United States based based law firms are sprouting offices abroad in epidemic fashion. A global web of offices is often perceived as assuring enhanced revenues and profitability.
Virtually every one of the AmLaw 100 boasts a web of dozens of offices in not only every major business center, but in a variety of improbable foreign cities. These firms largely are convinced that as the domestic economic climate continues to stagnate, they can ameliorate declining domestic business by entering new markets.
But, the fact is that opening foreign branch offices poses substantial risk and requires substantial investment. In addition, the current economic malaise is not exclusively domestic; indeed, major foreign markets, particularly in the Euro Zone, are in a far deeper hole than we find ourselves in.
In looking at expanding a law firm to foreign shores, a law firm must carefully consider the risks. These include the fact that imbuing a foreign office with a law firm’s culture is a daunting challenge. Moreover, a law firm needs to consider the impact of a natural, economic or political upheaval in a foreign nation or region may have on a law firm’s operations in that country.
Additionally, by definition, when a law firm opens a foreign branch office, the law firm either acquires a local firm or recruits local laterals, or both. These newcomers are not imbued with any long term sense of loyalty to the firm. We have often seen foreign lawyers gain a deep understanding of the BigLaw model, develop deep relationships with the firm’s clients and then spin off and form their own firm, not saddled with the huge overhead of a global law firm, thereby having the ability to compete efficiently with the former mother ship, charging lower rates and taking home more money for themselves.
As the reach of law firms spreads, so does the increased likelihood that the firm will find itself enmeshed with client conflicts that will preclude the firm from doing important work for existing clients.
In many areas of the world, bribery and corruption are commonplace. Financial disclosure is often not at acceptable levels. Law firms need to be on heightened alert regarding their clients’ proclivities in engaging in these national past times so that the law firm doesn’t find itself as the target of an FCPA or securities law claim.
Globalization can work for law firms. But it requires heightened diligence and vigilance.