Networks are often an overlooked legal alternative for the global business. But that underestimates their power to deliver on a number of fronts, says Michael Hatchwell of Globalaw.
There is little doubt more businesses are operating more globally than ever. The creation of the European Union (EU) has created one of the world’s largest economic units, making business between Member States simpler. The emerging countries of Africa, the fast growth experienced across South America and the rise of Asia as an economic force has led to small and large businesses establishing operations in distant markets to cater to changing international consumer tastes.
As a consequence more businesses need to transact successfully and wish to operate in more jurisdictions. Obtaining effective legal and business support globally therefore has become a real requirement and a challenge.
It is a commonly held perception that only the global legal service providers can deliver a valuable service but they do not offer a solution to all challenges faced in international business.
Many have overlooked the alternative – the international legal network, a well-structured organisation that consists of smaller, nimble firms with a clear common purpose, quality control and a keen desire to offer a tailored service.
Challenging misperceptions of global legal service providers
It is a common perception that only the larger global service providers can deliver a global service. This is in part because most consider global as large and substantial but this can place distance from the needs of smaller businesses looking to expand. This is also a natural perception because those who do deals in multiple jurisdictions have only come across the larger players that can cover the huge expense often associated with international expansion.
But does a global legal service provider offer a solution to all the challenges of international business? Of course not.
Repeatedly, we hear general counsel bemoan the lack of uniform quality amongst global service solution providers between jurisdictions. They expect expertise, value for money, local business connections and the provision of pragmatic solutions to challenges. Is the global law firm the only thing capable of this service delivery? Absolutely not.
A well-structured network of smaller firms with a clear common purpose, quality control and a keen desire to serve can challenge the global service providers in most respects. Central co-ordination, one point of billing, combined with local advice can be achieved and delivered through a well-run network. This remains a largely overlooked area of the legal industry at a time when networks should be more relevant than ever.
Local knowledge is key
The greatest difficulty for businesses that embark on entering new markets is the dramatic difference in laws. In the EU, Member States repeatedly fail to implement European law in a harmonious and consistent manner. Some Member States have extra jurisdictional legislation that seeks to take a country’s laws beyond its sovereign boundaries adding an extra layer of complexity. Many countries have autonomous regions, so even within certain countries there are several different markets for similar products and services.
Tax laws vary, immigration laws are dissimilar and when you look outside of the EU it can get more bewildering. It is therefore vital to be well advised before entering a new jurisdiction, by experienced legal counsel with local knowledge on how to avoid pitfalls.
The legal network as a one-stop shop
The choices for getting advice in a co-ordinated way are really quite limited. There are the global firms, which as regards legal services increasingly include the accountancy profession offering legal services.
Then there are the large global law firms whose appetite for handling anything other than the biggest clients is limited. There is also often no need for global law firms to be retained because they are not necessary for handling the large majority of legal requirements arising from normal global business dealings and operations. Such matters are better dealt with by smaller firms, although the office of a local firm may in many jurisdictions be bigger than the office of a global player.
Reputable legal networks can cover more jurisdictions than most global law firms. Most large global firms are only strategically located in major cities. Where a global firm doesn’t have a presence, they delegate work to local firms which will be engaged to do the work in that jurisdiction. Some legal networks have just one member firm per jurisdiction having stringently chosen an appropriate local firm of a size able to deliver a full-service in that jurisdiction. Exclusivity results in strong affiliation and a desire to provide an excellent service as the network’s representative in that jurisdiction.
There will of course be instances where it may be necessary to engage with a global firm but in my opinion, this is to overlook the ability of an excellent legal network to provide a more expansive and consistent value driven service across a broader range of jurisdictions.
Examples include acquisitions requiring multi-jurisdictional due diligence, co-ordinated implementation of compliance programmes, dawn-raid programmes, debt recovery, employment mobility, global brand registration and protection programmes, co-ordinating international litigation and reviewing commercial agreements.
Legal networks can offer SMEs flexibility. It’s common for medium-sized businesses not to have an in-house legal team or require constant legal services. Working with the right legal network allows a a business to handle its affairs effectively when legal challenges arise because it will have immediate access to global resources.
Central co-ordination in cross-border deals
Central co-ordination is certainly an option with a well-organised and structured network. It does not matter that member firms are all likely to be independent. It is not unusual for one firm to take the lead on an instruction. That firm will establish and agree the client brief and then co-ordinate the project.
Clear objectives will be established with the client in advance and quotes obtained. An over-ridding retainer letter can be put in place and it is even possible to offer one point of billing if required. For example, international legal network Globalaw, executed a due diligence on a pharmaceutical divestment worth around €1billion which lasted over six months involving 18 European countries where all these arrangements were co-ordinated by one firm. A reporting matrix was also established from the outset so that all member firms involved reported consistently.
A more cost effective solution
There is also a good value selling point for legal networks. Network member firms, because of their smaller size, will tend to offer a more cost effective option than the more established global firms. The co-ordinating network firm will usually charge the rates of the lawyers working on a project in each jurisdiction. In Globalaw’s case above, the senior partner of its Romanian member firm was billed to the client at his usual hourly billing rate, not at a global firm’s standard partner rate which would likely have been far higher.
Recognition is required but still lags
It is time for those seeking in to do business overseas to recognise how much value can be added by a strong network of legal advisers. A bolder approach is required to finding effective global legal solutions.
Of course, international legal networks need to do a better job of communicating their offerings and business proposition to general counsel. The fact they do not is largely because they lack huge marketing and sponsorship budgets that are at the disposal of the larger more established global firms.
A global network of smaller firms will usually be entirely indigenous, often well established and well-connected. It is a cliché, but it is often who you know not what you know, particularly when entering a new market and jurisdiction because strong local connections and local knowledge is vital. Identifying reliable local counsel and business partners can make the difference between success and failure of a new expansion venture.
Michael Hatchwell is an international corporate lawyer at Gordon Dadds and Immediate Past President at Globalaw, the international legal network of more than 115 law firms in 90 countries around the world.