Law firm network

History of law firm networks

There were two distinct and different reasons for networks developing in the legal profession. The first was internationalization which became globalization in the 1990s. Law firms simply needed international connections. The second was expansion of a number of large United States firms to become “national”. Smaller firms or firms with a niche practice required this same expertise in other states. The networks provided them this expertise.

The internationalization of the legal profession began much later than in the accounting profession. There was no real need because, unlike accounting firms which conducted worldwide audits, law firms in each country were able to deal with client matters. This changed in 1949, when Baker & McKenzie began to expand to non-United States markets to assist U.S. clients that were expanding overseas following WWII.

Internationalization was slow to start because the legal profession was much more restrictive than accounting in allowing foreign firms to enter and practice in their countries. There were rules requiring that the names of the partners be present in the name of the firm. The forces of the international community converged in the late 1980s. U.S. and English firms began establishing branches in the primary commercial centers. This new competition in local markets had the immediate effect of forcing local firms to evaluate alternative ways of providing services to their international clients.

The first international networks, called clubs, generally consisted of ten firms in different countries. The typical format was to hold several meetings a year among managing partners, to compare notes on management related issues. They were secretive networks because the members feared losing business from other firms. On the other hand, they would advertise to their clients that they had foreign connections and correspondents. Today the clubs are commonly known as “best friends networks.” Examples today are: (1) Leading Counsel Network and (2) Slaughter & May.

The clubs evolved into networks in the 1980s. The new networks were not as secretive and even published directories, materials and brochures (Interlaw being one of the first examples). The members met annually. Some focused on specific practices, such as litigation, while others were more generic. Because networks were not thought of as strategic models, the membership selection process was not particularly rigorous. This selection process is reflected today in the networks which have firms with a wide range of sizes, i.e., small firms in locations where there are firms three and four times the size of the country.

Lex Mundi was formed in 1989. It was the first network where each member had to be among the largest and most established firms in a state or country. It was a business that provided members with many alternatives to expand their resources. Lex Mundi is a network organized around strategic objectives, rather than objectives being defined after the network was established. While different from the accounting network, the concept was that of an entity which provided services to members and should also have an established brand. The staff, board, councils and members collaborated to achieve the objectives.

Other networks like TerraLex, Meritas also known as the Commercial Law Affiliates and ij INTERNATIONAL JURISTS, soon followed. These networks were not secret and operated also as businesses. Their stated objective was to create a branded alternative to the large United States and English law firms that had expanded into their countries.

U.S. national networks also developed in the 1980s. The first national network was ALFA which was a network focused primarily on insurance litigation. The second was the State Capital Law Firm Group which began as a national network of firms practicing in government affairs. To qualify for membership, the firms needed to have a former governor at the firms. Both of these networks became international, changing their names to State Capital Global Legal Network and to ALFA International.

Law firm networks are here to stay, with more than 170 already in existence. However, networks in the legal profession do not have the same level of respect as is found in the field of accounting. One reason could be that the large New York and London firms were the first to proactively globalize. The networks were simply a reaction to this globalization. Additionally, the large law firms have much larger marketing budgets than networks. Perhaps legal networks remain tarnished because they originated as clubs or even franchises. However, in the light of day, it is now possible to argue that many of the elite law firms are themselves no more than networks. The world is coming full circle.

Management structure

The typical network is run on a day-to-day basis by an administrative/marketing office called a secretariat or home office. The staff may range from a part-time coordinator to more than 20 full-time staff members.

The head office is commonly located in major commercial centres in Europe or North America and do not practice law. Depending on the nature of the network (extension of the members or an independent business) the person responsible for the network will be an executive director or president/CEO.

The network may be governed by a board of directors who advise on the overall direction of the network. Networks also have representatives who together with the executive director form some sort of management board.

Membership

There are three different types of networks. The original large networks – Lex Mundi, ALFA, TerraLex, State Capital Group – tended to have large firms who were members. This was because they were competing against large firms opening offices. The newer networks have smaller firms, such as Warwick Legal Network. There are now boutique networks such as IP Lawyers, Employment Law Alliance,Antitrust Alliance, etc. which are based upon individuals at firms rather than the entire firm participating.

A review of the websites of each of the 170 of the law firm, multidisciplinary and specialty networks in HG.org – Law Firm Network Directory, Chambers and Partners, Law Firm Marketing Portal and Martindale Hubbell shows that networks often offer their members territorial exclusivity. This means that another firm can not be admitted on their territory. Such an arrangement ensures maximum referral opportunities and minimal conflicts of interest.

