Toasting alliances

Some city firms have found that an informal alliance, rather than a merger, with a european ally can accrue many benefits. Lucy Trevelyan reports


Eversheds has just added another notch to its bedpost; Herbert Smith stays faithful to a select few; Linklaters initially tried the casual approach then got left at the altar when it sought to get too serious; and some firms put it about all over the place.


We are talking, of course, about alliances. For many UK law firms, they are the favoured means of convincing clients that they have sufficient clout internationally to tackle any work thrown at them. Mergers, and the managerial, financial and cultural headaches they generate, are for many not worth the hassle.


Alan Jenkins, chairman of Eversheds – which has just formed an exclusive alliance with Munich-based Heisse Kursawe in Germany (see [2005] Gazette, 16 June, 8) – says alliances, as opposed to mergers, suit his firm on many levels.

‘You look at firms who have tried to build fully integrated operations in different countries and see significant problems with management operations. Many struggle with reconciling the work local partners want to do with the need to deliver a consistent level of economic performance.


‘We don’t think it’s necessary to have that degree of involvement in the management of local lawyers. Provided you can find lawyers who share the same ambition and approach to delivery of legal services, it doesn’t matter if they want to act for small companies we might not find interesting.


‘The significant advantage of an alliance over a merger is you don’t have to try and change firm cultures – we have enough to do running our own business without worrying about how our colleagues in Europe are running theirs.’


Tony Williams, founder of UK management consultancy Jomati and former Clifford Chance managing partner, says alliances cover the whole spectrum from the non-exclusive ‘best friends’ arrangement Slaughter and May has with several international firms to the extremely close arrangement Herbert Smith shares with European firms Gleiss Lutz and Stibbe.


He says although alliances are easier to establish and do not need the massive management time or investment required for mergers, they have their downsides.


‘You may find with an alliance that you are on either side of a deal, which can be embarrassing.’


This happened with Linklaters and Italian ally Gianni Origoni Grippo over bankrupt Italian food group Parmalat. The two firms never shared IT systems, so there was no question of conflicts, but Mr Williams says the fact Linklaters was acting for Bank of America, which was suing Parmalat, while Gianni Origoni acted for Parmalat’s administrator Enrico Bondi, may have helped sound the death knell for the firms’ alliance.


‘Some firms live with it but in that case, the alliance came to an end,’ he says.


Linklaters’ managing partner Tony Angel said at the time of the split last year: ‘It’s been increasingly apparent over a period that we weren’t getting to a merger, so we decided to bring the formal association to an end. These things have to lead to a merger or they don’t work.’


Mr Williams adds: ‘The benefit of a merger is you have one organisation and one branding, and the management structure can implement what is agreed. Clients can recognise a degree of control over what you’re doing.


‘With an alliance you may or may not have one branding – usually it’s a mixed message and there’s not the same degree of management control. It’s a matter of persuasion more than anything else.’


Henry Raine, business development partner at Herbert Smith, agrees. He says: ‘The downside of an alliance is you can’t drive things through. Linklaters, for example, is tightly managed and firms are kept to its objectives. An alliance can’t do that. If you want to do something, but your allied firm doesn’t, you can’t.’


The flip side, says Mr Jenkins, is an alliance is far easier to get out of than a merger if things go pear-shaped. He adds: ‘That’s not the reason why we do it this way though – you don’t tend to think about divorce if you’re trying to get married.’


However, says Mr Williams, those firms loath to take the full merger route may find alliance partners duck out and merge with someone else. ‘That’s always an exposure with an alliance. The reason most alliances break down is down to a lack of mutual understanding of where the relationship is going.’


Mr Raine says another problem with merged firms is they are only as strong as their weakest link. ‘Take Clifford Chance, which is all over the planet. There’s an attraction to that but if, for example, Clifford Chance in Germany was not as strong – and I’m not saying this is the case – but you had to use it, you’d get fed up with Clifford Chance as a whole.’


He says a full merger with Herbert Smith’s associated firms has not been ruled out – ‘you can never say never’ – but since the firms did not know each other that well initially, a full merger ‘would not have been sensible’.


‘A merger is an enormous undertaking, and no one had the stomach for it. Each firm had genuine concerns about its market position and independence. Smaller firms have a fear of being subsumed – many are scared a merger means being swallowed up by stealth.’


Any move towards a merger, he says, is likely to be client driven. ‘If a client said we were losing work to the merged firms, that would be something we would take seriously,’ he says.


He says the economic downturn has been especially tough on merged firms: ‘They have had a difficult time, particularly those that aimed to bring people into equity. The markets in parts of Europe have not stood up. The economics are different in different countries – London [charge-out] rates tend to be higher. The dream between merged firms is to get the rates up to London levels but clients are savvy about that.


‘There has been a lot of culling but they haven’t been able to offer people promotion prospects because there are still deadwood partners around.’


Mr Williams says firms planning to form a relationship should start informally – perhaps on a reciprocal referrals basis for six months to a year – before making the relationship public or more formal.


Eversheds’ alliances – which involve exclusive relationships with different firms over much of Europe and parts of Asia – are, says Mr Jenkins, run informally. However, he adds: ‘They are formal in the sense that there is a document setting out the purpose of the association, the business objectives, and the firms commit themselves to a reciprocal exchange of work and know-how.


‘We have secondments, develop products and services together, work to develop the reputation of the brand and aim to work together as one law firm with a high degree of co-operation and integration.’


It is crucial, he says, to invest time in getting to know one another and to decide in advance how work is to be divided and how the fee- charging structure operates. ‘You have to work at these things. You need a shared belief. If you don’t have the same commitment, there is no solid foundation for it.’


Mr Jenkins says the amount of work successful associations can bring is ‘significant’, and comes in many different forms, such as direct referrals or other firms’ clients. ‘Our alliance partners also tell us that because they are associated with Eversheds, it helps to raise their profile and get bigger and better work from existing clients. We also see the extended breadth and depth of capability creating more work for us. As more clients are doing business internationally, they regard it as necessary criteria to use a law firm that has credible international capability.’


Mr Williams says: ‘A survey of general counsel a year ago found that although it was not the most important factor for their lawyers to have a European presence, it was a “credible factor”. They felt that although it might not be needed immediately, they might need it from time to time and to have it is important.’


Although Eversheds and its allied partners strive to adopt a common approach to the way their legal services are delivered, says Mr Jenkins, his firm has been careful not to impose an exclusively Eversheds methodology on its associated firms.


‘We are careful to point out that we are not saying that the English way of doing things is necessarily the best. We may collectively be far bigger and have more experience, and for UK and US clients the way we have worked is perhaps the way to do things, but you need to adapt for local conditions.’


Dick Tyler, managing partner of London firm CMS Cameron McKenna, a founding firm of the CMS network of independent law firms throughout Europe, says: ‘In an alliance, there is not the demand to impose one dominant culture on the constituent firms, and the biggest benefit is that the client only pays for the services they require, rather than a headcount they don’t need.’ But he adds that an alliance or network will not work if the member firms do not put in the energy required.


Mr Raine says that although an exclusive alliance may cut down on the number of referrals one might receive from other law firms, most practices now have some sort of relationship with their European counterparts anyway, so this is less of an issue.


He says the key to a successful alliance is how the firms regard it: ‘The question is, what do you see an alliance as for? If it’s merely as a referral agency and you cut down from getting referrals from six firms to just one, it’s clearly not worth it. But a successful alliance could and should mean a lot more than that.’


Lucy Trevelyan is a freelance journalist