Commanding the headlines in the legal press for the last week or two is the tie-up between the Chinese law firm Dacheng and the international law firm Dentons. As law-firm deals go, this is a very big one by any measure. Dacheng is the largest domestic law firm in China, with several thousand lawyers. Dentons is one of the UK-US leviathans, a product on the model of DLA Piper and Hogan Lovells of a US conglomerate centered on what was once Chicago-based Sonnenschein Nath & Rosenthal and the UK snowball known as Dentons. The resulting combination will boast nearly 6,600 lawyers, well over half again as large as what had been the biggest nongovernmental law firm in the world, Baker & McKenzie, with a mere 4,100 or so.
So Dacheng Dentons is a big deal. But is it a Big Deal? Is it transformative, an augury of things to come in BigLaw? Some consultants and commentators seem to think so. A recent report (link to Lexis) cites various “experts” opining that the combination “mark[s] a new age of megafirms that may leave the legal industry with only firms that are tiny or enormous.” I think that’s (to put it charitably) doubtful, the vision of naturalists who see a whale and predict that everything in the sea will eventually either become just like it or never outgrow a minnow.
There are at least three reasons to doubt Dacheng Dentons as a Template for Everything. The first one is that there’s a lot to consider about how the combination is going to turn out. Dentons is a recognizable type in Global BigLaw—as described above, a US-UK combination of high-end international firms whose business model is centered on charging premium rates for complex, multijurisdictional work this class of firms claims is best performed by a single organization with integrated local and international expertise in many places at once. Dacheng is reportedly something very different, a huge but decentralized network of domestic lawyers that has grown by what one student of China’s legal markets (link to Lexis) calls a “franchise” approach—“Dacheng goes to a province, looks for a local firm, negotiates with them, and then tells them ‘You can use our name.’”
It is hardly an original observation that the success of a law-firm combination depends on full and effective integration of the constituents' cultures, networks, and economics. Otherwise all you get is something that is a lot bigger with a lot more overhead and no profitable synergies—something consultants who have not recovered from business school call a lose-lose. It is also commonplace to observe that differing structures and cultures challenge productive integration. Dacheng’s “franchise” structure is radically different from, and not easily reconciled with, Dentons' aspirations to be a well-oiled, fully integrated international juggernaut. Who’s in charge, and how do you draw these thousands of loosely affiliated lawyers scattered across an enormous country into something much more coordinated than they may be accustomed to?
The economics of the two models are drastically different as well. Dacheng reportedly generates revenue per lawyer of $78,000 among its 4,000 or so Chinese lawyers—less than one-tenth the revenue per lawyer at Dentons and firms like it. Do these practices fit together at all? Remember that Dentons already has traditional foreign-firm offices in China, with partners making traditional seven-figure foreign-partner incomes, and associates paid traditional six-figure US-UK salaries. The New York Times reports Dentons Chair Joseph Andrews as saying that “the new venture would be more integrated than most, with a unified compensation system across its network of partnerships.” How are all these people and their practices going to fit together when they are housed in the same offices under the same management? Which clients get charged according to which constituent’s rate structure?
Aside from these questions about whether and how the combination will work, the second reason to doubt the coming primacy of this law-practice model is how competitive the model will actually prove to be. Very big firms of this kind are predicated on the theory that a firm with established presence and expertise in a great many places will do a demonstrably superior job at serving global business concerns and handling complex multijurisdictional transactions, and that clients with this need will recognize the quality and efficiency of these services and gladly pay for them. And that theory may prove out. But it may not. One thing we know for sure is that maintaining many offices in many places (Dacheng Dentons will reportedly have 120 offices in 50 nations), and building out the technological and management infrastructure necessary to coordinate meaningfully among them, is enormously expensive. Less gargantuan international firms with an ability to find skilled lawyers in places where they are not themselves present to meet occasional need suffer far less of these diseconomies of scale. And early reports of the performance of some of these agglomerations of acquaintances on the Dacheng Dentons model suggest that you don’t always get the best lawyer for every purpose in every market at a single firm, leading to uneven quality in the large international engagements that are precisely the ones in which consistently high quality through one-stop shopping is the signal selling point the huge firms claim to offer. (For a characteristically thoughtful and vivid exposition of these points, see this essay by Mark Hermann.)
Third and finally, even if the combination works perfectly, and even if it proves to be a winner in the market for legal services, there is no rational reason why the market would force every law firm of any size to be either a Dacheng Dentons leviathan or a mom-and-pop minnow, as some “experts” seem eager to predict. Law firms serve their clients. Successful law firms know their clients and what those clients need in services and pricing. No law firm, or at least no law firm I know of, considers itself all things for all people. So unless you believe that every business in the world will eventually prove to be either a globe-bestriding colossus like Coca-Cola or Exxon-Mobil, or a corner bodega or hairdresser, you recognize that there is likely to be a very wide range of business sizes and geographical footprints for as far into the future as any of us could possibly see. In fact, one of the most important developments in the legal services market over the last several years is the demonstrable trend among larger businesses with high-end needs traditionally served by the biggest and highest-priced firms to move significant amounts of premium-priced, complex work to less-large and less-sprawling firms willing and able to charge 10% to 30% less to do it. In short, firms with different skill and service profiles at different price-points are going to prove more competitive in many sectors of a diversified 21st-Century economy, both here and abroad, than any one model would prove across all. And that’s particularly true for the super-premium-priced, super-high-overhead Dacheng Dentons model that is rationally constructed for a particular, relatively limited, category of legal work.
So will Dacheng Dentons be a force to be reckoned with in the growing market for international legal services? Maybe. Is this the end of the world as we know it? Nah.