Dacheng Dentons Is A Big Deal, But Is It A Big Deal?

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 21^st-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. 

Bernie

Comments

[Mark Levin]

I don't claim grand expertise, but expect that this will smaller than the apocalypse but bigger than a bread basket. Which is to say that people who think about these things should be thinking about this merger. And I'm sure at least some of them are. One can certainly imagine active discussions going on among the top levels of Big Law law firms in the past week.

So where is that middle ground?

First, any law firm with 6,000+ lawyers, even if there will be only one, will shape the market in some regards. Business will go there that would have gone elsewhere. And for businesses that are inside and out of China, DD will have to be on their candidate list. I would think especially foreign businesses looking to expand widely in China, assuming there that there will be continuing market opportunities growing in China outside of the largest cities, would find value in the in-country network of lawyers they'd have access to.

Second, I agree that "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". But if we go beyond the binary in that remark, it wouldn't take all that much for there to be a handful of firms that look more like DD within 3-5 years, even if not everybody goes in that direction. Let's call them DD, EE, and FF, or the DEF firms. In that case, the DEF firms would surely "be a force to be reckoned with in the growing market for international legal services."

Finally, if we're doing our job right in getting our students ready for global law work, any firm(s) with 6,000+ lawyers will be hiring some graduates from U.S. law schools. And so as we all watch the job market for our grads and shape our programs accordingly, this phenomenon on a 3-5 year track should be important too.

In that regard, what's just as interesting to me is wondering how many Faculty Lounge readers have been following and thinking about the DD merger news. Professor Burk seems to assume it widely gained attention among this crowd, but without meaning to cast aspersions, that's where my skepticism might be stronger. As one who is very much involved with international, transnational, and comparative law, especially vis-a-vis Asia, I worry that we (the bulk of law profs in the US) are parochial about US legal education at our peril.

IMHO, it's a good thing if Faculty Lounge readers have been watching and thinking about this news. And so thanks too to Prof. Burk for bringing it up.

Aloha from HNL,

Mark Levin
Wm. S. Richardson School of Law
The University of Hawai'i at Manoa

[anon]

"Finally, if we're doing our job right in getting our students ready for global law work, any firm(s) with 6,000+ lawyers will be hiring some graduates from U.S. law schools."

Not sure to whom the "we" refers. If it refers to law faculty in general, I would say this is a very good example of the problem, not the solution, to the thinking in legal academia.

Bernie almost touched on a possible start at a solution:

"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."

Yes, indeed. ANd, if more folks in legal academia began strategizing about filling those needs (mainly, by abandoning the "law school as mini university where JDs (and some Ph.Ds. pretend to study everything" model) things might turn around in enrollments.

[Bernie Burk]

Mark and anon, With all respect, I disagree with both of you on the one point you both address. Mark, the entry-level law-job market will not be meaningfully affected by the creation of one, or several, international vereins on a Dacheng Dentons model. About 4,000 of the merged firm's 6,600 lawyers are Chinese born and educated. That's not going to change. The rest were already part of Dentons, and many lived and practiced outside the United States without US law degrees; all told, Dentons had about three dozen internationally-oriented lawyers resident in China before the merger. Whatever benefits this combination may bring to East-West commerce or to the global legal profession generally, its effect on the number of entry-level jobs available to graduates of U.S. law schools will be negligible.

Anon, while I don't want to deprive you of the joy you apparently derive from celebrating the shortcomings of American legal education, and I fully agree with you that the American legal academy has for generations done a lackluster job of preparing students for practice, these deficiencies have almost nothing to do with the current job shortage. Pervasive and inspired skills training from practice-literate faculty would not expand the entry-level job market. No one is missing out on jobs in BigLaw, domestically or otherwise, by being less than practice-ready.

Bernie

[anon]

Bernie

why is it that so many think the best way to start a rebuttal is to make some unfounded remark about the perceived malicious motives of someone else? This sort of mind set causes you to stray so far from my point that your rebuttal is risible (there actually was no need for you to rebut anything, as I was actually suggesting that you were on the right track - I don't think you even read the comment).

For example, you rebut: "No one is missing out on jobs in BigLaw, domestically or otherwise, by being less than practice-ready." Wow. Either you are particularly blinded by your reactionary, hair trigger stance, or, as stated above, you simply didn't read the comment.

[Mark Levin]

I'm less distressed by Bernie's rebuttal.

That this is at best about only very modest numbers in immediate postgraduate jobs for US law students is a valid point. Some schools (such as mine) may have more students targeted in the Asia-Pacific direction, but even so, Dacheng Dentons won’t be immediately absorbing the bulk of our graduating class either. That said, down the road, firms such as this may be a career destination for US alums a few years out from law school at home and abroad.

As to my other notes — I still think the DD branding concept (as some are calling it) will be bigger-than-a-breadbasket for those working in international business law and is worth our attention. And I still believe US law schools should be doing more to have their students be more cognizant of what exists outside the U.S. in law and law practice. I'm not sure if that's inside or out of Anon's mini university concerns, but this should be as essential as US high schoolers needing to know of the metric system.

Mark

[Bernie Burk]

Mark, Thanks for elaborating. I certainly agree that Dacheng Dentons won't be the only law firm of its kind--it already isn't. Baker & McKenzie, DLA Piper, Mallesons King & Wood, and Hogan Lovells are similar in various ways; there are and in the future will be others. Dacheng Dentons is a novel play for position in what many are betting will eventually be the biggest market in the world; time will tell whether it was the best move and whether it was well played after if it was made.

