especially China. Chinese enterprises are investing in Australian resources and law firms are keen to advise on these deals and the myriad financial transactions which spin off as a result.

“We did it to have a global capability for our clients,” Mr Quinn said. “We saw Asia as the strong growth area, so the joint venture in Asia made sense to us. In addition, getting access to important origination points for capital flows was very important as well. The real growth is in the money coming out of Asia. We can now go to businesses in Asia and say: ‘We can act for you anywhere in the world’. It’s a much stronger proposition than saying: ‘We can do your work in Australia’.

“We asked ourselves, in five, 10 or 20 years from now, do we think it’s viable being a top-tier Australian firm with no global connection? Or do you want to be connected to a global player in a global marketplace? I’d rather be in it than be left out of it . . . [but] you wouldn’t do it unless you thought there was an advantage for your clients.”

Mr Fuller said Mallesons had had merger discussions with Clifford Chance as far back as the late 1990s, again in 2007-08 and with Linklaters in the late 1990s. But the firm’s 2010-15 strategic review confirmed Mallesons’ future focus was Asia and in 2012 the deal to join forces with King & Wood was sealed.

“We had a view that we needed to be a regional firm with a strong footprint. If you want to be a global firm you must have exposure to the largest economies in the world. China is on the irreversible track to be the largest economy in the world. We have positioned the firm to take advantage of the flows in and out of China,” Mr Fuller said.

The benefits of going global are many, say those who have done it. Law firms expand their client base, business and ability to attract talent. Staff enjoy a wider breadth of work, training and career opportunities. Clients have more choice, a more competitive market and can access seamless global legal services, all the while, Mr Quinn said, still feeling the love.

“If you don’t have clients feeling the love, you don’t have any future,” he said.

But not every client wants global facilities, Dr Beaton said, adding that inevitably clients will re-assess their legal needs, resulting in more opportunity for peak locals.

“The reality is the bigger clients with the bigger revenues are going to go more and more over time to the global firms. There will be leakage to these larger firms but there will still be opportunities for large local firms with clients who don’t care if you are linked to Switzerland. They just want the best lawyers. Some will say we don’t need to be part of a global firm, which inevitably has a higher price tag. So there will be some loss of those clients. There will be quality local firms who will pick up more work. They are licking their chops and saying: ‘fantastic, more, more’.”

Large independents, including Corrs Chambers Westgarth, Minter Ellison and Clayton Utz, all report more referral work coming their way as a result of the global realignment. It might be from a perceived conflict of interest or simply because the pool of independents is now smaller.

Intrigued by all the merger activity, Clayton Utz’s chief executive partner Darryl McDonough, said international firms would not send work to an Australian firm if that firm was linked to their competitors in their home jurisdiction.

“We are very proudly an Australian law firm but we are open to discussions on the possibility of international hook-ups. There have been a number of discussions but the jury is still out. It’s a changing dynamic and certainly we have not closed the door to doing something . . . but we would need to see significant positives,” Mr McDonough said.

“You have to be very careful joining with a large global operation. The issue of conflict comes into sharp focus . . . and you have to make sure your risk management systems are OK. Once you put your trust in others, you have to be careful. You have no control over your own destiny. It’s important to make sure you are culturally compatible. When you merge, you are each the custodian of the other’s goodwill. You have to subscribe to the same set of values. You cannot take that lightly. Law firms have that added obligation to the court and we cannot take that lightly. You cannot allow that to be compromised in any way, shape or form,” he said.

Freehills’ Gavin Bell said: “I think there is definitely a position for the strong Australian firms to remain independent. They don’t have to be part of an international network.

“Australia’s role in Asia is obviously a major reason for the international firms to focus on Australia. For this reason I expect you’ll find in Australia in the next 10 years there are a lot more international firms but there will still be plenty of space for strong Australian firms as well.”

LIJ

Global associations such as Lex Mundi, Meritas and World Law Group, each offer tens of thousands of lawyers in hundreds of offices across dozens of countries, representing the aggregate resources of the top-tier independent law firms invited to join. While challenged by the seamless service of global firms, they say they are still in demand from clients, particularly those mid-market clients not considered the target market for globals.

What of negatives in going global? According to Dr Beaton, there is the concern that established practices won’t necessarily fit. “A local government lawyer might ask: will there be a place for me? Time will tell. That is a real fear and it will materialise in some of those firms.”

There is also the fear of a loss of control and rogue behaviour. “There is the fear that we will be dictated to by London or New York or Pittsburgh or wherever. Big decisions are made in head offices. There is a loss of identity, of control, which is real and some fear that. And with fully integrated partnerships, there is a fear of liability. Partners in another part of the world might do something silly and get the firm into trouble.”

In the midst of all the talk about legal behemoths, their pros and cons, a word of caution came from NSW Chief Justice Tom Bathurst, who told the Commonwealth Lawyers Association conference in Sydney in April, that Australia had been “invaded, colonised . . . by large overseas firms, mainly from the northern hemisphere [including] from China.” He warned of the potential for conflict between ethics and profit at megafirms, where lawyers were necessarily assessed on revenue generated. The megafirms must, he said, instil not just an ethical corporate culture, but an ethical legal culture.

Without exception, those the LIJ spoke to said the global push was not seen as an invasion; rather, it represented opportunity. Referrals were up at Allens and King & Wood Mallesons within weeks of merging, as were Allens staff secondments to overseas offices.

And so to the future. What does it look like? The common view is that there will be globals and peak locals, with consolidations continuing. “It’s beginning to trickle down to mid-tier firms. They will take on the bigger firm’s name and form some type of union,” Dr Beaton predicted. “There is so much happening that most firms are struggling to know what’s relevant.

“There is also a view out there that there will be ten $10 billion [global] law firms in ten years’ time,” Dr Beaton said. “I don’t think it will be as stark as the big four accounting firms but segmentation of the industry has begun.”

At the prospect of ten legal juggernauts, Mr McDonough had this suggestion: “I think somebody needs to have a cold shower.”

Carolyn Ford

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