Gleiss Lutz - Herbert Smith - Stibbe: A step beyond “best friends”

In July 2000, Herbert Smith and Gleiss Lutz Hootz Hirsch (as the firm was then called) entered into an alliance. Stibbe joined on 1 January 2002 to make a tripartite alliance between the three firms. Allard Metzelaar, managing partner at Stibbe, describes the background and formation of the alliance and the impact it will have on future service delivery.

This article will discuss some of the background leading to the formation of the alliance between the three firms, its rationale and benefits as we see them, its particular features and our experience to date. Since I am the managing partner of Stibbe, the Stibbe perspective will inevitably be placed somewhat to the forefront; but without doubt the perspectives of the three firms on the issues I will address are materially the same.

Three very different and very similar firms

The differences between the firms are obvious. Herbert Smith is a very large firm compared with Stibbe and Gleiss. Herbert Smith has over 1,000 fee earners including some 200 partners in the UK and a number of other jurisdictions across Europe and Asia. Gleiss Lutz has some 200 fee earners, including 63 partners, in four offices in Germany and a couple of smaller offices in Eastern Europe. Stibbe has 350 fee earners, including 68 partners, in two principal offices in Holland (Amsterdam) and Belgium (Brussels). In addition Stibbe has two branch offices in London and New York. I refer to these offices as “branch offices” because they are staffed exclusively with Dutch and Belgian lawyers who do not purport to practice local law. The foreign offices of Herbert Smith and Gleiss Lutz are different in that respect because, with a few exceptions, they all practice local law in addition to the “home country” law (the principal exception to this statement being Brussels where Gleiss Lutz and Herbert Smith have competition law practices but do not practice Belgian law).

There are also differences in the firms’ historical growth patterns. Herbert Smith has been a very large firm for a generation or two whereas until quite recently, Gleiss and Stibbe were much smaller firms than they are today – even though they may have been quite large by domestic standards.

Finally, the home jurisdictions of the three firms are very different. England is a very large market by itself and on top of that, English law is a major export product governing transactions all over the world. Germany is a large country too but until fairly recently, the legal profession operated within the boundaries of its federal states rather than on a national scale. Holland and Belgium on the other hand, are small jurisdictions with economies that are only a fraction of the size of the German or English economy.

More important than the differences in size are the differences in culture. The legal profession in England and in continental Europe has historically developed along different lines. The most significant difference is the separation between “lawyering” and advocacy. Continental lawyers combine the profession of barristers and solicitors. The day-to-day work of many lawyers in continental firms is more akin to that of an English barrister than a solicitor. This, together with differences in scale, explains to a large extent why continental firms are perceived as more individualistic whereas English firms are perceived as being more institutional.

Of course, cultural differences are not unique to our three firms. The need for these differences to be acknowledged and respected, however, is easily underestimated in the context of the globalisation of the legal profession. It is the mutual recognition and understanding of these differences that have led the three firms to form an alliance, rather than a merger.

Having said this, the similarities between the firms vastly outweigh the differences. All three firms are the result of steady organic growth in their principal home jurisdictions. No firm has to deal with factions or “blood groups” within its own ranks. This has contributed to the strong sense of identity in each of the three firms.

Another very important factor is the philosophy of the three firms as to the breadth of their practices. Market segmentation is a fact and nobody in his right mind will deny that the time when law firms could be everything to everyone is way behind us. Generally speaking, the leading continental firms have had broader practices, both horizontally (areas of practice) and vertically (i.e. the size of matters and cases) than the leading City firms. This largely explains the agony suffered by many continental firms that decided to jump onto the globalisation bandwagon.

Although at Stibbe we recognise the need to focus on certain market segments, we also strongly believe in the value of a full service. It is what many of our most important clients expect us to offer and – the importance cannot be overemphasised – it is also what attracts young lawyers when choosing their future employers. We share this view with Herbert Smith and Gleiss Lutz and it is absolutely essential to our arrangement. Finally, Herbert Smith is not only one of the top commercial firms in England but is also a firm that has a uniquely strong practice and reputation in litigation. It is this feature in particular that makes Herbert Smith a much more natural fit to many continental firms than any of the other leading English firms.

