In the past six months, high-profile network bosses have entered a battle of words about the difference (or lack thereof) between independent law firm networks and international law firms’ networks.
The cause of the uproar is simple: Dentons launched the free Nextlaw Global Referral
Network to offer independent firms the opportunity to collaborate with no strings attached. This, Dentons global chairman Joe Andrew claims, will make an impact on ‘pay for play’ law firm networks.
But interviewees in this report point out that there is always a catch. Who is picking up the overhead costs to implement this structure? And when did fees become a dirty word for lawyers?
Q: Many of the big networks have been in expansion mode in the last year. Where has your focus been and why?
Tanna Moore, president and CEO, Meritas: We have aggressively focused on member expansion and refinement to ensure all Meritas firms reinforce the quality and reach of our alliance. This has enabled us to not only broaden our geographic coverage, but also to give members the confidence to refer clients as they enter new markets.
Carl Anduri, president, Lex Mundi: We are a mature network with member firms in 102 countries and have not been in expansion mode. Our focus has been on building and strengthening the Lex Mundi client service platform and helping our member firms deliver value to clients. Pursuant to our strategic plan, we have been working with our member firms on developing and enhancing their legal project management skills and their knowledge management capabilities.
We have done this through the development of Best Practices guides, workshops and the retention of consultants to work with our member firms. During the past year we have focused on helping our member firms develop a client feedback programme – or improve an existing programme – to enable them to become closer to their clients.
Richard Attisha, president and CEO, TAGLaw: We have focused on the Asia-Pacific and Latin-American markets. Additionally, we have welcomed a number of highly regarded firms in Africa and have numerous ongoing discussions with more prospects throughout Africa and the Middle East.
Michael Siebold, chairman, Interlaw: Without the multiple post-merger issues experienced by many major law firms, we have been able to focus on shaping our offering around the client’s increasing need for a truly international, high standard of quality legal expertise in both established and emerging markets.
In 2016, we have increased our presence in Central America with the addition of BLP – with offices in Costa Rica, El Salvador, Honduras and Nicaragua – and expanded to new territories through Rokas law firm in Greece and Tohme law firm in Lebanon, with further expansion yet to come this year.
Michael Hatchwell, former president, Globalaw: Globalaw follows the general policy of having one firm per jurisdiction, with exceptions made for larger jurisdictions.
Therefore our expansion strategy has been focused on quality over quantity. First, we have been looking to find outstanding member firms in new economies to complement the existing network. Second, we have been looking to strengthen the network’s tax practice. Where our local member firms don’t have a strong tax practice, we’ve been working with them to find local tax firms to partner and join the network. We are also building on existing initiatives, such as tax and M&A, and creating new initiatives to engage our members in their own specialities.
Robert Falvey, global ambassador,World Services Group (WSG): The network space, like that of the legal industry, is constantly progressing and is made up of many different needs, categories and areas. By determining trends and evolving ideas, we have been developing and delivering in the environment so that our members and their clients can thrive. WSG’s focus was and continues to be evolving and perfecting a multifaceted and comprehensive approach for independent firms to deliver on their own unique objectives to meet changing client needs.
Q: Dentons chairman Joe Andrew said that the approach of the Nextlaw Global Referral Network will “threaten the pay-to-play networks because it challenges their basic economics”. Do you agree?
Moore: No. Our members report time and again that their involvement in Meritas has the best return on investment of any marketing investment. No matter what the objective is for a firm, Meritas is an integral part of its strategy.
“We have focused aggressively on member expansion and refinement to ensure Meritas firms reinforce the quality and reach of our alliance” Tanna Moore
We’ve also been told by members that what makes Meritas unique is that all members are owners who are encouraged – if not forced – to take ownership and responsibility as part of the network. Moreover, members are made to feel that our management team works for them, not the other way around.
Anduri: Lex Mundi isn’t a pay-to-play network, whatever that means. Our member firms are free to belong to any other network, including Dentons’ network, and some may join. But I don’t anticipate any of our member firms will leave the Lex Mundi network and its global client service platform, which they have built with their investment, working together over many years.
Siebold: I have already been very vocal about my thoughts about Dentons’ Nextlaw model. While I am flattered that firms like Dentons are interested in our approach, I believe this free network may prove to be a pale imitation of a genuine collaborative international platform for the practice of law.
If Nextlaw’s member firms aren’t paying the overheads, who is picking up the tab?”
Michael Siebold
Despite Andrew’s vehement protestations, when it comes down to it, Dentons truly is attempting to mimic the network model, only minus some of the benefits currently available to members of other networks and their clients. Dentons seems to be in denial about the fact that its ‘innovative’ Nextlaw model owes an awful lot to existing legal networks but simply removes the fee-paying element – despite there being unavoidable costs attached to running it. If Nextlaw’s member firms aren’t paying the overheads of administration, marketing, etc, who is picking up the tab? Will Dentons be looking to reduce its annual profit per equity partner (PEP) or will the cost for this global infrastructure in fact be passed onto clients – the same clients who want high-quality yet cost-effective legal advice?