As networks are membership organisations, firms are free to leave the organisation by not renewing their membership at the end of the year. By the same token, networks are often able to terminate the membership of any member that is involved in malpractice or unable to meet the service standards expected.

Network members may cumulatively have hundreds of offices. Firms listed in the list of largest U.S. law firms have at most 4,000 attorneys. The largest networks have in the more than 10,000 attorneys as set out in the HG.org Law Network Directory. Based upon the number of partner, the legal networks are comparable to all but the largest accounting networks.

Some businesses with international operations prefer to use international firms rather than networks as they perceive that service and quality will be consistent. Some observers would disagree with this point of view, arguing that quality is variable across international firms, and that better, more personal service and lower charge out rates can be expected from firms that do not have to bear the cost of offices in multiple countries. Firms belonging to networks cooperate more on cross-border transactions than in the past Niche law firm networks such as IP Lawyers, Employment Law Alliance,ELLINT, Antitrust Alliance, etc. extensively cooperate because of their specialities. They require members to have a demonstrated level of experience in the network's area of specialization.

Membership of networks such as MSI Global Alliance, The Geneva Group, World Services Group, etc. is open to accounting firms also, and accounting networks are also forming alliances with law networks, with examples including IGAF, and Ecovis. Some commentators would agree that bringing together a group of lawyers and accountants to create a multidisciplinary association ultimately benefits clients as they often need a wide range of professional services advisors when involved in large transactions, e. g., when incorporating a new business or in litigation matters, when for lawyers, the litigation support services of accountants can be very valuable. Bringing lawyers and accountants together does not create a multidisciplinary practice (MDP), as all firms are separate legal entities. MDPs are not permitted in the majority of jurisdictions around the world, with exceptions such as Germany and Uruguay.

Retaining firm independence

Joining a network is a route increasingly being taken by firms that are seeking to extend their client service capabilities to new marketplaces, yet retain their independence, rather than be swallowed up in a merger with a larger professional firm. Becoming part of a network can be an effective way to achieve both objectives, create economies of scale, and pool resources.

Client retention

As their clients grow and move into new territories, small and mid-sized firms need easy access to contacts in cities and countries they can rely on, where they can’t necessarily justify the risk (or cost) of opening their own offices. Rather than lose the client to a larger international firm, networks allow firms to refer their clients to similar-sized members in another jurisdiction.

Local firms find that sourcing reliable, English-speaking lawyers in foreign jurisdictions can be problematical and something of a lottery. Many firms believe that being part of a network minimises this risk and provides clients with reassurance that they will receive similar levels of service from any firm in the network

Practice development

All observers agree that the leading networks have developed beyond all recognition since the 1970s when most were perceived as clubs, rather than the serious, commercially driven, globally branded organisations that most have evolved into today. As business has become increasingly global, a large number of firms are seeing networks as an important way to develop their practices and to attract larger clients operating on a multi-jurisdictional basis. Others disagree that there is practice development opportunities.

Advantages of exclusivity

All networks which may be defined providing exclusivity. This may be a city (in the case of small firms), state or country. Exclusivity can also mean having the right to a specific practice area in a city or state. Firm have contractual rights over its own geographic territory for client development and inward referral purposes. As the exclusive member in a particular city or country, firms view this as valuable endorsement that gives them marketing clout when pitching for work with larger clients, and when trying to position the firm as a more attractive employer, particularly in countries where legal talent is more scarce.

Branding

Membership in a network gives members the right to promote its affiliation in its territory using the network’s logo. This can be seen on many member's websites.

It is in both parties’ interests that the logo is displayed prominently, with each organisation’s brand lending force to the other’s. Use of the brand is encouraged, but not usually required, and would typically be implemented across firm stationery, marketing brochures and web pages, ensuring that all touchpoints with existing and prospective clients are covered.

Some members prefer not to adopt a network’s umbrella brand so as not to deflect business from existing non-network introducers of work, the growing need for firms to project a more international image means that access to a global brand is viewed as an increasingly important membership benefit.

Open discussion in a non-competitive environment

Many consist of non-competing firms and therefore provide their members with the opportunity to openly discuss issues affecting their firm.

Globalisation of the economy

One of the major factors influencing the need for networks is the globalization of the economy. Supply and demand are no longer local but global. Networks are the practical and cost-effective method to accomplish these objectives. Members of a networks have access to other members who understand their economic, legal and political factors.