The Big and the Many

Global law firms may offer a “one-stop shop,” but when it comes to international coverage, law firm network referrals are offering the independents competition.
THE ENTHUSIASTIC EXCITEMENT on the one hand, and naysaying on the other, that arose when Dentons launched its Nextlaw Global Referral Network in October 2016 speaks volumes about the evolution and relevance of the many-headed beast known as a legal network. According to its website: “Nextlaw Global Referral Network does not charge membership fees and does not grant territorial monopolies. Clients get more choices so they can work with their law firm to find the precise right lawyer for their particular matter. We designed our network using the newest technologies and network architecture.” The technology piece is key; one way or another it will be a key driver in the development of networks going forward.

The initiative made Dentons the first global firm to establish its own referral network, and at the time it was quickly dismissed by competitors. “Nextlaw Global Referral is no different than putting 450 strangers in a room,” said Steve McGarry, President of the Association of International Law Firm Networks (AILFN). “It does not represent the more than $1 billion spent by real networks creating real relationships over two decades.”

But Nextlaw is free. Members don’t have to pay to join these “450 strangers,” which represent more than 25,000 lawyers in 180 countries. That makes Nextlaw the largest legal referral network in the world by number of member firms and lawyers, outstripping Lex Mundi’s 21,000 lawyers in 160 firms, and TerraLex, which counts 19,000 lawyers under its umbrella. Nextlaw also dwarfs other traditional networks including The World Services Group (WSG) and its 112 law firms around the globe, and The Interlex Group’s 49 member firms embracing 9,320 lawyers in 155 cities spread among 60 countries.

So it’s no surprise that AILFN, which is dependent on member fees as its primary source of income, sees Nextlaw as a threat. According to McGarry, however, Dentons’ platform is reinventing the wheel. “What networks provide is a reliable mechanism to provide clients with reliable lawyers around the world,” he says. “What Dentons is doing is akin to establishing their own electrical grid, which is very inefficient because you end up spending a lot of time to put up infrastructure that already exists.”

AILFN, meanwhile, has risen to the emerging challenge by channeling its “association of networks” into the Locate Law Network (LLN), an online directory of 3,500 firms and 300,000 lawyers in 5,000 offices. LLN offers a comparative array of independent business law firms that are members of 45 international, regional and specialty law networks. Its coverage extends to more than 150 countries, including all Canadian provinces and 50 US states. “An association of networks is a good thing because internally a particular network might be lacking expertise, might not have members in a specific geographic location, and might encounter conflicts when trying to make referrals within its own group,” McGarry says.

Both AILFN and Nextlaw claim to be disruptors: McGarry calls AILFN the “Uber of the global legal profession,” while Elliott Portnoy, Dentons’ global CEO, calls Nextlaw the “Uber of the global referrals network industry.”

IT’S AN INDUSTRY THAT HAS survived the recent tumultuousness of the profession very well. In 1989, there were five legal networks. Today, the 45 member firms of Locate Law Network alone account for approximately 20 per cent of the global legal services market with cumulative revenues of US$120 billion.

According to statistics compiled by AILFN, these numbers easily exceed the revenues of the world’s 10 largest firms, whose 20,000 lawyers in 40 countries generate US$20 billion in fees and garner 2.5 per cent of the market. The LLN also dwarfs the production of the world’s seven legal vereins (including companies limited by guarantee, the UK’s model which differs to a degree from the Swiss verein), which boast 20,000 lawyers as well and generate $14 billion in fees to capture 1.75 per cent of the market. The legal arms of the Big Four accounting firms and their 4,000 lawyers account for $1 billion in annual fees, or 0.2 per cent of the market.

Despite these statistics, McGarry says that networks have remained “largely unrecognized.” But AILFN predicts that networks’ “global status” will move from lagging behind Big Law, vereins and the Big Four in 2015 to outstripping them all by 2018. “Law firm network membership will grow by 20 per cent to 30 per cent over the next five years,” McGarry says.

While these predictions appear to be somewhat speculative, McGarry’s history suggests he cannot be taken lightly. In 1989, he founded Lex Mundi, growing it to 160 firms, and in 2002 he founded WSG and grew it to 150 firms. Most recently, in 2015, he initiated AILFN with the intention of enhancing the position and recognition of all legal networks, establishing common principles to maintain quality standards, providing an information exchange forum, and negotiating agreements with vendors that serve to increase the efficiency and effectiveness of networks and their members.

Ken Kallish of Minden Gross LLP in Toronto, who served a term as president of Meritas, a 7,548-lawyer-strong legal network of 182 firms in 241 global markets, believes that traditional legal networks are the driving force behind the formation of Nextlaw. “The creation of Dentons’ network doesn’t surprise me because it’s a reflection of their need to compete with strong legal alliances by stretching out their footprint,” he says.

What makes the case for networks more convincing is McGarry’s observation that both vereins and the Big Four are variations on the networks theme — an observation that speaks to the strengths of the network model. “There are more and more associations of this kind occurring all the time,” says Rob Granatstein, managing partner at Blake, Cassels & Graydon LLP, a major national firm that is the exclusive member for Lex Mundi in Alberta, Ontario and Québec. “Even Dentons’ model of global firms incorporates a network approach.”

