Career Development  -->  Law Firm Economics

 

 

With technology breaking down the barriers of time and distance and the rapid globalization of business, the next logical step is for law firms to expand internationally. Currently, New York and London are the world’s leading financial centers; consequently, US- and UK-based law firms dominate the international legal market. Many smaller and regional law firms often compete on a global scale by joining a global network of similar firms while the larger firms tend to open their own offices in international locations. More than 100 US-based law firms maintain international offices, some with several locations spanning the globe, and the trend is accelerating. 

 

As law firms expand, either nationally or internationally, they try to shift the perception away from having a home base with satellite offices. The emphasis is on being one firm with all offices being equal in stature.   Many firms no longer have any clear center of gravity as some of their later offices have grown larger than the original home base. The trend is towards servicing clients with multi-office teams, and referring business back and forth between many offices of the same firm. Websites, marketing materials, and branding campaigns are increasingly using terms such as “global” and “international”, and shunning terms such as “home office”, “headquarters”, or “branch office”.

 

As law firms are competing for business from clients doing business around the globe, they want to be able to offer a wide array of services and resources when and where they are needed. With new technologies such as email and videoconferencing capabilities, it may not really matter where in the world an attorney or the client is located in order to stay connected. However, having legal expertise “on the ground” in the various locations where the clients may be doing business is more effective because of the cultural, business, and legal nuances that can affect the delivery of legal services around the world. A further business advantage to the globalization of law firms is that a diversity of practices and geographical locations can offer stability and balance because when one industry, practice area, or geographical area is experiencing a downturn, others will be strong.

 

There are various business models utilized by US-based law firms in their global expansion. One is to merge with an existing firm in the target international location. Thus far, most such combinations have been between US and London based firms, and have occurred in both directions across the Atlantic. A number of UK-based firms have merged with US firms, most of which are located in New York. And many US firms have entered London through merger.  In fact, some consultants are warning that potential merger targets both in New York and London are disappearing as the most likely candidates already have been picked off. 

 

Achieving a successful merger between two or more domestic law firms is difficult enough, but the difficulties are magnified in the international arena. There are greater gaps between corporate cultures, pay structures, recruitment and marketing practices, rules regarding conflicts of interest, and styles of doing business in the locality. These issues are further exacerbated where there are differences in language, values, and beliefs such as those between Eastern and Western cultures.   As international business expands and the regulations against foreign lawyers practicing law in various Asian countries are relaxed, more Western law firms will be setting up shop in China, Japan, India, Korea, and other countries in the region. Consequently, cultural sensitivity will be even more important when attempting to expand through such an international law firm merger. 

 

Even without those larger cultural gaps, and although American and British lawyers speak (basically) the same language and both legal systems developed from the same roots, such mergers have not always been easy. There have been problems based in differences in law firm economics. London firms generally use a lock-step compensation practice based on seniority, while the trend in US firms is towards a merit-based “eat what you kill” calculation depending upon, among other factors, business originations and revenue production. Furthermore, London firms’ billing rates are much higher, sometimes almost double that of their American counterparts, while billable hours rarely exceed 1,500 annually compared to 1800-2000+ for US lawyers. The resulting legal bills are about the same for the clients, but these differences are obstacles to the seamless combination of firms across the Atlantic.

 

Another strategy used by law firms for global expansion is to follow one or more existing clients that are doing business in a new foreign location. The US-based law firm may send over a few American lawyers to service the clients’ legal needs with regard to US law only. If all goes well, the firm will recruit local attorneys to handle the needs of those clients relating for foreign legal issues, and will attract local clients wishing to do business in the US, providing even more work for the American attorneys. The key is to determine that the existing clients that precipitated the move do, indeed, have enough business in the new locale to keep the initial relocating lawyers profitably occupied, and whether there is real potential to develop further business from other clients either located in or seeking to do business in the region. 

 

A related strategy for establishing an office in a new foreign location is to set up a small “representative office” with a few attorneys from the firm’s US offices to attract local clients who wish to do business in the US. The office would not initially do work involving the laws of the host country. The relocated attorneys would network to make local business contacts of firms wishing to do business in the US and establish referral relationships with local lawyers. Over time, as those relationships grew, the firm might want to grow the office by recruiting some of those local attorneys in order to practice law in the foreign jurisdiction. Initially, it will take time and, therefore, money, to raise the firm’s profile, establish these networks, and develop referral sources to the point where the office becomes profitable.

 

The most common mistake law firms make is to either overestimate the opportunity or underestimate the costs of establishing the new international location. Factors to keep in mind are the decline of the US dollar and its strength against the local currency, and the costs of doing business and living overseas. Cities such as London and Tokyo are very expensive, even compared to New York. Rents are astronomical, and the price of hiring high quality and appropriately trained local legal or administrative talent can be high in any international locality.   Moreover, a new foreign office usually cannot succeed based only on American lawyers commuting back and forth to the US; to fully integrate the new office, it will be necessary to relocate several attorneys who are well-established with the firm and train them in the local language and culture. Providing an attractive financial incentive for US-based attorneys to relocate to the international location for a period of time might add significantly to the cost. 

 

Integrated global technology is essential to the success of an international law firm and is expensive. Regardless of their location, attorneys will need access to documents, research resources, email, and billing systems. Technical support must be available 24 hours a day, seven days a week, around the globe. In addition to these resources, as well as videoconferencing and Blackberries or similar technology for the attorneys to stay connected and work together seamlessly, periodic face-to-face meetings and gatherings are necessary to maintain cohesiveness and foster team spirit.  Some global firms have gone so far as to hire travel professionals to handle the arrangements while attempting to control costs.

 

What this increasing trend towards globalization means is that US trained attorneys with a variety of languages and cultural sensitivity will be even more valuable in the future legal marketplace. Such skills will not necessarily trump the requirement for top-notch educational credentials and employment experience, but they will enhance your chances of being hired by a US-based international law firm. If you are a foreign-trained attorney with LL.M. degree from US schools and admission to the bar in the state in which you wish to practice, your foreign language skills and understanding of other cultures might be particularly valuable to a firm that has offices in the country where you previously resided. Whether you were educated here or abroad, if you have rudimentary foreign language skills, it might be worth your while to further develop them to advance your career.

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