Globalization: What Feeds Your Network?

There are different ways of being a global firm, and while all may not be, ultimately, equally successful, I believe we're in a period of experimentation and exploration, unsure as an industry which global model will prove superior—and in the event there may be a variety of models each successful in its own way. To paraphrase Tolstoy's famous opening line in Anna Karenina, "every regional firm is alike; every global firm is global in its own way."

Herewith some models of "global."

Obviously, none of these are absolute, and none of them are necessarily permanent or irreversible. But they are tendencies that reflect different approaches, different preferences, and different beliefs about what model best serves clients and the firm's associated goals such as lawyer recruitment, retention, and motivation.

[Another way altogether of operating globally is essentially to confine the firm to one primary home office and achieve global reach through a network of "best friends."  That will be a topic  for another day, but suffice to note  in passing that firms as robust and successful as Cravath, Slaughter & May, and Wachtell employ this model.]

Today let me discuss one  of these dimensions of "global," namely item #4 on the table: Does "headquarters" feed the network or does the network feed the network?

Headquarters feeds the network

This is the traditional model of the Magic Circle, where the City of London's "Square Mile" was home to the bulk, at least by value, of the firm's clientele:  The banks, investment  banks, and FTSE 100 companies that drive the core practice areas.   Relationships with clients are of longstanding, thoroughly institutionalized, and even in some respects hereditary.  Partners in the headquarters office are primarily responsible for generating and servicing business, and non-headquarters offices exist primarily to serve demand driven by headquarters.

To  some extent, at least historically, it has  been the model of the "bulge bracket" New  York firms, the vast majority of whose lawyers are in Manhattan and whose overseas offices, even if of long-standing, have only relatively recently developed credible independent business of their own.

The virtues of this model are apparent: 

• Simplicity:  Client  cultivation is centralized and relatively straightforward. Partners in remote offices have little responsibility for business development. Career paths are clear and the choice between "home"or "foreign" office is readily understandable and from that one choice  flow a multitude of consequences.
• The need for local law capability is minimal:  Since by hypothesis clients are concentrated near headquarters, their requirements for on-the-ground local legal advice is  far less than would expected were the local offices truly responsible for generating business in a major way.
• Local lawyer recruitment is, accordingly, less of a priority.

Drawbacks of this model are also fairly apparent, and it's  fair to say that  they're the  flip-side of the virtues of  the alternative.   This may explain what follows.

While I was in London last week, I had an interesting experience:   I tried to make a point of probing with the managing partners and other senior lawyers I met with which model—business driven by headquarters or business driven by the network—their firm followed, and without exception they told me the "headquarters" model is obsolete and their firm no longer subscribes to it.  Occasionally this was accompanied by some defensiveness, along the  lines of, "Well, to be sure, we used to function that way, but have not  done  so for 5 or 10 years at the least."

Never, it's noteworthy to report, did I hear  the view that both models might have virtues of  their own and that it boiled down to a question of the firm's historical path and the preferences of the partnership.   This brings us to the alternative.

The network feeds the network

On this model, while there are inevitably larger and smaller offices, reflecting a combination of the geographic dispersion of underlying economic activity, the firm's historic path to development, opportunities seized or rejected, and client migration, the general expectation is that interesting and valuable work might come from almost any office and require the  services of almost any other. 

Without exception, the US-based firms I  spoke with in London announced that  this was very much their  model.  Its virtues are:

• All partners are responsible  for  business development, regardless of the size or prominence of the city and office where they practice.  This  has the advantage of boosting mutual self-respect among the partnership,  and eliminates the risk that some will come to resent the notion that  they are pulling more than  their weight, or conversely that  others will lose sight of the pressures business development imposes and tend to take revenue flow for granted.
• Clients tend to get the lawyers from the practice areas and  geographies they really need.  In other words, clients' portfolio of demands for  legal service tends to align more  closely with what the firm can optimally provide.   For example, I spent some time this  week with the senior management of an AmLaw 25 firm's Portland, Oregon office, and they had at the ready any number of examples of Oregon-based clients who needed (for example) the services of  FDA experts in the firm's Washington, DC office, or IP experts in its Boston office.  They also reported that, on the whole, their  office seemed to "import" about the same amount of work as  it "exported"—with the advantage to clients being, again, access to the  degree of specialized knowledge that the Portland office alone would not be  able to sustain economically. 
• Talent recruitment and development is more powerful.  As with "importing and exporting" work for clients, recruiting and developing lawyers  is ideally a  two-way street.   Again, the Portland partners reported that  they could offer a different array of lifestyle choices and work/life balance expectations than, say,  the firm's  New York  office, giving talented lawyers who might have had enough of New York an alternative to leaving the  firm.   Conversely, ambitious Portland-grown lawyers  (who  had  either started at this  firm or been recruited laterally) knew that they could enjoy the luxury, the  stimulation and excitement, and  the challenge, of having  access to a wider stage than any of the other Portland law offices could provide. 
• In portfolio diversity there is strength and  resilience.  We are experiencing this right now as we watch the sub-prime  mortgage crisis threaten to  metastasize into a more general credit  crunch:   Woe is the structured finance lawyer this fall.  Yet firms with a more geographically diverse footprint for business generation—which implies and brings with it a more diverse portfolio of industries from which clients are drawn and a broader array of legal services they accordingly need—may well be better  insulated from  this particular ebb tide than firms more centralized in their practice on major capital markets headquarters.

Is, then,  the lesson of my conversations in  London that the "headquarters" model is a quaint anachronism, bypassed by economic history and  supplanted by the "network" model?

I believe it's more nuanced than that, although the general direction of the vector of globalizing firms is clearly towards the network, and it's really only the  velocity of that vector that remains open to debate.

The nuance is that there are a very few  firms (I hereby nominate Skadden as a candidate) whose practice is so focused that the headquarters/network distinction is beside the point.  Their geographic footprint, and the composition of  their business development efforts, "follows the money."   It follows the index of financial-services intensity around the globe and has no use for any other places that  do not  score highly on that scale.

The moral comes  down to execution, as it so often does.  Alternative strategies are often equally viable:   Just consider, in retail land, Wal-Mart and  Home Depot vs. Cartier and Tiffany.   The devil, or as  I prefer  to believe, the gods, are in the ceaselessly challenging details of  execution.    What are you going to do on Monday morning?