Lawyer Networks Expanding Law Firms’ Global Reach
September 10, 2010
Michael M. Froy, a partner with Sonnenschein, Nath & Rosenthal, recently had a small problem.
Sonnenschein represents Inchcape plc, the oddly named British company that happens to be the world's largest automobile retailer.
Inchcape was interested in acquiring Baltic Motors, the major dealer and distributor of automobiles in Latvia.
This obviously required the services of a Latvian law firm, not the sort of firm typically found in an American lawyer's Rolodex.
A small problem, but actually not a problem at all, because Froy knew just the firm. Sonnenschein is a member of Lex Mundi, an independent international network of full-service commercial law firms, and the Latvian firm of Klavins & Slaidins is also a member of Lex Mundi.
A couple e-mails later, Inchcape had its representation in Latvia, and the deal was completed.
"We needed a collective effort between U.S. and Latvian lawyers," Froy said. "Like many Lex Mtmdi member firms, the Klavins firm has lawyers with U.S. training and legal experience. Combining that with their extensive legal, business, and cultural local expertise made them a virtual extension of our own firm."
"Lex Mundi is not just a directory of names," Froy said. "I personally know partners in almost every member firm, either through working with them or meeting them at Lex Mundi conferences.
"We have the opportunity to get together and share substantive information about areas of practice, to develop relationships, stay current, and learn about what's going on in other jurisdictions."
Lex Mundi is one of several law-firm networks – several, because nobody really knows how many – the estimates range from a dozen or so to 300, depending on how loosely the term is defined.
All the networks have a slightly different angle, but the purpose is the same: to give an opportunity for law firms to connect with like-minded, high-quality firms in other jurisdictions, what Levenfeld Pearlstein partner Michael Tuchman calls "global reach, rather than global presence."
What this translates to, both for large firms like Sonnenschein, and, especially for mid-sized firms like Levenfeld, which is a member of MSI Legal and Accounting Network Worldwide, is leverage. These networks allow firms to compete with global firms, in a global market, without going to the expense of setting up shop in another jurisdiction, and allows mid-sized firms to stay autonomous.
John W. Bell, a name partner with Johnson & Bell, a member of the ALFA network, said "It's a cdst-effective substitute for opening a firm in a different city with all the staffing issues. That would be prohibitive for a firm of our size."
"The value proposition for Levenfeld is the seamlessness with which client needs are met," Tuchman said. "The network has become a reliable extension of the firm's service model – clients whose activities take them abroad don't have to pause in relation to their legal needs."
The result, Tuchman said, is that "the firm is able to extend with its clients."
"There's almost no such thing as a local practice anymore – not for a firm of any sophistication," said Dennis B. Black, a partner with Goldberg Kohn,.which is a member of Meritas. "Clients are doing business everywhere. They have customers, vendors, strategic partners anywhere, and increasingly in Asia. We have to be able to compete with the larger law firms – for us, this is a much more economical way of being the way we want to be. It enables us to have a worldwide practice, to be the kind of firm with the kind of practice we want, and still have interesting exposure around the globe."
Typically, a network is structured on an exclusive basis – one firm per jurisdiction – with the idea that a firm, say, in Chicago, has a firm in Salt Lake City to refer a client to, and, if the Salt Lake firm's client has a matter in Chicago, the Chicago firm will get the referral.
The networks don't require that the referral go to a member of the network – if, for instance, a firm or a client has an existing relationship with a firm outside the network, there's no problem with that firm getting the referral.
But, nonetheless, the point is to expand the firms' ability to handle business outside their geographical base.
As far as anyone can tell, the original network is ALFA International (the acronym for its original name of American Law Michael M. Froy Firm Association), which is headquartered in Chicago.
ALFA began in Buffalo, N.Y., in 1980, as a network of a dozen insurance defense firms.
