Reports from the UK last month revealed Clifford Chance had decided to halt its global expansion. No new markets would be explored, said partners. With nearly 20 jurisdictions covered, enough was enough - for now.

With the downturn in economic fortunes, still others are scaling back in foreign lands with penny counting the order of the day. As Cameron McKenna in Hong Kong might say, 'Markets can be fickle beasts.'

But such events are vivid snapshots of a wider trend - the swelling of law firms into behemoths straddling dozens of markets. A typical global practice today has more than a thousand partners and over a billion dollars pouring in each year. Annual meetings - getting longer every year - are starting to look like a session at the United Nations.
No two firms are tackling the issues thrown up by their globalising in quite the same way. In fact, even getting them to agree on what constitutes a global practice is difficult.

Fancy letterhead doesn't come cheap

But why globalise? It puts a huge strain on firms. For a start, it is costly. The financial investment needed these days to establish an office in Tokyo is ridiculous. It usually takes at least three or four recruitment cycles to establish a greenfield operation. And depending on the equity model a firm adopts, each new office might mean less profit per partner.

Globalising also costs the firm in the form of time. Each hour managing partners spend planning strategy is an hour they can't bill. In the big picture, it may all even out - a firm's expansion equals more business overall. But in some cases, when you turn one of the firm's biggest fee earners into a manager, you are effectively giving up millions of dollars in billable hours. Multiply that by ten or more partners and it adds up.

"Virtually all of my time is spent on management," says Linklaters' regional managing partner Andrew Roberts. "As you open in more countries and increase in size, the management complexities increase proportionally. The whole concept of partnerships rubs up against management in a difficult fashion."

Historically, law firms expanded overseas because their clients took them there. For US firms with manufacturing clients, for example, that meant having lawyers in Latin America who could do general legal services tied to entering a market. "It was 'incorporate me, register me for tax and employment, and advise me on getting myself established in that jurisdiction'," says David Fleming, regional managing partner of Baker & McKenzie. And firms, by and large, are still doing that sort of work for traditional clients.

Another driver has been the investment banks. As they established new offices in overseas markets, their law firms were more than happy to go along with them. For English firms with a focus on capital markets work, this was a major path to growth. Whereas US firms could sustain large practices purely on the back of domestic work, English firms faced limited opportunities back home.

But the main reason to globalise - the phrase that never fails to fly first off the tongue of a managing partner - is that an international law practice is synonymous with better client service.

"It enables us to improve services," says Christopher Stephens, an executive committee partner at Coudert Brothers. "It allows us to offer a broader range of advice to clients operating across different sectors and countries."

Most partners begin from a similar observation. "The global clients are increasingly saying they want a firm who will do all their servicing on big multinational deals," says Christopher Roberts, regional managing partner for Allen & Overy.

He recalls a leveraged buyout he worked on in the mid-80s that involved acquiring businesses in two dozen jurisdictions. His firm had offices in perhaps two or three, so they were co-coordinating a network of local counsel. The deal was a success, but it would be an anachronism now. "Clients would never think of instructing us if we operated on that basis today."

Better is bigger

No single strategy for expansion can suit all firms and so almost no firm has grown in quite the same way as their competitor. Slaughter & May has adopted a 'best friend' approach. Baker & McKenzie has chosen something that resembles, although perhaps not that closely, franchising.

By and large, however, firms are achieving global coverage through mergers, which presents its own challenges.

"We are still seeing an intensification of the merger strategy," says Fleming at Baker & McKenzie. "The tendency- and it is partly for regulatory reasons - is to go in and do an alliance. You have to merge or acquire with something offshore that has interests locally."
Ruth Markland, Freshfields regional managing partner, says that mergers of professional firms are always difficult, and that, "We prefer organic growth and strategic lateral hires." She concedes, however, that in some markets getting the required critical mass and credibility within an acceptable timeframe can be impossible.

"An example for us is Germany," she says. "The reality was that only by a merger with a German law firm would we have the credibility, stature and critical mass in a very big market. But before we merged neither Freshfields nor Bruckhaus was under any illusions about how difficult a successful merger is." She says that such moves are never undertaken lightly.

But for firms that grow organically, who invest years of time and significant money, there is always the danger of a newcomer to a market swiping your talent, notes Stephens at Coudert.

"One of the vulnerabilities you face in being a law firm that has been global for a long time - like Coudert Brothers, Jones Day, Baker & McKenzie, or Allen & Overy - is that it's always easier, quicker and cheaper to go to a place where you don't have an office and peel off some of the people that have been there from other offices that have a long established practice, even if you have to overpay a little bit… I don't think anybody contemplates doing one of these investments with a 20-year ramp-up."

Think local, act global

One of the ongoing struggles for any global firm is hitting the right balance between local and central management.