Indeed, as McGarry’s comparative compilation of 15 features of the Big Four, legal vereins, law firm networks and law firms demonstrates, law firm networks share only three or four of 15 characteristics with law firms. But they share at least seven with vereins and at least six with the Big Four. “The Big Four accounting and consulting organizations proudly state they are networks,” McGarry says. “In the legal profession, the term verein obscures the fact that members are independent. The preferable term is law firm.”

IF THAT’S THE CASE, the question going forward is not whether legal networks are still relevant; rather, the issue is where they fit in and how they stack up as an alternative to what the vereins and global firms call their “one-stop shopping” advantage.

Major Canadian law firms have different approaches to the issue of referrals. Ogilvy Renault LLP and MacLeod Dixon, Fraser Milner Casgrain LLP and Davis LLP are among the legacy firms that chose to join the international vereins Norton Rose Fulbright, Dentons and DLA Piper. Others, like legacy Gowling Lafleur Henderson LLP and Fasken Martineau DuMoulin LLP have pursued global exposure through their own mergers. Some, like Bennett Jones LLP, McCarthy Tétrault LLP, Osler, Hoskin & Harcourt LLP, Stikeman Elliott LLP and Torys LLP, have established outposts in the United States and abroad. Borden Ladner Gervais LLP, by contrast, has offices only in Canada and for the most part relies on individual international contacts for inbound and outbound referrals.

Meanwhile, Blakes and Davies Ward Phillips & Vineberg LLP and Goodmans LLP, major firms in the Canadian market, have taken a two-pronged approach. Blakes promotes its global business through offices in New York, London, Saudi Arabia, Bahrain and Beijing, and the firm’s membership in Lex Mundi. Farris LLP also belongs to Lex Mundi. Davies Ward and Goodmans both have membership in the 57-firm, 19,000-lawyer World Law Group Ltd., with a presence in major business centres in 78 countries. McMillan LLP is a TerraLex member, while Cassels Brock & Blackwell LLP’s 200 lawyers in Toronto and Vancouver joined WSG in 2004. Aird & Berlis LLP and its 147 lawyers are members of Interlaw, an organization of 82 firms in about 75 countries.

“Lex Mundi is definitely part of our international strategy,” Granatstein says. “The network contributes to our global inflow — which is important for all major firms because Canada is a net importer of legal work — and also allows us to refer clients quickly in jurisdictions where we don’t play very often.”

Membership in Lex Mundi allows firms to maintain their relationships with global firms and lawyers in financial centres. “Broadly speaking, Lex Mundi as an association doesn’t go up against UK and US firms, and there are no member firms, for example, in New York City or New York state,” Granatstein says. “Because the network is expressly non-exclusive when it comes to referral work, we can maintain a robust relationship with global firms.”

This being said, the hard truth is that global firms aren’t omnipresent. “Under no definition of global are the global firms actually global,” McGarry says. “Once you strip away the big commercial centres where they have offices, like New York, London, Frankfurt, Singapore, Beijing, Chicago and Houston, there’s a lot of the world they don’t cover.”

By way of example, the 10 largest global firms have offices in only 12 US states. In many places, independent firms are the largest players. The WSG firm in Santiago, at 175 lawyers, is the largest firm in Chile, dwarfing the local offices of the global firms, which top out at 25 lawyers. From the perspective of inbound work, Dentons Canada LLP, Norton Rose Fulbright Canada LLP and DLA Piper (Canada) LLP are the only representatives of either the global giants or the vereins in this country. Norton Rose, with 167 lawyers in Montréal, is the largest. But otherwise, independents rule: nationally, BLG’s 726 lawyers make it the largest firm, while Blakes tops the list in Toronto (298), Gowling in Ottawa (277), Fasken in Vancouver (137) and Bennett Jones (173) in Calgary. Homegrown independents Stewart McKelvey, Cox & Palmer and McInnes Cooper dominate the Atlantic market.

On this analysis, networks provide value to independents of any size. Even US-based McGuireWoods LLP, a firm of more than 1,000 lawyers, is a member of Lex Mundi. So is US-based Baker Botts and its 725 attorneys. Blakes, with 604 lawyers, is the largest Canadian firm in a network, followed by Davies Ward and its 240 lawyers. What seems clear is that major independents, competing for the high-end work, find networks a useful tool in competing with global law firms and giant vereins, while working hand in hand with the ones with which they have relationships.

The emergence of Nextlaw, moreover, establishes that even the largest legal entities see the value of networks. “If we don’t have the talent that our clients need or have a conflict, we’ll make a referral to a Nextlaw firm,” Portnoy says.

MOST FIRMS, HOWEVER, DON’T compete for the very highest-end work. “Minden Gross isn’t interested in doing work for Coca-Cola, but we have our own kind of client and niche market,” says Kallish’s partner Samantha Prasad, who sits on the Meritas board. “It’s not just large public companies that need assistance abroad, because mid-market firms are also globalizing.”

