Lawyers follow clients in race for globalization
February 8, 2000
by Irwin Stelzer
THE SUNDAY TIMES
February 6, 2000
From the days of the fiercely inquisitorial Perry Mason to the day of the ditzy Ally McBeal, the world has been fascinated with America's lawyers, 10,000 of whom will descend on London in July for a meeting of the American Bar Association. But this fascination doesn't stem from the court-room exploits of television's legal eagles. Rather, it exists because lawyers play such an important role in the business life of America.
In Hollywood they craft the deals that make movies and unmake marriages. In New York, they are key to the mergers that have made the word "billions" commonplace. In Washington they lobby and raise the cash that is the mother's milk of American politics. And in Silicon Valley they bring together venture capitalists and the innovators who are creating the Internet revolution -- often taking a piece of the action in lieu of a fee. And becoming millionaires in the process.
Indeed, so great is the attraction of Silicon Valley that many of the best and the brightest of the 40,000 young men and women (about 20,000 of each) graduating from the law schools every year are signing on with start-up dot-com companies rather than with the prestigious firms to which they once flocked. The start-ups can offer them stock options and the opportunity to become instant millionaires -- as well as a life style that will make it unnecessary for them ever to don a tie or, in the case of the women, a tailored suit, nylons and "proper shoes".
In response, several of America's top law firms last week announced pay increases of as much as 50% for non-partners. The California firms, most subject to competition from Silicon Valley, led the parade, and the New York firms quickly followed. Fresh-out-of-school lawyers now command annual compensation of up to $160,000. The big question for the partners in these firms is whether the higher costs can be passed on to their clients, or will come out of profits.
That is not their only problem. For many lawyers on this side of the ocean feel that the British are stealing a march on them. It seems that globalization has come to the law business. As more and more workers cross national boundaries to seek opportunities, immigration lawyers must operate in several jurisdictions; as more and more of the world's wealth takes the form of intellectual property, rights to that property must be protected in every country; as more and more of the world's environmental and health problems become global in scope, company lawyers find themselves embroiled from Washington to London to Brussels in matters that once attracted only local attention.
This is the stuff on which international law firms are built. And the British firms are leading the way, forming globe-girdling behemoths. Linklaters & Alliance, with some 2,200 lawyers, in the past two years alone has added offices in Hungary, Romania, Slovakia, Italy and Luxembourg; Clifford Chance has merged with America's Rogers & Wells and Germany's Pünder Volhard Weber & Axster, the latter its country's third largest firm, to form a 2,700-lawyer firm with over $1 billion in earnings; and Denton Hall has made clear that its recent merger with Wilde Spate, to form an 800-lawyer firm, is merely the predicate to a merger with a U.S. firm.
The larger American firms are confident that they can offer services every bit as good and as broad-ranging as their British rivals. And the medium-size firms are coping by forming international networks such as Lex Mundi, an alliance of some 150 firms that refer those clients in need of multinational representation to one another.
Besides, American firms find competing for business less demeaning than do many of their British counterparts. I recently presided over a seminar in London in which two law firms -- one American, the other British -- engaged in a mock competition for the business of the general counsel of a major UK company. She listened to the American firm's statement of qualifications, and its frank discussion of how it planned to keep costs at a minimum. The UK firm emphasized that it had been in business for a century before the American firm was formed, and made no mention of fees. The American firm won this mock competition. No surprise to those of us who have watched the legal profession become the law business.
So America's lawyers have reason to be optimistic about their ability to compete with the British firms, even though many of the latter have shed their diffidence and become skilled at the "beauty contests" through which clients now put law firms that they are considering engaging. But they now fear a new competitor: the big accounting firms.
America's lawyers have long been shielded from competition by cartel-like rules that prohibit lawyers employed by firms of accountants from representing clients in legal matters. But increasingly aggressive accounting firms are finding their way around these rules, and are signing on hundreds of lawyers, who, they insist, are acting as "tax consultants", rather than legal advisors.
This breakdown of artificial barriers between the professions is likely to accelerate in America, as it has in Britain. The major accounting firms have global reach, aggressive marketing cultures, and experience concentrating on the big picture as seen by the CEO, rather than on some narrow legal issue. And many clients seem to find the seamlessly integrated service of the multidiscipline firm more convenient than shopping for the best and the brightest in each of the professions.
But weep not for America's lawyers. As Congress and the state legislators grind out more and more laws, the amount of litigation will undoubtedly increase. As the Brussels regulatory machine moves into higher and higher gear, the volume of regulations calling for legal interpretation will increase. And as risk-averse consumers learn to play the blame game with greater and greater facility, businesses will find that they need lawyers to keep awards within hailing distance of reason.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.