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What to consider with lateral hires and when opening a law firm office in a new market
Stephen, your firm is recognized for its most structured way to evaluate and develop new markets. How do you do that?
Before we open an office in a new market, we always ask the same three questions: (1) Do we already have enough business in this market, and could it develop? Let me give you an example: In Vietnam we decided the answer to this question is “yes”. Because of our clients moving into Vietnam we could count on a sound base of existing business. In addition to that, Vietnam lacks highly sophisticated law firms, but at the same time its economy shows impressive growth with no end in sight. (2) Is it feasible to operate there the way we do, in-line with our lock-step model, no major regulatory restrictions constraining our business? It is imperative for us to be able to roll-out our model wherever we are active with own offices. If you again look at our Vietnam venture the legal framework for law firms there looks sustainable and allows us to operate on solid grounds. (3) Have we got the right people to go there? That could be people within Allen & Overy or colleagues we hire from the local market. It is crucial for the success of such a venture that we find the right people who take responsibility and are willing to dedicate a significant part of their lives to the new set-up. So, if all three questions have been answered positively, and only then, opening up an office in this new market is an option.
How would you answer these three questions in the case of Switzerland?
Well, there would be an easy “yes” to the questions no. 2 and 3. The answer to question no. 1 though is more difficult. Our analysis shows that there would not be a reasonably high chance to enhance our business. Our existing Swiss clients, and there are quite a number of them, would probably not perceive an Allen & Overy office in Zurich or Geneva as a value add. Also, the Swiss economy does not grow, at least not in a way that is more promising than growth in other Western European countries. Last but not least, we cooperate with excellent law firms in Switzerland who help us to jointly offer legal services to our clients on the highest level. So, there is not only no significant benefit to be expected by opening an own office, there is no need either.
Where is the threshold for leaving a market when things are not working out as expected?
Every office has to be a net contributor within 3 to 5 years of its existence. If not, we give it up.
Your main responsibility within your firm is to evaluate and foster relationships with selected firms in markets where you do not maintain Allen & Overy offices. Could you elaborate on your ways to do so?
In the some 140 countries we do not engage with own offices we strive to establish collaboration with two or three law firms we like to call “relationship firms”. We carefully select these firms among the very best within these countries. The relationship is not an exclusive one but we expect it to be special in the way that the relationship firm invests equally in the relationship. We maintain close contact not only when working on specific projects but also by building and maintaining a (virtual) community. There are regularly held meetings with these firms, we invite them to events aiming to exchange knowledge, and we offer secondments to their young lawyers.
In recent years lateral hires have generally become more popular, even with “Magic Circle” firms. How are Allen & Overy’s policies with regard to lateral hires?
There are strict standard procedures to be observed. (1) It must be absolutely clear that we have a slot for a new partner that is in line with our business plan. Respective applications have to be approved by our management board. (2) We always first look at internal options. If we do not see any, then a group of three or four partners are authorized to come up with proposals. They can either do their own search or they can engage a head-hunter. Again, the latter would have to be approved by the board. (3) If someone is found who fulfills the criteria a thorough due diligence is carried out by an external provider. (4) The group of partners responsible for the search then sends a detailed proposal to our Partnership Selection Committee. The committee interviews the
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person. (5) Adjacent to that our Global Managing Partner negotiates the terms and conditions with the candidate. (6) Finally the question of welcoming the new partner in our partnership is subject to a vote of all partners worldwide. This process may look complicated and overly engineered. But then it leads to a success rate of roughly 75% in lateral hires. We hear that this is considerably more than average.
When asked to name the three most important trends in the law firm business, what would you say?
Globalization is clearly no. 1. And it is extremely important to us. We attain a 25% higher profit in projects with five and more jurisdictions involved than in others. No. 2 would be the trend to “unbundling” legal services. The days are over when clients just asked you to handle a matter overall. They disaggregate the work and give it to different firms, parts of it ever more often to Legal Process Outsourcers (LPOs). No. 3 is the need to deliver value for money. Clients expect us to cut cost on our operations and they have a very efficient cost control process in place nowadays. This is why Allen & Overy decided to open up its office in Belfast where certain work can be done more efficiently and to lower cost.