Think Again About Globalization--A Guest Column

In the nearly five-year history of "Adam Smith, Esq.," you could have counted the number of guest columns on one finger.  As of today, make that two.

The following comes from E. Leigh Dance (see immediately below), who has a strong perspective on what globalization means for our industry.  Thanks, Leigh.

E. Leigh Dance
For 15 years E. Leigh Dance has led the global legal services consultancy, ELD International, working with global law firms and corporate law departments around the world.  She is based in Rome and New York and has a London office. 

Earlier this month Thomas Friedman, in his October 5 New York Times column, wrote about the implications of our suddenly new age.  He describes what we're moving into as "globalization and financial integration on steroids." 

"Even though the dollar has strengthened a bit lately," Friedman says, "we are going to need foreigners and sovereign wealth funds from China, Asia, Europe and the Middle East more than ever to survive this crisis...  In the process, we are going to become even more intertwined and dependent on the rest of the world."

While many firms rightly focus on cash flow today, there's also the question of globalization.  American law firms, by and large, have a long way to go.  Adam Smith, Esq. has commented in the past (including in a June 4th column) that New York firms are behind the eight-ball (and behind the Magic Circle) in their international growth.  Whichever side of the proverbial pond, law firms cannot assume they've become global when more than 85% of their fee earners are practicing domestic law and based domestically.  
Of the AmLaw Global 100 (newly released this month), only 38 have more than 15% of their lawyers outside of home country. 

Of the Global 100 firms with offices in at least three countries, a few numbers:

Firm (overall ranking)             % of lawyers outside home country

Kirkland & Ellis (11)                8%
Greenberg Traurig (12)          4%
Morgan Lewis (17)                  7%
Slaughter & May (32)               8%
Bingham McCutchen (39)      4%
Foley & Lardner (41)               <1%
Proskauer Rose (49)              4%
King & Spalding (50)               4%
Holland & Knight (51)             <1%
Pillsbury (57)                            2%

... and at the opposite end of the spectrum:

Firm (overall ranking)             % of lawyers outside home country
Clifford Chance (1)                 65%
Linklaters (2)                           62%
Freshfields (3)                        67%
Baker & McKenzie (4)            82%
Allen & Overy (6)                     59%
White & Case (10)                 66%
DLA Piper Int'l (16)*               51%
Lovells (22)                             76%
Norton Rose (56)                   51%
Simmons & Simmons (59)     60%
*DLA Int'l does not include US - DLA Piper US is separate,only domestic

We know that the UK firms expanded internationally more quickly--the size of their home market dictated it.  Many UK firms are also ahead in fostering the diversity (origin, not race) of their lawyers and the firm's approach to serving clients from many places. 

Of course, UK firms have a glaring gap in their coverage that seriously discounts their lead in other countries:  the US.  The US makes up the lion's share of the world's legal market, and American firms have kept much of their manpower where the money is.  But the make-up of the US market is changing.

As Adam Smith, Esq. wrote in a May 16 article, recent McKinsey research showed that top companies have differentiated themselves through global talent management, including:

• "encouraging people to get experience across multiple locations,
• regarding overseas experience as a prerequisite for promotion, and
• offering managers incentives to move talented employees to other functions or geographies."

Though there are exceptions (Cleary and Latham spring to mind), these sorts of moves have been a relatively low priority for most American law firms.  Even though much growth in work with US multinationals has been outside of the US, now we're talking about a different global equation.

As Friedman comments, the avalanche of incoming foreign capital means that the days of unilateral exercise of American power are pretty much over:  "As the old saying goes:  He who has the gold makes the rules.  Well, we no longer have as much gold, and until we get some, we will have to pay more heed to the rules of those who lend us theirs."

Both firm leadership and partners in their prime have lived through the glory days with their American or English legal systems making the rules and driving the approach to mega transactions, litigation, intellectual property, private equity and regulatory advocacy around the world.   The top Anglo Saxon law firms have excelled at serving global companies primarily run by Anglo Saxon executives according to a predominantly Anglo Saxon approach to international business.  Indeed, I am one of the Anglo-Saxon consultants who has benefitted from these glory days (though I have a few languages and several countries in my portfolio).

Last spring I moderated a roundtable of top global counsel where one General Counsel talked about his big Chinese legal team.  An American, he relayed their viewpoint, which had startled him: "Who says that future global business growth must be centered on American or western legal principles?  Why can't it come from the East-- from the Chinese, for example?"  The counsel around the table were squirming in their seats. 

What, globalization without us as the referees?  That's a whole different ball game. 

New game, new age.  In his article, Friedman quotes Jeffrey Garten, professor of trade and finance at Yale:

"Being a bigger debtor nation means losing even more of our sovereignty.  It means conducting our economic policies with an eye toward whether others approve.  It means bearing the advice and criticism that we have dispensed ad nauseam to other countries for over a half a century." 

Garten suggests that this goes beyond governments into the heart of business.  "Corporate decisions will become more sensitive to international factors, in part because more non-Americans will be on the governing boards."

US law firms with global ambitions need to look at how they can prepare to thrive.  Even if the vast majority of your workforce is here at home, that workforce needs to know lots more about navigating in the world's fastest growing markets, both externally and within the firm.  The vast majority of the lawyers in international offices of US firms tell me that their firm's operating and management style is all American. 

Nothing wrong with that, historically speaking.  But tomorrow, when more of your relationships at your big US multinational client are with non-Americans who may want to see the world and do business their way, you won't necessarily be their first choice advisors.

So what to do?  To succeed in this intertwined world, law firms must go beyond the cliché and foster a truly international mindset.  Just as important but far less tangible than the new Dubai office is changing service delivery to meet demands of non-American and globalized American businesses.  It has to be part of your plan.  Global talent management is just one piece of that profound and demanding strategy, and it goes beyond hiring foreign laterals. 

It's also important to reconsider and adjust your practice growth strategies for the fundamental differences in practice approach and dynamics across geographic markets.  Train lawyers and staff to work effectively in multi-cultural teams.  Hire people at home and abroad that speak several languages and have grown up in more than one country.  Move your institutional assets (of every age) across borders, including into the US.

Building cultural adaptability and capability is not easy.  But from my vantage point, you'll have to take Friedman's (and Darwin's) word for it:  you don't really have a choice.