"The major insurance companies for whom firms did work had requested help in finding counsel in unfamiliar locations," said Richard L. Hetke, the chief executive officer of ALFA. "They didn't have a feel for the legal community, and they wanted to Bell: "It's a virtual world-wide law firm." develop a network of firms. The original founding firms wanted to be a source of referrals – a firm to refer clients to, and you will steer some of your clients to us – a supply-and-demand idea."
ALFA has grown to a network of 125 member firms, with about 6,000 lawyers, in all 50 states and 35 countries. Its model is a mid-size general practice firm with an outstanding reputation in the community.
"We want to be able to provide clients with firms that can handle the work," Hetke said. "We want an outstanding firm with a lot of capabilities. We also want to tap into the client base of that firm."
ALFA's sales pitch – the network operates by invitation only, and is not looking for any new members – consists of three points, Hetke said.
"Joining ALFA will be business developer – you'll be able to tap into a stream of referrals from 85 U.S. members; it's a resource pooling tool for the firm's clients; and within our network we provide management resources for firms. We have a managing partner group where the members talk about John W. Bell common problems, we're creating a forum for the exchange of ideas."
Johnson & Bell has been with ALFA since 1997, but Bell was unfamiliar with the idea when ALFA's Chicago position came open and the network contacted him.
"I had heard of ALFA," Bell said. "I knew it was a network of trial law firms, but I didn't understand what it was all about. But when you sit down and talk to them, the concept is brilliant. It's a virtual world-wide law firm. We're handling international business because of it – we're co-counsel with ALFA firms in Australia, Asia, the U.K., Europe.
"If I got a problem in the U.K., I just go on e-mail, `What's the answer to this problem?" Do you know so-and-so in this company?'
Goldberg Kohn is a member of Meritas, which, like ALFA, focuses on mid-size firms with a full business practice, said Tanna Moore, president of the Minneapolis-based network.
"We want local independent firms that have a strong presence in the community," Moore said. "The firms have to have legal and political and community understanding so they can get things done, they understand how to accomplish work in a local market."
Dennis Black was a member of the board of directors of Meritas from 1995 to 2005. Another Goldberg Kohn partner; Oscar L. Alcantara, is now a board member.
"We've been very active in Meritas," Black said. "We have found it extremely useful to be part of network that has pulled together a carefully vetted group of independent law firms – so we can refer matters in other jurisdictions with a high degree of confidence."
Goldberg Kohn joined Meritas in 1992.
"Our first motivation was to find a way to seek out counsel we could have confidence in so we could serve needs of our clients," Black said. "We wanted to become increasingly interstate and international without having to plant our own flag and without having to turn to multi-jurisdictional law firms who have a presence in our market," he said.
"We thought being the Chicago member of the group would be very valuable for inbound matters, and ' it certainly has been," Black said. "We were following our clients' needs wherever; and it was our preference to find firms like us that were considered to be highly regarded local firms. They know their own markets, they know their own court systems, they're not expat offices of a multi-national firm.
"Meritas does a particularly diligent job of checking out every market," Black said. "It requires member firms to recertify every two to three years to confirm that they are still qualified AV firms with a broad general business practice, that they haven't undergone a major change.
"The firms in Meritas are not competing with each other for each other's clients. We have the highest degree of confidence that they are going to do the kind of job you would do. Meritas monitors all those referrals," Black said.
"We ask the referring firm to evaluate the service provided so we can be vigilant in case there are service problems or other disputes. We have, over our history, asked a number of firms to leave the network and replaced them.
"We can continue to grow and maintain multi-jurisdictional and international clients," Black said. "Our clients know they can call us on matters we're not engaged in. We can refer them to a Meritas firm in Brazil or Taiwan. And, increasingly, referrals come in directly from clients of other firms. We ask how they select us and they say, "Generally we work with Meritas firms." It's a credential that many companies recognize.
"The other side is that we have had a consistent and growing amount of inbound work from Meritas. If Meritas were a client it would be a page-one client for us.
"When we have an opportunity from a client in a specialty we can't handle, we can team up with another firm. We can't be all things to all clients – mid-size firms don't have everything – but we have an easy way of identifying areas of expertise. We're a very active outbound user and we've accrued a significant amount of business. We're not predatory of each other – we'll do best job we can and we won't try to woo a relationship away, but often we get repeat business opportunities."
