Dacheng founder Peng Xuefeng and Dentons global chair Joseph Andrew at a signing ceremony in Beijing in 2015. (Photo courtesy of Dentons)
A mixed message on the outlook for law firms’ global expansion met attendees at the International Bar Association’s annual conference this week.
Leaders from Dentons, the world’s largest law firm, extolled their own explosive growth model on Monday on the sidelines of the Washington, D.C., conference. But at a panel discussion on Wednesday, lawyers who’ve taken business abroad offered a more cautious view.
One of them, Dinsmore & Shohl’s Harvey Cohen, kicked things off with a simple question: Why go abroad?
“I think my advice is, ‘Don’t',” said Stephen Revell, Freshfields Bruckhaus Deringer’s managing partner in Singapore.
“We were forced by our clients” to expand abroad, said Antonio Barba, a partner with the Spanish law firm Cuatrecasas, Gonçalves Pereira.
“I can guarantee any law firm in this room can make a small fortune going abroad, if they’re prepared to lose a large one,” said Peter Pantaleo, general counsel at DLA Piper, one of the largest global firms.
Pantaleo described several potential pitfalls, citing how DLA Piper’s office in Dubai faced losses after spending tens of millions of pounds to open; how the firm closed in Venezuela this year because of political risk; and how lateral recruits often say they’re looking for a foreign office that can help them double their business, which rarely pans out.
Other firms have dealt with global setbacks recently. Fried, Frank, Harris, Shriver & Jacobson, for instance, pulled out of Hong Kong and Shanghai last year.
Revell of Freshfields offered another anecdote. King & Wood Mallesons’ Asian partners still refer work to firms in Australia besides its legacy Australian group, which it picked up in a 2011 merger, he said. At a global firm, in theory, most work should stay within the partnership.
Global vs. Local
Earlier in the week at Dentons’ D.C. offices, firm chairman Joseph Andrew and CEO Elliott Portnoy sought to persuade a room of 70 international lawyers that Dentons’ unprecedented size works to the firm’s and its clients’ advantage.
They outlined how the firm focuses on picking up partners abroad, rather than sending envoys from existing offices. The Dentons difference, Andrew said, is that each of its outposts delivers the benefits of a local firm. “It is being in and of the community,” he said.
The clash of unique cultural identities from country to country is the biggest threat to expanding legal business, the Dentons leaders said.
“Clients are deeply turned off when they walk into a room in Bogota and see me sitting there,” said Portnoy, who is based in Washington.
The pair also elaborated on what the firm’s “polycentric approach,” as Dentons dubs its merger-heavy strategy, means for its 8,000-lawyers. Instead of originating clients in the U.S. and expanding outward through referrals and existing client needs, the firm picks up offices abroad that function more like local counsel on deals and in disputes. Those lawyers can originate legal work as well as smooth relationships with clients in the same country.
The firm leaders did not provide details on how they incentivize that business sharing or about their financial arrangements with local outposts.
Other global firms that also use the Swiss verein model are “built differently,” Andrew said after the panel. “They just have the same organizational structure.”
Inside the Verein
At Wednesday’s IBA panel, Pantaleo elaborated on why the verein model makes sense for DLA Piper and other firms.
Partners don’t have to worry about taxes of foreign offices in their firm in a verein, which creates almost separate partnerships in each country, save for a unified firm management and brand. The various offices throughout a verein also can share expenses.
“We didn’t want our partners in the U.S. worried about the tax complexities of being a global law firm,” he said.
The set-up also lets the various offices operate more independently and protect each country’s revenue and profits, Pantaleo said.
At DLA Piper, for instance, the ratio of associates to partners is greater in the firm’s overseas offices than in the U.S., while its U.S. lawyers generate higher profits. The verein model makes it easier to adjust staffing and compensation accordingly.
“In professional services organizations, the people who produce the wealth want to be paid,” Pantaleo noted.
Still, firms like DLA Piper want to benefit from their global networks. Pantaleo said his firm keeps track of referrals lawyers make between offices, which motivates U.S. partners to send work to their colleagues overseas.
“We rely on the oldest of all motivators—greed,” he joked.
Contact Katelyn Polantz at email@example.com. On Twitter: @kpolantz.