At Interlaw, we find this concerning – when did fees become a dirty word for lawyers? The very modest fees our member firms pay – as part of our not-for-profit business model – play a vital part in maintaining a nimble, yet necessary, infrastructure for the network to work efficiently and effectively for the benefit of both clients and members. Importantly, firms don’t have to pay to apply or join our network, it is only after a thorough due-diligence process has been completed that fees are charged quid pro quo for direct and indirect services rendered.
Unlike Dentons, our fees are also reinvested into member firms to help ensure they can offer cutting-edge, world-class legal advice, and invested in the future of young legal talent which, in turn, is of benefit to clients. And, alongside our stringent quality checks and due diligence before accepting new members, the fees our member firms pay are evidence of their commitment to a network that is their own. Knowing that our members truly want to be an instrumental part of something bigger, that still enables them to have a voice in how it’s run, is what makes Interlaw a success.
Attisha: Absolutely not. A digital directory of firms created and curated by one of the world’s largest law firms cannot replicate the strong and lasting relationships forged between like-minded firms who are members of the same alliance or network. Dentons has created nothing new. Most firms that are not part of international networks have arrangements with other firms to pass on conflicts or referrals in order to obtain reciprocity. Dentons’ need to set up a directory of firms appears to have originated following a recent multimillion dollar lawsuit for conflict of interest against the firm in the US which has threatened the Swiss verein model under which Dentons is structured. With alliances and networks, on the other hand, all of the members are independent and conflicts rarely occur.
“Clients like the perceived ‘guarantee’ offered by large international firms for major deals, but they dislike their long chains of advice, inconsistent local strengths and very high costs” Dennis Unkovic
First, the fact that ‘referral’ is in the Dentons’ network name demonstrates the shortsighted vision of this endeavour. We understand that receiving referrals is paramount, but the majority of firms join an international network to expand their global reach and to provide their clients with expanded service. Those firms want to serve the global needs of their clients without the increased overhead of opening up satellite offices or losing their clients to multinational firms. Who better to work and collaborate with than a firm like yours, which understands the local market and culture. What we and other networks have created is not a directory or a ‘book of firms’. Instead, we have built communities of like-minded firms who together serve their clients and grow their firms. Our members, and the members of other global networks and alliances, come together to build relationships that go far beyond referrals. We are also a multidisciplinary alliance which includes more than 120 accounting firms (TIAG) and strategic partners who provide additional collaborative, cross-marketing and business development opportunities for our law firm members.
Additionally, alliances and networks provide their members with other value-added services such as educational opportunities, training, seminars and discount programmes. These services, combined with inbound and outbound referrals, means the majority of our members achieve a significant return on investment and are able to retain their existing clients and keep them from moving to a larger international firm… such as Dentons.
Finally, running a global network or alliance is a full-time endeavour requiring continuous contact with members and monitoring the quality of their work. How will Dentons ensure the quality of their members when they plan to be the ‘largest’ referral network and will likely add firms en masse to promote their early success. The truth is that I myself and the members of our team maintain personal relationships with the liaison partners at our member firms. These are relationships created after many years of researching, recruiting and getting to know the eventual member. We have a very stringent and rigorous due diligence process before we admit a member and we have removed members if they do not maintain our standards of quality and responsiveness. Client service is of paramount priority to our alliance and its members. I would imagine the same can be said for the management teams of other global networks. The members know us and we know them. We are able to listen to their ideas and concerns, then make objective and unbiased decisions for the benefit of the entire organisation – not just a single firm that created the organisation. Simply put, we are not a law firm and we do not have a law firm ‘mothership’ who will dictate how we operate our organisation and the benefits we confer to our members.
Hatchwell: Globalaw, like every other network, operates in its own way. At the heart of the issue with Dentons’ claims is how the debate has been framed: Nextlaw versus all other networks. This simplification does not take into account the diverse landscape of legal networks.
For example, Globalaw is not a pay-to-play network as implied by the description: members pay no referral fees, so the only incentive to use a Globalaw firm is the trust and confidence between firms that other members will do an excellent job. Instead, Globalaw’s fees are used to arrange regional and annual meetings, to create business initiatives for member firms, to develop its exchange programme and young leadership initiative, and to foster learning and co-operation, among other endeavours. All these undertakings are targeted at creating a strong, cohesive network of firms dedicated to providing outstanding service across the globe.