"It's a constant give-and-take," says Stephens. Both sides, he says, need to focus on their strengths. It is local partners who are best positioned to identify the strategy for each office: they are tuned into the local economy; they know the clients of the jurisdiction; and they can identify the areas of service where the firm can best compete.
Central management, with its bird-eye view, takes in recommendations, evaluates them, and prioritises resources based on the overall global direction of the practice. "There is a limit on local autonomy," says Fleming. "If someone wanted to radically expand and acquire three times as many lawyers, that is not a local decision."
Increasing size may be one reason firms are moving over to management by practice group rather than geography. Allen & Overy, for example, has a global head for each practice group. It is easier to manage the competing interests of offices if the decision-making for a practice group is streamlined.

"You just need discussions of the interstices of the matrix," he says. "By moving toward a global project group, we are re-emphasising the global nature - looking at things on a global basis and not a nationalistic outlook."

 Then there is the equity question. How are the firm's accounts prepared? Firms have tinkered with their equity structures for years. Clifford Chance and Lovells, for instance, have all recently de-equitised partners in a bid to improve profitability. The debate over the pros and cons of equity structures is complex, but in relation to globalisation, the arguments are slightly different.

In general, partners say you cannot underestimate the influence the remuneration model has upon the global cohesion of a firm.
But agreement ends there. Should it be an eat-what-you-kill? If it is lockstep, how far away from 'pure' can you get before it turns into 'modified?'

Baker & McKenzie, for one, uses a hybrid of centralised profit sharing and office-by-office sharing. But partners point out that the danger inherent in national profit pools is that it turns money into the principal motivator. It may encourage entrepreneurialism, but it also breeds divisiveness. Offices protect their turf instead of passing work along to whomever can best serve the client.

"It is interesting that the top UK firms and the top Wall Street firms all use rigid lockstep," A&O's Roberts points out. "Having one profit pool means everybody is focused on one entity."

Of course, the lockstep label is applied to a slew of equity models that in truth differ widely. Some firms use a point system to determine profit ladders, adjusting the scale to fit individual offices. Coudert Brothers, for instance, looks at the contribution a partner makes over multiple years.

"If an office performs poorly one year, not all partners in that office will have their compensation reduced commensurately with the year's performance, as you might in a franchise structure," Stephens says. "It's on the theory that we are all in this together - we are all partners in the same firm."

But lockstep can hide big variations in pay. After Clifford Chance merged with Wells, it became apparent that a handful of partners were getting paid superpoints above the normal lockstep. Yes, they were probably big fee earners, but the tension was so great that they eventually agreed to drop down or they left the firm.

Same, but different

Most partners agree that on the superficial level, a global practice means having a shared identity among offices. That is more than ensuring the reception areas in the London and Dubai offices are painted with the same corporate colors. Partners say it extends to creating a complete template of service. Clients need to feel a consistency of what they get from the firm. Are documents indented or arranged in blocks? How is billing handled? It may sound trivial, but the end result is that a firm will soon be projecting a single style across the world. Technology, of course, has made this easier.

It is an open question as to how far should this consistency should be adopted. Should all partners have a similar lawyering style? Imagine this scenario: three international law firms are invited to pitch on a large, multijurisdictional deal. Each firm sends three partners, one from the US, one from Europe and one from Asia. During the beauty parade, each lawyer is allowed to speak for five minutes but is not permitted to reveal to which firm he or she belongs. After the last lawyer has spoken, the client is asked to guess which three partners belong to the same law firm. If the client can guess correctly, what does that tell you about the law firm?

"Some clients say they can tell the difference between Allen & Overy, Linklaters and Clifford Chance," says Stephens, "but style can only go far. Even in an English firm such as Allen & Overy, there are as many different styles as there are partners."

Fleming at Baker & McKenzie says that a firm's style will also vary according to its knowledge of the client's business culture. In fact, such adaptability is a reason a client will choose a single firm across markets. "It's a degree of consistency, not just in quality, but in the way the client wants their needs to be met. Some will want a very US-style. Others will want you to be pro-active, while others will want you to be very second-chair."

But he agrees that a danger inherent in the drive to consistency is a loss of distinctiveness. "You don't lose that local connection. To use a word we hear in relation to ourselves that we don't particularly like - do you become a franchise? What are the dangers of that?"

Some partners feel that loyalty only goes so far. They say that one effect of globalisation is that clients will shop around to get the best advice they can and won't be so bound by historical reasons to use UK or US firms.

The thinking is that as more companies expand from their US, European or Asia Pacific base, they get exposed to more law firms. And if that happens to be an Australian or Canadian firm that is offering the best legal services, then they will get the clients.

"The one-stop shop thing is less prevalent even for the very largest corporations," says one partner. "HSBC, for example, have always used Johnson Stokes & Master. These days you will find their panel extends to a number of international firms… they realise they can't always get the best possible advice or deal from a single firm."

Which may be an Achilles heel for the superfirms. The coming reality is that the one-stop shop idea is no longer appealing to multinationals who are getting adept at selecting one firm for financing work and another for litigation, even within the same market. To respond, the global firms are working hard at developing local capabilities. But those abilities may be the hardest aspect to streamline into global practices.