BFFs

While law firm networks certainly haven’t replaced global firms, there is an increased understanding that any law firm intending to expand needs to carefully weigh the pros and cons of which model suits them best.
Jean Cumming, Lexpert
Jean Cumming, Lexpert

LAW FIRM NETWORKS WERE originally called “best-friends networks” or “clubs.” Generally speaking, they began in the 1980s as a way to compete with the internationalization of law firms. Accounting firms had done it before, with independents banding together to compete with the giants. In the early years, best friends were careful to maintain their independence; refer sufficient mandates to each other to receive in equal measure; while trying to be semi-secret about it so that they could maintain friendships with non-aligned firms.

Precarious as this all sounds, law firm networks have continued to grow and expand … to the point of developing their own brands and technology — attempting to compete with global firms. While they certainly haven’t replaced those firms, there is an increased understanding that any law firm intending to expand needs to carefully weigh the pros and cons of which model suits them best. For example, while the Swiss verein model is still prevalent in any list of global firms, it is no longer alone there. Chris Johnson in Am Law Daily writes “the last two large-scale transatlantic combinations that required new holding structures eschewed the verein in favor of a U.K.-law entity called the company limited by guarantee (CLG).” One of these was Gowlings and UK firm Wragge Lawrence Graham & Co. While vereins and CLGs are similar, according to Johnson and others, they “do differ in one important area, however: Risk … That’s because of a fundamental—if untested—question of whether vereins are meant to be profit-seeking enterprises to begin with.”

Johnson cites Aster Crawshaw, a professional practices expert at Addleshaw Goddard, saying, “There is a risk, albeit one that is dismissed by many Swiss lawyers, that if the verein is used as the governance entity of a network whose members carry out commercial activities, the verein could be deemed to be invalidly incorporated,” he said.

As law firm networks become more and more formalized, they too will need to keep an eye on any risks and conflicts that might come their way.