“Dentons’ recognition that it is essential for businesses to be networked is the best endorsement for the network concept. The rest is semantics” Michael Hatchwell
Further, Dentons presumably uses fee income to pay for the organisation of its global office network and its own office network. It seems highly unlikely that any network can exist without any money. Rather than considering how Dentons will take its funding, the better question is to examine where funding comes from. Globalaw recently handled a €1bn due diligence exercise across 18 jurisdictions for a top 10 pharmaceutical company. Because there was no referral fee, the client paid the local rates of the Globalaw member firms involved without any mark-ups. In situations like Dentons, where there are no set fees, it seems highly likely that it will always be the client who ends up paying.
However, there will also always be some commonalities between networks. Globalaw, like other networks – including Dentons’ – is motivated by quality and providing the best service to our clients. Dentons’ foray into creating a network of their own recognises a truth that all networks have found self-evident: while no firm can be everywhere, networks help firms grow and prosper to best serve their clients.
Ultimately, we can all agree with Andrew’s statement that law firms should be working as collaborators to best serve our clients. Dentons’ recognition that it is essential for businesses to be networked is the best endorsement for the network concept. The rest is semantics.
Falvey: The majority of networks in the industry are not exclusive, therefore to use the term ‘pay to play’ is inaccurate. Firms play with and without a network. The decision to participate by paying is reflective of values and benefits received and their commitment to the representation of the group as a whole.
Q: Do you expect the encroachment of international firms on the network space to turn into a trend? Why?
Dennis Unkovic, chairman, Meritas: Encroachment is not a new trend or a recent development. As law firms have merged or added branch offices over the years, they have begun amassing the cross-border legal resources that quality legal networks have always offered to clients. This trend is unlikely to weaken so networks must aggressively continue to market their capabilities going forward. Our independently conducted client focus groups show that, while clients like the perceived ‘guarantee’ offered by large international firms for major deals, they dislike their long chains of advice, inconsistent local strengths and very high costs. Clients still seek the unparallelled expertise and access that is offered only by the top independent firms found in the best networks. Competition is good and is not a threat to legal networks.
Moore: If anything, we expect aggressive networks like Meritas encroaching on international law firms’ space as the power shifts to clients who want more value from legal services.
Anduri: International firms have always had their own networks. Clients will increasingly require multijurisdictional solutions, so I expect international firms will do more to make their own networks visible to clients.
Hatchwell: The legal market has always been competitive but, from Globalaw’s perspective, there hasn’t been an increase in encroachment by international firms on network space. Of course, when an international firm decides to expand into a new jurisdiction by acquiring a local firm, the local firm that was previously a network member must then drop out of the network. However, this rarely creates a significant impact or issue for the network. While it can be disappointing to lose a member firm with which one has created good relations, those relations often endure. Further, finding a new network member allows for new ideas and energy to be injected into the network.
Ultimately, international firms still only enter jurisdictions where they have a real economic or commercial incentive to have a presence. There are innumerable countries where international firms do not have any presence, and therefore have to rely on friends or go there ad hoc for their clients. This is where networks offer a significant advantage to their clients, as they operate in these jurisdictions on a regular basis.
We have not been affected in recruiting new members or working internationally with our clients. Ultimately, international firms and networks might compete for the same work with an international outlook, but that is business as usual.
Attisha: There will always be shuffling and jockeying for position in the marketplace, but most international law firms understand their place in the market and understand that their goals and objectives are different from those of a network. The main objective of a network is to foster a global community of like-minded firms that want to provide excellent service to their clients in order to prevent them from moving to an international firm with a global footprint. With most international referrals, a client can receive the same level of service and expertise, or better, by using a mid-sized firm found within a network, instead of having to pay the normally exorbitant and prohibitive fees charged by international law firms.
Siebold: I believe many will watch and see how the Dentons model works out. However, if international law firms do choose to go down this path, they will never truly challenge the elite networks.
If anything, the elite global networks will increasingly challenge the dominance of global law firms, as clients come to understand more readily that global networks provide a viable alternative to international law firm brands.
Added to this, in a network, reputable independent firms work alongside one another with the joint aim of providing the best service to clients. Most importantly, we enjoy working together – there is no place for political infighting in a network – and member firms respect one another’s independence. That is why we are growing.
“As a WSG member, you have access to global, multi-disciplinary resources in regions not typically or adequately covered by international firms” Maricarmen Trujillo
Maricarmen Trujillo, chief operating officer, WSG: The industry is clearly facing a client-driven environment where the key to sustainable success and growth is to not only continue to identify, address and expand the services provided to clients, but to utilise the unique strengths and opportunities provided by a network like WSG to differentiate firms and stay ahead of the competition. As a WSG member, you have access to global and multidisciplinary resources, including those in regions not typically or adequately covered by international firms. WSG provides members with the tools and technology to find and connect with experts, share knowledge and build relationships, enabling members to deliver comprehensive and seamless solutions – ensuring differentiation and success.
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