Stephen McGarry, B.A., M.A., J.D., and LL.M. (Taxation), founded World Services Group (WSG), a multidisciplinary network, in 2002. As president, he grew it to 150 firms that have 21,000 professionals in 600 offices in more than 100 countries. In 1989 McGarry founded Lex Mundi, the world’s largest law firm network. As president, he grew it to 160 law firms that today have 21,000 attorneys in 600 offices in 100-plus countries. These two networks represent 2 percent of all the lawyers on earth. In 1995, he founded HG.org, one of the first legal websites. Today, it is among the world’s largest sites with more than five million pages and 900,000 users each month who download almost two million pages. McGarry is admitted by exam to the bars of Minnesota, Texas, and Louisiana. In 2002, American Lawyer Media (ALM) published McGarry’s treatise on Multidisciplinary Practices. McGarry has authored numerous articles on associations and international business transactions.

Introduction

All businesses comprise a pool of financial and human capital that creates a product or performs a service. This capital can be configured in an unlimited number of ways to achieve specific objectives for the service provider or manufacturer. With professional services, objectives are achieved via a controlled entity, such as an accounting or law firm, and membership in an association of independent service providers. These associations are commonly referred to as professional services networks or associations.

Law firm organizations are defined by elements of purpose, structure, and process.[1] The purpose of a network is different from that of a company or professional firm in that it is limited to specific activities that will benefit its members and enhance its performance. Within the network, they can operate to pursue their interests. These interests can include referrals, joint venturing, access to expertise, developing regional expertise, publishing articles for clients, branding, technical information exchange, market positioning, pro bono services, and more.

Beyond the objective of a law firm network is the need to create a framework with the potential to allow the members to expand their services. The network’s structure reflects the activities it seeks to promote and the underlying cultures of the members. The scope of these interests is defined not by the members, but by the network. Therefore, each network must be different.

One of the major factors influencing the need for networks is the globalization of the economy. Supply and demand are no longer local. The price of commodities is affected by a number of uncontrollable factors such as the weather halfway across the world or by demand in developing countries. In a market where production takes place wherever utilization of assets and human resources occur most effectively, professional services providers need to represent their clients globally. Networks are the only practical method to accomplish these objectives.

A network is more than a support organization or collaborative framework in which the members can meet clients’ needs. It is an entity entrusted with a common corporate identity. Though the network and not the members own the logo and brand, the network name can establish and represent a standard required of all its members. Consequently, membership in the network creates a global corporate identity. The goal of this identity is network participation that will ultimately translate into business for the individual independent members.

From a theoretical point of view, networks are an effective model and a powerful system of enhancing services. The members and the networks are different parts of the resource equation for providing members seamless and high-quality local and global services. There is no real limit to what can be accomplished through a network when the network and its membership work together. This collaboration is at the heart of the network.

Why Do Firms Join?

When asked why they joined, members usually state tangible reasons: to receive referrals from other members; to have reliable firms to which they can refer; to maintain independence; to meet clients’ needs; to retain existing clients by being able to provide services in other states or countries; and to use the membership to obtain new clients in their market.

They also join for intangible reasons. In today’s world, change is both constant and accelerating. Therefore, having access to other members can be important. A network helps to reduce the degree of uncertainty by bringing together a greater number of specialized resources to work on a problem. In addition to facilitating the exchange of knowledge that can reduce risks in firm operations, network memberships also reduce possible loss through burden sharing. Membership is a proactive way to profit from change and, at the same time, conserve resources. Membership can enhance the prestige of the member by being associated with prestigious firms that the client already uses.

Networks achieve these objectives in a way that is very different from corporate structures in which executives have command and control. Networks emphasize reputations, commitments, and trust of each member.[2] In networks, there is collaboration between members and the network’s staff. Personal motivations move the network development forward.[3] However, personal motivations can also impede forward momentum. 

Law Firm Networks – History

There were two distinct and different reasons for networks developing in the legal profession. The first was internationalization, which became globalization.[4] Law firms simply needed international connections. The second was the expansion of a number of large United States firms who pushed to become “national.” Smaller firms or firms with a niche practice required this same expertise in other states.

Internationalization of the legal profession began much later than in accounting firms.[5] There was no real need because, unlike the accounting firms that conducted worldwide audits, law firms in each country were equipped to deal with client matters. This changed in 1949 when Baker McKenzie began to expand to non-United States markets to assist U.S. clients trying to expand overseas following WWII.[6] The first step was establishing correspondent relationships with firms outside of the United States. This was necessary in that many countries would not permit a law firm to operate without a local name.[7]

The Need for Global Networks[8]

Internationalization was slow to start because the legal profession was much more restrictive than accounting in allowing foreign firms to enter and practice in their countries. There were rules requiring that the names of the partners be present in the name of the firm. As a firm expanded, it began to use its name when possible in as many countries as commercially feasible. The purpose was the same as in accounting: establish a brand and attract clients to it. The downsides were that the legal profession looked down at the Baker McKenzie model and its own competition pejoratively characterized Baker McKenzie as a franchise.[9] The forces of the international community converged in the late 1980s. American and English firms began establishing branches in the primary commercial centers. This niche competition in local markets had the immediate effect of forcing local firms to evaluate alternative ways of providing services to their international clients.

