A Billion-Dollar Legal Market Consolidation "Amazonization" of the Global Legal Profession 2023 - Law Firm Networks - Future of International Firms
Stephen McGarry
Founder: Lex Mundi, WSG, HG.org, Global Legal Leaders.com - BA, MA, JD, LLM (Tax) - Admitted by exam: TX, MN, LA - and Artist
Table of Contents
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1. A Billion-Dollar Legal Market Consolidation - "Amazonization" of the Global Legal Profession 2023
Stephen J. McGarry: BA, MA, JD, LLM Founder: Lex Mundi, WSG, AILFN, HG.org, & GlobalLegalLeaders.com Admitted: TX LA MN
Founded one of the first 10 legal websites in 1995 – HG.org (today receiving 1.3 million unique users per month), and the world's two largest law firm networks – Lex Mundi and WSG (44,000 attorneys - members’ $20 billion in annual legal services). He has met in-person with over 500 law firms in more than 100 countries and every US state and Canadian province (except the Yukon).
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Over the last several decades there has been an expansion of firms, growth of networks, development of ALSPs, and the consulting professions. The expansion only increased the extraordinary market fragmentation in the legal profession. No firm or law business has a market share greater than .2%.
Problems
Results
Solution:
Consolidate the Global Market and Integrate the 4 Service Functions: Firms, Networks, ALSPs and Consultants– How?
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2. Law Firm and Multidisciplinary Networks
Michael Reiss von Filski, LLM: Global CEO, GGI Geneva Group International, and director of a Swiss-based family office and consulting firm, having more than 15 years’ experience in advisory services.
He is accredited as observer to the European Parliament and serves in the Advisory Committee of EGIAN (European Group of International Accounting Networks). Michael studied international law, history, and modern literature in Zurich, Hagen, Madrid, and Manchester and holds an LL.M. in international commercial law. He is an honorary professor of international law. Michael received the US Presidential Lifetime Achievement Award from the Hon. President Barack Obama in 2016. He has been awarded several grand crosses, honors, and knighthoods from the Vatican, Spain, Portugal, Italy, Georgia, Hungary, Indonesia, and Vietnam, among others.
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For the past five decades, law firms as well as accounting firms have tried to achieve broader coverage and obtain referrals through establishing and joining networks and associations of professional firms. The prevailing legal structures are mainly companies limited by guarantee, Delaware member corporations, and Swiss Vereins.[1]
The collapse of Italian dairy product giant Parmalat and the Enron case led to a restructuring of the regulatory framework for accounting Transnational Organizations and Practices (TOPS), resulting in higher regulation through the 8th EU Directive and the Statutory Audit Directive from 2006 as well as in the commonly accepted network definitions according to the International Federation of Accountants (IFAC). Consequently, there needs to be a differentiation between integrated networks of accounting firms and loose networks of accounting firms referred to as “alliances” or “associations,” regardless of their effective legal structure. Integrated networks of accounting firms require thorough independence checks prior to accepting new clients and are potentially exposed to more vicarious liability.[2]
Organizations consisting purely of law firms enjoy much more flexibility and are not yet subject to global regulations, restrictions, or limitations. It is unavoidable that potential conflicts arise from the different corporate structures chosen; in particular, conflicts of interest can even lead to malpractice suits against law firms, members of TOPS. The choice of the legal structure has, however, very little impact on vicarious liability for law firm networks. A substantial conflict can be identified by the market perception of clients and by elements of misrepresentation, in particular if networks of law firms label themselves as global law firms when in fact they are Swiss Vereins and therefore factually single-branded networks of independent firms.[3] A series of law firm networks may promote themselves as global law firms and be perceived as such, despite their structure as a Swiss Verein.[4]
Professional service firms have over the past century cooperated on an international scale in different ways. Similar to the correspondent bank network of the 19th century, international law firms and accounting firms have come to understand that it is essential for them to rely on strategic partners or associates abroad in order to serve clients better, particularly when it comes to transnational assignments.[5] Historically, a broad variety of different models has arisen, from very loose “clubs of friends” with no formal corporate structure to the more modern and often highly integrated and monitored firm model, using a single brand and following global standards, such as the “Big Four.”