According to Kallish, Minden Gross lawyers see clients that are doing international business “virtually every day” and Meritas “allows us to serve their needs.” Nick Torchetti of Aird & Berlis goes further. “Belonging to Interlaw means we have no problem competing with international firms for international clients,” he says.

The point, McGarry says, is that networks can benefit firms of any size. And it’s not just about referrals. “People tend to think that inbound referrals are the most important thing, but in my view the biggest benefit is the opportunity to maintain a firm’s own clients,” he says.

That’s true both nationally and internationally. Meritas has representatives throughout Canada, including Robertson Stromberg LLP in Saskatoon, BCF LLP in Montréal and Québec City, Patterson Law in Halifax, Lawson Creamer in Saint John, Benson Buffett in St. John’s, Key Murray Law in Prince Edward Island, McLennan Ross LLP in Calgary, Edmonton and the Northwest Territories, Pitblado Law LLP in Winnipeg, Boughton Law LLP in Vancouver, Minden Gross LLP in Toronto, and Brazeau Seller Law LLP in Ottawa.

YET THE DEBATE RAGES about the relative merits of networks and global firms or vereins as springboards to an international presence. “Ogilvy Renault went global via the verein route to acquire the scale of expertise that only being large and global can bring you, including the best technology systems and seamless management of client business on a constant basis,” says Norman Steinberg, Chairman, Norton Rose Fulbright Canada LLP and former chair of the global firm, who shepherded Ogilvy Renault’s combination with Norton Rose. “Like the Big Four, we went for scale and enterprise sharing of resources. You can’t do that if you have a bunch of disparate firms in a bunch of different places.”

Still, Steinberg concedes that networks of independent firms have their place. “I wouldn’t want to wake up and be the chair of Ogilvy Renault today, but if I was, I’d want to be a member of a network,” Steinberg says. “The difficulty I see is that once a network gets so large, how do you exercise control over things like the quality of each independent firm?”

As Portnoy sees it, the difference between networked and global firms or vereins is like “night and day.” No matter how tight independent networks are, they can’t, in his view, match the “common approach to client service, quality, pricing, billing and communication” that an integrated firm provides. “Firms like Dentons, for example, provide a single point of contact for clients, common values, and a single approach to conflicts,” he says.

According to Portnoy, the fact that independent law firm networks depend on membership fees makes them suspect: “You may not be the best firm or the best talent, but if you’ve paid the fee, you’re in.” Nextlaw, as previously mentioned, does not charge fees and does not offer territorial exclusivity to its members.

“Unless a firm has previously worked with our firm or worked with a client, it doesn’t get in to Nextlaw,” Portnoy says. “But that’s not as limiting as it sounds, because in 2016 alone, before we built the network, we had to send work to over 1,000 law firms around the world.”

For his part, Kallish maintains that membership fees are a red herring. “Just because you can afford to join Meritas doesn’t mean you actually can join,” he says. “We have many more firms wanting to join us than we allow into the group — and at that point, money’s irrelevant.”

And while Portnoy points out that many independent networks operate on a territorial exclusivity model, limiting the choices available to a client, many networks do not. However that may be, global firms and vereins, where lawyers are undoubtedly under pressure to refer to their partners, are hardly immune to this line of criticism. “Lawyers in networks aren’t forced to refer to partners whom they may or may not know,” Torchetti says. “Being in a network means you can take a lot of the politics out of the referral process.”

Indeed, Prasad believes that independent networks can have a uniformity of culture and provide many benefits that global law firms or vereins can, including shared values and goals. “We’re not just about sending clients to particular firms,” she says. “Meritas was formed to ensure that clients will be working with like-minded referrals with whom they can feel comfortable.”

At regional and other meetings, Meritas members strategize about best practices, how they can help each other, and how they can engage beyond just making referrals. “Referrals will always be a goal, but they are just one of our goals,” she says. “We strongly believe in face-to-face meetings and, in furtherance of that, we have regional, annual and other meetings, and our chairs travel around the world to meet with as many firms as possible.”

Similarly, Lex Mundi is more than a network in name only. “There are annual members’ meetings, regional events and considerable social contact,” Granatstein says. As well, the organization provides guidance on best practices, to the point of having a resident consultant on hand.

Networks also provide varying degrees of infrastructure and continuing education. Some even help manage the RFP process. “Meritas is a very proactive organization that doesn’t just sit back and provide an administrative structure,” Prasad says. “The level of collaboration in a network certainly doesn’t go to the level that you find in an integrated firm, but that’s not a failing because that’s not the intent.”

Last but certainly not least are the quality assurance standards that most networks formulate and enforce. Because Lex Mundi, for example, has a rigorous vetting process, membership ensures that clients will receive like-quality service from Blakes’ outbound referrals. “The vetting is an ongoing process,” Granatstein says. “We’ve bounced firms out and replaced them with better lawyers.”

As global entities permeate Canada, then, networks have become important to firms of all sizes that want to maintain independence. “Network members are firms who don’t want to be part of global organizations’ massive machines but still want to have an international reach,” Kallish says. And if Nextlaw is any indication, they’ll be important to the giants, too.

From a client perspective, that translates into choice. Surely that’s a good thing.

Julius Melnitzer is a freelance legal-affairs writer in Toronto.