The business case

The existence of shared principles and philosophies between firms is crucial to the creation of any successful joint venture or merger. The decision to create the alliance, however, was driven by the business case. Law firms work for clients and, however much of a cliché this may sound, clients’ needs will determine how the profession and individual firms develop. The globalisation of the economy is a fact of life, particularly for large corporations and financial institutions, the key clients of large law firms. With this has come the demand for cross-border legal services and a trend towards larger corporations working with fewer firms. This means that some corporations and institutions prefer to instruct foreign lawyers, even on local matters, through the firms with whom they work in their home country.

For a number of City firms, the response to this development has been the creation of single-branded global firms. In brief, our alliance is an alternative response to the same trend in client demand, nothing less and nothing more. The main purpose of the alliance is to offer a cross-border service of the highest quality. We do not believe that a full merger between firms is the only way to achieve this. In fact, we believe that the form of the alliance may, over time, allow it to be in a better position to offer a real top-calibre service. It would be foolish not to acknowledge that some of the global firms are very successful. However, it is too early to say that the concept of the global firm is firmly established as the best possible model for providing top-quality legal services in an international setting.

The English firms that have grown into global firms are firms that will have no problem in recruiting top legal talent in their home jurisdiction. In many foreign jurisdictions, however, the global firms find it much more difficult to attract top talent. One explanation is that the global firms frequently concentrate on a much narrower practice abroad than they do at home. This is among other things caused by economic differences in the legal markets and because the global firms have grown into bottom-line driven institutions. The decision on the breadth and depth of the practice in a certain country is primarily driven by economic factors with London profitability levels as the benchmark. Whether these decisions result in the type of practice that in the long run will be in a position to attract top-quality people and offer the best quality available is still open to question. The measured approach implicit within the alliance formula, and the flexibility the model offers, allows our three firms to watch for the emergence of the definitive answer to this question from a strong vantage point.

At the end of the day, clients care about quality and are indifferent to the manner in which the provider of a service is organised. The alliance in substance is driven by client demand for cross-border services and in form, by the conviction that the ability to deliver a sustained top-quality service should not be compromised.

The alliance in practice

Historically, law firms worked with correspondent firms in other jurisdictions on matters with a cross-border component or for the purpose of referrals. Out of this practice, certain networks of firms have emerged that sometimes refer to each other as “best friends”. This concept covers many different situations, from quasi- exclusive relationships to loose referral networks. Prior to the formation of the alliance, Herbert Smith, Stibbe and Gleiss Lutz already worked together within a best-friends setting.

However, the alliance will bring the firms’ level of co-operation to a level that goes well beyond this concept.

The alliance formula implies that each firm is independent in the sense that each firm makes its own decisions on partner appointments and the firms do not pool profits (although they do pool certain costs). However, the agenda of our joint steering committee (the group overseeing the development of the alliance), which includes an ongoing business plan, would not have looked that different had the firms decided to merge. It is the intention of the three firms to integrate on an operational level as fully as possible. Gerhard Wegen at Gleiss Lutz has coined this concept the “virtual firm”. This means that international practice groups have been created across the three firms. The objective is for the partners within these groups to forge close personal and working relations, which are seen as absolutely key to the ability to deliver a seamless, cross-border service.

In addition, all support systems in the three firms are closely co-ordinating their activities and, where appropriate, being integrated. This includes the integration of know-how systems and databases and the central collection of credentials and precedents.

Secondees are exchanged regularly between the various offices and joint training programmes have been put in place. As the development of the alliance continues, more associates and support staff will be involved in alliance activities.

Reactions from clients to the alliance have been very positive. Clients appreciate that the formation of the alliance was driven by the desire of the three firms to offer an enhanced international service. Obviously each of the firms has clients – and sometimes very substantial clients – for whom the additional capabilities that the alliance offers are not immediately relevant. But for some of these clients the alliance is good news for what it is not, i.e., it will not change the identity and nature of the firm they know and like. This is another illustration of how we believe the the alliance has achieved the best of both worlds.

Allard Metzelaar is managing partner at Stibbe, Amsterdam. He can be contacted at: Allard.Metzelaar@stibbe.nl.