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3. Future: International Law Firms
Markus Hartung He is Managing Partner Managing Partner Chevalier and Senior Fellow at the Bucerius Center on the Legal Profession (CLP) at Bucerius Law School, Hamburg. His expertise in the framework of the CLP lies in market development and trends, management and strategic leadership as well as corporate governance of law firms and business models of law firms with regard to digitalization of the legal market. He is chair of the Committee on Professional Regulation of the German Bar Association (DAV). He is also a regular lecturer and conference-speaker on leadership, management topics, and professional ethics, and he has written numerous articles and book chapters on these topics.
Emma Ziercke is legal counsel at Sunfire, GmbH. She was a senior fellow for the Bucerius Center on the Legal Profession and a non-practising solicitor. Between 2002 and 2009, Emma worked as a corporate solicitor (managing associate) for Linklaters in London, mainly in the fields of private international M&A and public takeovers by scheme of arrangement.
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What keeps John Doe, managing partner of a typical international law firm headquartered in London, awake at night? Alternative legal service providers, Amazon law firms, legal tech, cyber-attacks, and management mumbo jumbo about agile working and service innovation, and all that without worrying about the daily business of running a law firm. His partners have asked him to come up with a three-year plan to strengthen the firm’s position in its home market and internationally. How should he start? Should he read any of these clever books or articles dealing with development of the legal market?
Just few years ago, his bookshelf was all doom and gloom: Richard Susskind’s “The End of Lawyers?”, Larry Ribstein’s “The Death of Big Law,” Bruce MacEwen’s “Growth is Dead,” and Mitch Kowalski’s “Avoiding Extinction,” to name but a few[1] … All of these academics with their catchy book titles were not exactly encouraging. Now it seems they are engaging in crystal ball gazing: “Tomorrow’s Lawyers” (Richard Susskind), “Tomorrowland” (Bruce MacEwen), and “The Future of the Professions” (Richard and Daniel Susskind). But what is this one: “Robots in Law: How Artificial Intelligence is Transforming Legal Services”?[2] So, what does the future hold?
The crystal ball contains a startling premonition as legal market intelligence such as The Lawyer and Legal Week ask: “When will artificial intelligence replace lawyers?” Not “if,” but “when” and “to what extent” will artificial intelligence replace lawyers? The crystal ball also contains a murky picture of a shifting legal market, with new businesses emerging and potentially stealing work from traditional, brick-and-mortar law firms. Who are these “alternative” service providers? They don’t appear in the U.K. or AmLaw Top 100, so nothing for John Doe to worry about. Or is there? As Richard Susskind says, “the competition that kills you, doesn’t look like you.”
So, how will John Doe find out? Who has the answer to today’s questions? To know the right questions would be a good start. There are many John Does out there who valiantly navigate their firm through heavy weather and turbulence. We at the Bucerius Center on the Legal Profession, a think tank at Bucerius Law School in Hamburg, have spoken to many of them. Our Center does research and analyzes legal markets in order to provide market participants with knowhow and knowledge regarding the best practices of law firms and in-house legal departments. Here is what we talk about when we spend time with the John Does:
Law firms should focus on three core areas when it comes to setting up a plan for the next three-plus years. Such an approach may be timeless, but it must constantly be updated as the changing market environment leads to different conclusions. Law firms have to:
1. Deal with their strategic positioning;
2. Focus on client service (the what and how of legal service delivery); and
3. Make sure that their partnership structure is well aligned with the strategic goals of the firm.
Focusing on these three core areas is sufficient, but what about legal technology? Innovation? Profit sharing? Governance? Mergers? Each of these is important, but first things have to be put in perspective. Just grabbing a buzzword — e.g., “innovation” or “profit sharing” or buying some clever technology — has nothing to do with strategic goals and leads to aimless activism without any success.
Before discussing the core items, one has to understand that all three topics are applicable for each type of law firm, be it a global player, a boutique, an international firm, or a category killer. The questions are always the same, but the answers are not. The most important topic is strategic positioning; hence, we will spend more time on this subject.