Feature

posted 15 Dec 2003 in Volume 6 Issue 7

Same market, different approach: The success of the niche-alliance model

While the legal profession abounds with law firms considering merger opportunities, the possible benefits of an alliance or network can be easily overlooked or perceived as merely a rung on the ladder to full merger. Jean-François Gerard, managing director of ius laboris, an international employment-law, pensions and employee-benefits alliance, explains that by taking such an attitude, law firms could be missing out on a golden opportunity to develop their businesses without facing the perils of the merger minefield.

In the 90s, the dominant business model was the multinational full-service firm, also known as the one-stop-service/shopping concept. It was a time when most people claimed that the only solution for ambitious business firms was to merge with others. Firms that chose to remain independent on a national level were thought to be acting the wrong way, or, less charitably, perceived as losers.

Times have changed. For many reasons, the model that dominated the 90s is no longer believed to be the only successful one. Globalisation, it seems, did not mean that clients only wanted a single global (that is, multinational and full-service) firm, and it proved to be difficult to successfully integrate a huge number of lawyers from various parts of the world. However, it is still true, perhaps more so than ever, that anyone with ambition in the legal market needs an international platform from which he can help clients abroad and manage cross-border cases.

Good time for the alternatives

Today there are several networks and alliances made up of firms operating with varying degrees of independence. There are more of these groupings than ever before and, more significantly, they are stronger. Alliances and networks can now offer their clients and members a platform that is as good as any provided by the multinational, full-service firms.

What is ius laboris?

Ius laboris is an alliance of law firms providing specialised services in employment and labour law, pensions and employee benefits covering all legal services related to HR. Created in January 2001 by five European niche-employment firms, the alliance is the first project of its kind and is the largest group ever brought together within this niche practice area. The alliance currently has 20 member firms (ten niche firms and ten full-service firms, which have a significant employment practice group) and more than 1,000 lawyers active in 19 countries and 72 cities across Europe and the Americas. Further expansion is on the agenda in Central and Eastern Europe as well as in Asia and the Pacific region. Our “mission statement” is to:

Provide an international response to employers’global needs in all HR-related legal services;
Provide a forum for knowledge sharing and training between member firms. As a general rule, there is only one member firm per country.

Our structure

Ius laboris is a company under Belgian law with the so called “full members” as shareholders (that is, currently, the original five firms that came together to establish the alliance, plus four others that joined in the early stages). The company is managed by a board made up of a representative of each firm and of an independent director working on a full-time basis for the project as managing director. In addition to the full members, we also have associate members that have signed a membership agreement for a definite duration. The normal path for an associate member is to become a full member/shareholder after an initial two-year period. Associate members are invited to the board meetings on a permanent basis but they do not have voting rights. So far, we have generally been able to work by consensus.

To implement the board’s decisions and co-ordinate the alliance, we have a permanent team of four people based in Brussels. Of course, we have a budget, which is provided by the member firms that contribute according to their turnover.

In addition to the members, we also maintain a register of our recommended firms. These are firms that we work with on a regular basis, which we know are able to cope with international client work in our practice areas. While we are talking to several of the recommended firms regarding their possible membership of ius laboris, they are not subject to our internal quality procedures because they are not members.

We continue to expand and grow but we are always careful to seek new members only where we can be sure of the quality of the local firm in question and also where we can demonstrate a real business need.

What is an alliance?

There are many different forms of alliance and network, but we generally tell people that our alliance is more than a network, but less than a merger. It is more than a network because an alliance has greater integration and it goes beyond just a referral structure. However, our model is less than a merger because there is no financial integration. The alliance is not a profit centre, nor is it a financial player. It is a resource company for the exclusive benefit of its members. Another way to describe us is to say that we only share the good things and leave all the potentially difficult issues (such as partners’ profitability and compensation) to the member firms.

This kind of alliance should not be confused with those that are really being used as a preliminary step before a merger. Our model is not temporary. It is not an alliance driven by a particular firm wanting to test possible merger partners. It is a truly collective project. It is also not to be confused with professional (not-for-profit) associations. There are several such associations in the legal market and some of them focus on a single practice area (see sportslaw.org, for example). Our alliance is a business project. We exist to help our members raise their profits.

Why set up an alliance?

The founders of ius laboris had something in common: they had all declined invitations to join any of the multinational full-service firms, either because they were convinced of the benefits of being independent and niche (as is the case with our French member, the firm of Barthélémy&Associés, which was founded as such in the sixties) and/or because they have discovered, after holding talks with such multinational firms, that it would be hard for them to find a place in such a structure, where employment law is not the driving force behind international strategy (for example, the Belgian niche firm of Claeys&Engels, which was founded in 2001. The founding partners of Claeys&Engels came from Allen & Overy Belgium and part of the employment group of what would become Linklaters Belgium).

These firms also knew that being independent and being a leader in their national market would no longer be enough to retain international clients and gain new ones. Also, in employment law, which is traditionally considered to be a very local practice (this is still true – the local dimension is genuinely more important than in other practices), clients need lawyers who have an international platform from which they may gain the knowledge to become expert in cross-border issues. In this way, our lawyers can deal with international work, offering extra services such as the co-ordination of legal aspects of cross-border operations, centralised reporting, etc.

With our strong commitment to independence and our willingness to be international, it became evident that the alliance model was the only one that could reconcile our requirements.

The five founders discovered very quickly that this model was attractive to other firms coming from other countries. The model also appealed to full-service firms or semi-niche firms and even caught the attention of firms in the UK and USA.

What’s in it for clients?

Clients want the best quality and are concerned about costs. They should not have to care about the strategy used by their lawyers to meet their demands. With a niche alliance, we believe that we have found the best way to offer more quality for less cost.