Employment Law Alliance is a different kind of network, focused on labor and employment law. Founded eight years ago by San Francisco lawyer Stephen J. Hirschfeld, who remains the chief executive officer, ELA has about 3,000 lawyers in firms in 75 countries.
Hirschfeld started ELA after he and other members of the labor department of McKenna & Cuneo broke away to start their own firm, Curiale Dellaverson Hirschfeld & Kraemer; and needed to find a way to serve national clients from its base in California.
"I started calling around to firms I had a long-standing with, and got together 20 firms – firms that were regional and not interested in becoming national – to see if there was a business model to work cooperatively together to service client matters," Hirschfeld said.
Starting in the U.S. with 55 law firms – "We don't have carpetbaggers, we have lawyers physically in each location," Hirschfeld said – the group has expanded internationally.
"Major companies in Asia, Europe, and the U.S. are routinely using ELA in place of law firms," Hirschfeld said. "We have true a coverage in places where they have needs. If a multi-national company has a matter in Malaysia, we have Malaysian lawyers, physically in the jurisdiction. There's no question that pound-for-pound we're better than any multi-national firm. And we're charging local rates by local lawyers who we think are better."
ELA's Chicago firm is Vedder Price Kaufman & Kammholz, which was a charter member:
"The model has been a firm like ours – general business with a significant employment practice," said Bruce R. Alper; a Vedder Price shareholder. "We liked the idea of having an instant referral source in every state, not competing with each other; and it has worked out very well for us and our clients. The firms have been the right types of firms – general practice business firms – so you go to them for things other than employment, but the key contact is always an employment lawyer; you always have that relationship.
"The original concept was to have a network of firms practicing employment law – Steve's firm only does labor and employment, and that remains the common denominator – but many of us go beyond that," Alper said. "It's generating an increasing amount of business, definitely increasing every year. It hasn't turned into a tremendous cash cow, but it's not supposed to," he said. "The idea is not to take someone else's client – it may be the only case you do for that client, but, on the other hand, you may continue to do that client's Illinois work, so it certainly could turn into significant dollars.
"I think clients have been quite responsive to it. They need local counsel and rely on you to select local counsel, to be able to say you have a relationship with so many other lawyers in other jurisdictions. The clients get a pre-vetted firm and you're also able to tell client you have a relationship with the firm – it's win-win."
None of the networks would disclose their fees, but all base their fees on the size of the firm or the size of the jurisdiction. The annual fees can range from around $1,500 to $15,000 – a typical fee for a mature network is around $8,000 to $10,000, said Charles A. Maddock, a principal with Altman & Weil, law firm management consultants.
"It depends on what the network provides," he said. "Some networks provide marketing services, individual counseling, and other groups provide referral contacts and not much else.
"The second-tier networks are based on referrals," Maddock-said. "The first-tier networks are based on sharing advice. I tend to see that in larger; more established networks. Those networks provide symposiums so the members can get together and share expertise and a lot of good advice in an important way, from one firm to another:
"At a minimum, they have annual meetings, where the members get to meet face-to-face," Maddock said. "The more mature and developed networks are going beyond that and talking about internal problems and opportunities.
"The downside," Maddock said, "is that most clients feel it's more important to the law firm than to the client; they don't understand the benefit to the client. The law firms need to do a better job of explaining the benefits to their clients."
To that end, many networks encourage their members to bring clients with them to the meetings. ALFA, for one, spends a great deal of time and energy promoting its meetings and seminars.
"We have three-day seminars," ALFA's Hetke said. "Clients get a chance to come for two or three days and listen to focused workshops and panels. They get a chance to meet lawyers from around the country and network with their peers from other companies."
And, John Bell noted, the seminars can be a great marketing event for the law firms.
"It's a target-rich environment," he said. "You have a room full of clients for two or three days and big blocks of time to spend with them. It's commerce; it's business."