Law firms, like the accounting firms, were looking for niche markets. The difference was that U.S. law firms focused internationally on a niche market. In the 1970s, niche markets focused on serving financial services and then branched out to clients in manufacturing.[10] The result today is that more than 100 United States law firms have offices outside of the country.[11] However, the reality is that internationalization is very limited among U.S. law firms — among the largest 100, the average has five overseas offices.[12]

The New York and London firms that opened offices at first generally did not practice local law, so the regional firms were protected and received referrals on local matters. This also changed as the number of branches increased and the firms indigenized. With the advent of legal advertising, U.S. firms gained the opportunity to market their services in the U.S. and, as a result, indirectly began to market themselves in each of the countries where they had offices. Local bars to which attorneys received their licenses had severe restriction on their own firms that were not lifted until very much later.[13] For example, local partners and associates were required to be citizens and to be admitted to the bar where they practiced. Naturally, when foreign firms began to meet these criteria, local firms became concerned. The result was a need for local firms to band together, and networks became tools to compete against the much larger intruders to address this expansion. In fact, the first network of local firms came about primarily as a result of the invasion by London and New York firms.

Networks can be evaluated at different by the level of organization and activities pursued by the network. There are four levels. In the legal profession, there are no Level 4 networks unless you count the large international firms now organized as Swiss vereins as networks. A case can be made for this development.

Level 1 international networks, called clubs, generally consist of 10 firms in different countries.[14] The typical format consists of holding several meetings a year among managing partners to discuss management and market-related issues. Secrecy shrouded the networks because the members feared losing business from other firms if they knew of these networks.[15] On the other hand, many did not hesitate to advertise to their clients that they had foreign connections and correspondents. Today the clubs are commonly known as “best friend’s networks.” Examples include Leading Counsel Network[16] and Slaughter and May.[17]

Level 2 networks began in the 1980s when the Level 1 clubs evolved into networks. By that time, networks were not as secretive and even published directories, materials, and brochures.[18] The members met annually, and some networks focused on specific practices, such as litigation,[19] while others were more generic. Because networks were not thought of as franchises or strategic models, the membership selection process was not particularly rigorous.[20] Many of the networks that were innovators in the 1980s reached Level 2 and had no intent to develop beyond this level. This is evidenced by the fact that their membership over several decades has not increased, their websites contain no information, their governance depends on the same individuals, and their operations are limited.

Level 3 networks began in 1989 when Lex Mundi was formed.[21] It was the first network that required each member to be one of the largest and most established firms in a state or country. Unlike a Level 2 network where all activities are internal, 50 percent of its activities were external.[22] The list of internal and external activities reflected approximately 30 different items. Another difference existed in Lex Mundi’s operations: It was a network organized around a home office with staff, rather than a staff being assembled after the network was established. Finally, Lex Mundi set itself apart by using collaborative efforts among its personnel, board, councils, and members to achieve the objectives. In essence, Lex Mundi operated as a business that provided members with many alternatives to expand their resources. While different from the accounting network, the concept was that of an entity which provided services to members and should also have an established brand.

Other networks like TerraLex[23] and Meritas[24] soon followed with a similar business-based model. Their stated objective was to create a branded alternative to the large United States and English law firms that had expanded into their countries. These networks were not secret, and all of them have many of the features of Level 3 networks.

U.S. national networks also joined the revolution. The first was the American Law Firm Association, a network that focused primarily on insurance litigation.[25] The second was the State Capital Law Group, which began as a national network of firms dedicated to government affairs.[26] To qualify for membership, a former governor needed to work at the firm. Both of these networks became international and changed their names to ALFA and State Capital Global Legal Network, respectively.

The same national expansion occurred in other regions. For example, there are 80 European-centric networks. Some cover most of Europe, while others focus on a specific region like the Nordic or the CIS. In Canada, national firms have gradually opened offices in most provinces. However, there is a clear demarcation between the two approaches. Canadian firms that did not agree with this strategy joined the better-known networks.

Law firm networks are not all organized by law firms. Some, like the DuPont Legal Network for example, have been organized by corporations.[27] DuPont first established its network in 1992 to consolidate its outside counsel, then generated internal efficiencies by creating a network to which all of the outside counsels were also members.[28] Additionally, networks organized by corporations can exist for other purposes such as offering pro bono services. Thomson Reuters[29] has organized such a foundation that selects law firms that add prestige to its network for membership. It matches experienced firms to work together on projects. Participating firms find unique and priceless motivation through the opportunity to establish new contacts, who will in turn become paying clients, at no financial cost — simply by working on pro bono cases.

With more than 170 already in existence, law firm networks are here to stay. However, networks in the legal profession do not garner the same level of respect found in the field of accounting. One reason could be that the networks were simply a reaction to the initial globalization of large New York and London firms. Additionally, the large law firms have much bigger marketing budgets than networks. Perhaps legal networks remain tarnished because they originated as clubs or even franchises. However, in the light of day, it is now possible to argue that many of the elite law firms are themselves no more than networks.

The world is coming full circle.[30]