Experiencing the business case for a network in Europe

UK law firms can be preoccupied with the idea of merger and, no sooner has it been declared that the merger hype is over, but another set of firms announce their intentions to join up. While it is good to see plenty of activity in the legal market, the merger route is far from easy and the risks can be daunting. Grant Howell, managing partner of Charles Russell, argues the case for the network instead of the alliance or merger and explains why his firm has reaped the benefits of the third way.

A source of continuing debate is how a medium-sized UK law firm can best maintain and develop the ability to both attract and deal with European work. Much has been both written and spoken of the theory as to whether it is best to proceed by way of merger, alliance or network. The purpose of this article is to share with you my own experience and that of my firm, Charles Russell, in taking the network route.

I have been managing partner at Charles Russell since 1999. Part of my role is to be closely involved in setting and then overseeing the firm’s strategy and practice development. The firm views the international aspect of that role as crucial to the firm’s development. I also chair the International Liaison Group, which oversees all international links, including those in Europe.

Charles Russell is a top-forty, independent London law firm with two regional offices. There are around 500 staff members, of whom over half are lawyers. The work done is full service in nature, covering a broad spectrum, from complex cross-border corporate transactions to acting for high-net-worth individuals and foreign governments. Among a varied range of international contacts built up over many years, the firm plays a key part in two international networks. One, ALFA International, is US based but also covers all other continents of the world. The other, which I shall be focusing on in this article, is the Association of European Lawyers (AEL).

AEL covers thirty-two European jurisdictions. Membership is non-exclusive. In addition to Charles Russell, notable European firms involved include Hannes Snellman in Finland, Arthur Cox in Eire, Nauta Dutilh in the Netherlands, Nörr Stiefenhoffer Lutz in Germany and Gomez-Acebo & Pombo in Spain.

For a number of years, I have chaired the Managing Partner Special Interest Group of AEL. The purpose of this group is to enable the firms in AEL and their managements to get to know each other better and discuss how best to assist the continuing development of the firms. It is central to the ethos of AEL that the firms involved are not merely names in a directory but know each other. All the firms involved are independent and see that as being central to their philosophy. The ability to have other international relationships, in addition to being a member of AEL, has a number of advantages, not least the fact that conflicts are avoided.

Drivers

What then, in the firm’s experience, are the drivers that mean that a medium-sized firm such as Charles Russell needs to ensure the European aspect is fully covered? There are four as follows:

Clients – as ever, the key driver – important clients at Charles Russell need legal assistance in Europe. Increasingly, either the work that they require does not recognise borders or, alternatively, there is the wish to take advantage of opportunities to better develop the business in other jurisdictions. The ability to assist them in meeting those objectives is not only a concrete example of the fact that Charles Russell understands the client’s business objectives but also deepens the firm’s relationship with them. In our experience, clients are looking for a quality service and are not concerned whether or not the firms providing it to them are part of the same entity, as long as regarding that particular piece of work, they act as though they are. As a separate point, as relationships deepen with the other European law firms involved, then opportunities arise to work with their clients as well;
Credibility – in the hunt for further work either from existing or new clients, the importance of demonstrating an international capacity is crucial. To quote just one example, Charles Russell acted for a US chemical company regarding a complex cross-border transaction involving many European jurisdictions. The transaction went very well and drew on the firms in AEL. This in turn led the client to recommend us to other US contacts, as the firm’s capacity to deal with international matters had been demonstrated. The virtuous circle was, therefore, created;
Competitors – one should, of course, always guard against doing something because another firm is doing it. However, in today’s competitive market, ignoring or failing to match and exceed competitors’ international capabilities would almost inevitably cause a loss of market share;
Portfolio – European lawyers will confirm that the slowness in the UK corporate market over the past couple of years has been mirrored elsewhere. That said, having more of an international reach undoubtedly ensures that a firm’s performance is not solely driven by the whims of the UK economy.

Benefits

The benefits that the firm has directly experienced from being a member of AEL can be summarised as follows:

