During the past 15 years, CEE has emerged as an interesting market for the global multinationals. The foreign lawyers servicing the deals, headquartered in
The Anglo-Saxon law firm model is a partnership; a flat structure where partners specialise narrowly across a spectrum of legal disciplines and are responsible for business development regardless of their location or practice area. The Anglo-Saxon partnership model is consensual, conservative and management-resistant, most often described by insiders as ‘herding cats’. In 2005 the Financial Times wrote about the drawbacks of the Anglo-Saxon partnership model. It described management as “often weak” and continued that “compared with the best companies, [law firms] are often bad at marketing, customer relations, innovation, use of information technology and process management.”
In contrast, the CEE law firm model is an entrepreneurial business, a vertical structure where the managing partner is the boss, primary equity holder and the major rainmaker who has attracted close to 90% of the business across the entire firm. The CEE model is often autocratic, risk-taking, management-obedient and most commonly described by insiders as “the owner says so”. In the CEE model, management is centralised and strong and decisions are made economically.
From the outside, CEE law firms may look like an Anglo-Saxon partnership, especially because the professional and management terminology is shared. Both business models: (1) rely on professionals with titles such as ‘managing partner’ and ‘partner’; (2) refer to an internal rigid structure of ‘departments’; and (3) the best ones, have an impressive roster of bluechip clients.
In practice, the substance behind the shared terminology is often different. Managing partners in CEE firms are entrepreneurial, self-made millionaires who often started not only their professional careers but the firms as well without any contacts or clients and then, bit-by-bit, won business and expanded the firm. Right from the start, the lawyers in CEE were generalists, a trend which persists in the still-loose separation among the various departments. Finally, the roster of bluechip clients sometimes does not reflect the current client list because the roster is, substantially, a result of past referrals.
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The problem with lawyer specialisation, in turn, arises when a foreign law firm, for example, instructs a local law firm on such varied matters as real estate finance and intellectual property or securitisation and product liability and ends up being serviced by the same lawyer. What some foreign firms have come to realise by experience is that this does not reflect on the quality of the local legal work and is accounted for by education (generalist in nature in CEE countries), training (lack of strict departmental separation upon entry into a law firm), and market forces (the aim to capture as much work as possible because there is not enough work for narrowly specialised lawyers). Sometimes the multi-disciplinary work done by one lawyer is a carefully guarded secret by local law firms and the internal organisation by departments is more reflective of marketing rather than business needs, especially as Western firms and their clients tend to find departmental organisation and proficiency within one area more credible.
Finally, in the context of a client list, what
These complex relations are evolving not only towards a better understanding of each other’s business models, but they are influencing the power balance in the relationship. In the early days, CEE law firms looked up to London and US-based firms in a dual role — firstly, as big brothers worthy of emulation in almost all respects (which is the reason why we have shared management terminology, for example), and secondly, as some of the most important clients who can supply a steady stream of referral work from the main global financial centres.
Nowadays things have changed substantially. In many CEE countries only a handful of local law firms have earned the credibility to receive clients with lucrative and sophisticated work from foreign law firms. As economics teaches us, those who have a unique resource tend to profit most out of it.
For example, this has led to a local law firm being the recipient of mutually exclusive offers to service clients on a particular deal which, in turn, has put the firm into the position to command higher fees and to become picky in its choice of referral partners. Sometimes this even extends to turning down transactions by a local law firm when the opportunity cost of doing the work is too high and the firm makes a decision that it will do another piece of work, but not this one.
These developments have put some foreign law firms in a position in which they not only have to find a good local law firm to refer the work to, but also to make a good business case as to why this work has to be done. In an environment where the CEE deal volume has continued to be strong and lucrative, as evidenced by the facts over the past three years, some foreign firms have found an alternative to referring a stream of work and justifying why it needs to be done by opening an office themselves in CEE.
LawFirmNetworksMay2008
