Global law and the McDonald’s myth

I hadn't meant to return to the scorched-earth territory of Hogan Lovells again this quickly, but several posts on the subject this week got me thinking. In particular, some readers have argued that, since the proposed union will involve two profit centres, that it isn't a 'real' merger. This argument puts the deal unfavourably in the camp of DLA Piper, which has been criticised in some circles for a lack of integration between the US and UK/international practices.

Well, from what I can tell, the model for Hogan Lovells is more integrated than that used by DLA Piper. There would be genuine firmwide governance and partner remuneration would be aligned on a firmwide basis. And, personally, I'd say the line of argument that anything other than a single profit centre equates to being McDonald's is getting stale. No-one says that about KPMG or Deloitte, and many of the best-known corporate brands in the world are actually collections of multiple legal entities and profit centres. Would Hogan Lovells be a genuine merger? I would say it was, and the managing partners at rival firms I've discussed the deal with this week take the same view.

The only reason it should be an issue for a single law firm to have two profit pools is if: a) that structure seriously hampers strategic decision-making or b) the structure interferes with the consistency and quality of service on a firmwide basis. Clifford Chance used a single profit centre for Rogers & Wells and that turned out to fail both of those tests, at least in the five years following the deal. But, hey, it was a "full merger", so that's all right.

For all the stick DLA Piper has taken - and I'd say they could have bitten the bullet and integrated more upfront - the bottom line is that they got the deal done and it has delivered for them. The firm has faced its challenges over the last 18 months, but that has nothing to do with the structure of the US union; DLA Piper has succeeded in building a global brand and the result is clearly far more than an alliance.

And the plain reality is that a certain kind of international consolidation in legal services may never happen if the industry gets hung up on only operating a single profit pool. The capital and ownership structure of law firms means that 'merger of equals' deals between large US and UK practices will be nigh on impossible with one legal partnership upfront - that's why we've still never seen one, despite its arrival being forecast for 15 years.

Are there any downsides to not having a fully-integrated profit pool from day one? Of course, but the key question is whether avoiding these downsides is worth the very substantial risks and hurdles inherent in having a single profit centre. An increasing number of law firm leaders are looking at this structure and asking seriously if it can get their long-dreamed of transatlantic deals past the line at last.

For more details of the Hogan Lovells tie-up, see Hogan Lovells model to maintain two profit centres but align partner pay

For more on DLA Piper, see Analysis: Pulling it together