More work – this is not only from existing clients but also being able to develop new clients both in this country and abroad;
Cultural – the firms in AEL value their independence just as much as Charles Russell does. This not only leads to a good cultural fit but also avoids the problems experienced in alliances or mergers of trying to shoehorn what would be very different cultures into one cohesive entity;
Local knowledge – to quote the words of the old song: “It ain’t what you do it’s the way that you do it.” Just as the clients at Charles Russell benefit from the firm’s experience over many years of dealing in the English market, that benefit is on tap when dealing with another independent well established European firm. This means that we and our clients have immediate access to an intimate knowledge of political, economic, sociological and technological local factors. It is also apparent that many European clients prefer dealing with a local firm from the same country rather than an ‘English interloper’;
Benchmarking – building close relationships with similar European firms also has the advantage of being able to discuss, in a European context, matters of mutual interest such as IT, knowledge management, training and risk. Just one practical example of the last point is the opportunity to address very different expectations as regards limitation of liability;
Staff – the importance of attracting and then retaining good people remains as critical as ever. The need to demonstrate to them that they can obtain international experience either as regards the work or by way of secondment is an important factor in strengthening the firm’s ability to achieve this successfully. Interestingly, this comment is echoed throughout AEL. Alternatives While being a member of a network like AEL is the best approach for Charles Russell, that is not to say that alternative means of achieving similar benefits are not kept under review. The firm’s reasons for not taking the main four alternatives can be summarised briefly as follows:
Organic growth – sending out representatives of the firm into European jurisdictions to set up local offices not only requires substantial investment to give it any chance of being successful, but does not deliver the local knowledge and contacts that are so crucial. What is more, in today’s competitive market, even if this approach succeeds it would take too long. There have been enough examples over the years to demonstrate that putting up a name plate in foreign capital is not enough;
Referral – referring work to valued contacts and vice versa will always be there and be valuable to an extent. However, without a volume of referrals and the glue that comes from building relationships, the firm-wide benefits that I have already outlined simply do not flow. In practice, you get what you give to a relationship and occasional referral of work is simply not giving enough;
Lateral hire – instead of sending out representatives, taking on a lawyer already based in the jurisdiction not only has the disadvantages of organic growth already outlined but also raises very difficult challenges of integrating those involved with the firm back in England;
Merger – unattractive, given the importance of wishing to remain independent and the ability to derive the benefits by way of a network. Also, in talking to those who have worked at global firms or worked with them, it is not the panacea it might appear. Inter-office rivalry and cultural differences mean that a neutral observer might well come to the conclusion that a network rather than a global firm appears far more cohesive.

Practicalities

How does Charles Russell, therefore, get the best out of being part of AEL? This is a relationship and the points listed below probably apply equally to any relationship. There is a need to constantly work at it. That is even more the case given the non-exclusive nature of the relationship.

As long as the network exists, there are advantages, even if the firm purely uses the network as and when it needs to do so, for example, to handle the type of transaction that Charles Russell dealt with for the US chemical company mentioned earlier. However, by being more active, real added value, is gained. This is best done in the five following ways:

Share – building a relationship of trust with another law firm by means of a network has many advantages. Swapping information about the respective markets can lead to business opportunities for the firm and its clients. Introducing clients to each other can also lead to a virtuous circle of more work coming in and better satisfying one’s own clients by meeting their business objectives. Just one recent example is passing on to the European AEL members, details of a Charles Russell client looking to purchase hotels in Europe;
Meet – there is simply no better way to develop relationships than meeting others in the network personally and trying to ensure as many other people do in their respective firms. Trust must be earned and justified. In the common phrase, ‘best friends’, it is the second word that is crucial. Meetings should be arranged and attended. If a member of the firm is visiting a European city for another reason, the opportunity should be taken to drop in and see the local network member. That hospitality should also be offered when members of their firms are here;
Action not words – ‘talking shops’ must be avoided at all costs. Everybody is busy and formal meetings, in particular, must have a purpose and be viewed objectively as being worthwhile. Introducing clients or business opportunities are good examples of concrete benefits that can be derived. The AEL Managing Partner Special Interest Group has learnt by experience of the need to move matters on from purely getting to know each other, enjoyable as that is;
Record – internal systems should be set up so that the financial benefits are clearly recorded. At Charles Russell, this is one of the purposes of the International Liaison Group;
Publicise – the benefits to be drawn from membership of the network should be made clear both inside and outside the firm. Inside the firm, it is important to show to those not directly involved in the network that the firm’s resources are being used sensibly. Outside the firm, demonstrating the strength of the network not only enhances each firm in it but also increases the opportunities for further work. There is the need, of course, to be sensitive to the requirements of individual jurisdictions. Some are still prevented from publicising, for example, the work that they do. However, as much information as possible should be given and the benefit taken of opportunities provided by the internet. AELonline is a website used by the members to share information and better develop virtual relationships.

I hope that I have demonstrated in this article why we at Charles Russell believe that the development of our European practice is best achieved through the means of a network. It would be presumptuous of me to suggest that this is also the best route for any other firm. However, I leave you with the thought that, in considering a network, you must think extremely carefully about the kind of firm you have and what you want it to be. What are your firm’s true specialisms and realistic aims? Who are your clients and what clients could you have in the future? What is your real objective in being part of the network, namely, do they really wish to remain independent or is it the first step on a road to another more integrated solution?

Whatever the outcome of those deliberations, the most important point of all is that any medium-sized firm needs to consider the situation fully and come to a decision, whatever that may be. In today’s competitive market, to avoid that decision and risk drifting is simply not a viable alternative.

Grant Howell is managing partner of Charles Russell. He can be contacted at: grant.howell@charlesrussell.co.uk.