More quality

In fact, we apply the same methods as multinational firms to ensure quality: we are very careful and selective when choosing a new member; we invest a lot of time and effort in training and knowledge sharing; and we run a quality-management system including a referral-management procedure and a formal-annual evaluation of the members’ firms.

The main difference exists in our specialisation and our flexibility. Our task is probably easier than in a multinational firm when it comes to recruiting members because we take only the best employment practices. The same applies when it comes to ensuring quality. It is much easier to deal with one consistent group than with ten different practice groups. Another very important factor is flexibility. Should we face a repeated and important quality issue in a country, it is also easier to replace a member than it would be to cut off an arm within a partnership. Clients like this because they know – we all know – that every multinational firm will be confronted, sooner or later, with a quality issue in one country. It is good to be able to say that if this happens to us, we can replace the problem firm.

That’s all very well but, you might ask, haven’t the big multinational firms already taken all the good players in all these countries? Our member list shows that we have firms that were niche and independent from the beginning, long before the emergence of those multinationals. We also have member firms that started life as an employment group that split from those big players. In fact, this is happening more and more. In the Netherlands, for example, there was no niche-employment business firm three years ago. Now there are two of them, created by partners who left (multinational) full-service firms. We are also strong enough now to attract such groups and encourage them to become independent and niche. Ius laboris can access the best firms in this field.

Less cost

Because an alliance is a low-cost structure, we were able to take the decision not to increase client fees. There are significant differences between a partner’s hourly fee in London, Warsaw or Lyon. Clients know that and appreciate that we did not try to force a flat rate by increasing the lower fee range. Our policy is to keep the cost reasonable and be fully transparent.

What are the clients telling us?

Clients are more than happy because we offer quality at a good cost. Obviously, we are not the only ones to do so. So what’s the difference? I said that the client should not care about the strategy used by firms to meet their needs. But actually they do care. Clients immediately started to like our concept and structure. We are probably benefiting from the current trend to criticise the big multinational firms (too big, too impersonal, too costly, etc.), which makes people willing to look for and work with alternative providers. Besides, we give our contacts at the client company (who are mostly HR people and specialised in-house counsels, although we are also dealing with general counsels and CEOs) what they want, that is, lawyers who know them and their needs and who belong to the same professional group. In a practice that was sometimes seen as the poor parent within multinational law firms, bringing clients a niche international alliance was great. It seems that they were waiting for such an initiative and they consequently feel really comfortable with us.

What’s in it for a member? How do we deliver value?

Here is what we tell our new members:

Membership will boost your international profile;
You can increase the quality of the services you provide by exchanging knowledge and information with other members;
Membership will help you to develop new products and services to offer to clients;
You will be able to take full advantage of your existing client base on a global scale and improve your client retention as a result;
Membership will improve your ability to acquire new national clients;
You will benefit from our international common client base.

These are probably the same messages that a multinational firm would tell its merger targets. But again, the fact that we are a niche project will make the difference. We can assure our members that all of this will happen.

Besides, we leave the potentially difficult discussions about partners’ compensation, etc., to the national level. There is no need for us to harmonise this at the international level so we can focus on creating value, quality and business for our members.

There are actually no special financial arrangements: no referral fee, no compensation mechanism. This is because we have a win/win situation. The referrer is happy to add a service to his scope; he can help his client in about 20 countries (even more with the help of our recommended firms) with full confidence in the quality of service provided by the others. The receiver is of course quite happy to receive the incoming work and will do its very best. We have been able to demonstrate that the ones who send the most work will be the ones who will receive the most back.

Again, this is largely possible because we are a specialised alliance. When you refer a matter to another member, the likelihood of reciprocal referrals is high, higher than it would be in the situation where a banking lawyer refers employment-law work to a specialised colleague in another jurisdiction.

Can an alliance thrive?

An alliance can thrive if it is supported by the right resources and driven by the right values and goals. An alliance needs to be resourced adequately – there is a definite need for a permanent team, responsible for the day-to-day implementation of the board’s strategies. Structurally, the alliance must be kept simple and flexible. An international structure is needed, but it cannot become a superstructure. The member firms must always be in the driving seat.

When discussing resources, we need to always remember that a law firm is a people business. Being a niche project is very helpful to build a very consistent group since all of our lawyers have a similar background, are dealing with similar questions, similar clients, etc. Clients and colleagues are always positively surprised by the quality of the relationships across our alliance. These good relationships are essential to the flow of referrals and ideas between our members.

Let me give some key figures, not about referrals, but internal meetings: 180 lawyers, representing the 20-member firms, met in May this year for our annual congress. Twenty people (all of them key partners) were in San Francisco in September this year to attend the IBA conference. Then in October we gathered some 45 key partners in Lyon to hold an extended board meeting, which considered strategy and client development among other key issues. So, within the past six months, our alliance has held three major events involving almost all of our members. We conduct a number of other international meetings: regular board meetings, international practice groups, seminars, workshops and bilateral meetings. People are always coming together and this demonstrates a high level of commitment and a willingness to work together. (Some sceptical lawyers could say that this is an excuse to travel and eat well. Maybe there’s some truth to this, but they would also be amazed by the results that these firms have achieved.)

If you want to be successful as an alliance, you need to invest heavily in internal marketing, perhaps even more so than external, because your member lawyers are your best representatives.

In the end, we lawyers all want to achieve the same things – we want to offer our clients the highest quality at the best cost. There is no great difference between a multinational law firm and alliances and networks in that respect. There are success stories in all situations and no model is actually objectively better than another. It is more a question of finding the right model that fits your project the best, one which you think will help you to create value and that will give you something positive to sell to your clients.

Jean-François Gerard is managing director of ius laboris, an international employment law, pensions and employee benefits alliance. He can be contacted at: jfgerard@iuslaboris.com