I also agree that a Pacific-Rim-facing school like Hawaii is well-positioned to capitalize on whatever job market benefits the combination (and others like it) eventually produces. I remain of the view that these benefits will be negligible, but I hope I'm wrong and you're right.

As for anon, he or she seems to think that I misunderstood him or her, and seems a bit put out about it. I view this forum as an important means of improving and disseminating thought on the topics the posts address, and would never want a Comment misunderstood. So let me ask anon to try again and explain what he or she meant by "if more folks in legal academia began strategizing about filling those needs (mainly, by abandoning the "law school as mini university where JDs (and some Ph.Ds. pretend to study everything" model) [sic] things might turn around in enrollments." Any attempt to link the Comment to the subject of my post, which was about the largest law-firm merger in history, would also be welcome.

Bernie

[anon]

Bernie

I'm not sure if your entire comment immediately above is facetious. It certainly is condescending. But, I'll take the bait.

You attacked this comment as indicative of the "joy ... derive[d] from celebrating the shortcomings of American legal education." Here is the comment:

"Bernie almost touched on a possible start at a solution [quoting from your post]:

'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.'"

In AGREEING (here is where your reaction was either the product of not reading the comment or a vehement bent on insulting and demeaning any hint of law academy criticism, as you clearly are not stupid), I simply noted that the law school academy would do well to remold and reshape its focus (from impractical pursuits) to better serve and to promote better employment outcomes for its graduates, and an improved justice system that provides better services to the society at large.

I suggested that that one way to do this would be to be cognizant of your point (albeit incompletely and vaguely stated, but, at least its a start).

Yes, Bernie, "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." There is a world of opportunity out there, Bernie. Just not in BigLaw for almost everyone who attends law school, and certainly not in these firms about which you posted.

I therefore also reacted to the implication of Mark's comment that "we" should be dwelling on "doing our job right in getting our students ready for global law work." Please. As you rightly noted, the employment implications for employment in international law are negligible. I have no objection to tiny programs at select schools doing this "job right": beyond that, for the run of the mill law school to adopt such pretensions seems to me silly and a bit arrogant. (There now, true "joy" in writing this ...)

BTW, the Dacheng model ("Dacheng is reportedly something very different, a huge but decentralized network of domestic lawyers") presents some interesting potential applications in our country. Too bad legal academia is so preoccupied with BigLaw. Even at schools that can't place many grads there, there is still the pretense that they could and should and might. Strategizing about the market for legal services in the United States for the vast majority of law school graduates and in their milieu would be a far more appropriate target of attention in my view.

Finally, and of course, I have no objection to a post about a huge firm getting more huge and a merger with a major firm in Asia. Very interesting stuff, Bernie. And the ulimate point of your post - " Is this the end of the world as we know it? Nah." - was exceptionally insightful, and in keeping with the observation that for the vast majority of law students and graduates, this sort of activity has no relevance, and therefore, should not be the subject of disproportionate attention in legal academia.

[Bernie Burk]

anon, Thank you for attempting to clarify your earlier Comment. I'm going to make two points here, one about substance and one about tone.

Substantively, you initially complained (in very strong terms--"you . . . stray so far from my point that your rebuttal is risible") that I had obviously misunderstood your original Comment. I specifically asked you to explain how I had misunderstood this: "if more folks in legal academia began strategizing about filling those needs (mainly, by abandoning the "law school as mini university where JDs (and some Ph.Ds. pretend to study everything" model) [sic] things might turn around in enrollments." As far as I can tell, the closest thing to an answer in your response is this: "I simply noted that the law school academy would do well to remold and reshape its focus (from impractical pursuits) to better serve and to promote better employment outcomes for its graduates. . . ."

What your explanation shows is that I actually understood your position quite clearly; I simply expressed my view that it is demonstrably wrong. My response to your original Comment (before your explanation): "Pervasive and inspired skills training from practice-literate faculty would not expand the entry-level job market." Your argument in both Comments is that the legal academy's ill-considered "focus" on "impractical pursuits" is responsible for its graduates' poor employment outcomes in recent years. Without defending the academy's curricular choices (which I fully agree leave much to be desired), there is NO empirical evidence that they have anything to do with the collapse of the job market since 2007, or that changes in one would affect the other. None. In fact, a post on Faculty Lounge today notes the new study by Jason Yackee at the University of Wisconsin concluding (and I quote the Abstract): "there is no statistical relationship between law school opportunities for skills training and JD employment outcomes." Simply put, the principal problem is not that law schools are failing to prepare students for available law jobs, but that there are way more new graduates than law jobs these days.

Now I'm going to talk a little about tone. I get that this is the Internet, and that a lot of people check their manners on our home page. But you complained, in vituperative terms, that I had obviously misunderstood a comment of yours that in fact I had responded to quite directly on its own terms. When I asked you to explain how I had misunderstood the substance of your comment, you offered 600 words characterizing the tone of my response, calling it (among other things) "condescending," "insulting," and "demeaning," while sideswiping Mark Levin's attempt to contribute to the dialogue as "silly" and "arrogant."

Maybe you're right about Prof. Levin and me; I'll leave it to the readers of this space to decide. But take a look at the statement I asked you about, anon--the one you spent most of your 600 words insulting others rather than explaining: "if more folks in legal academia began strategizing about filling those needs (mainly, by abandoning the "law school as mini university where JDs (and some Ph.Ds. pretend to study everything" model) [sic] things might turn around in enrollments." This, by the way, in comment on a post regarding a law-firm merger that had nothing to to with the legal academy.

If you think this is a constructive contribution to the dialogue on this site, you're mistaken. What's more, regular readers of this space will realize that this is exactly what you say, over and over, in response to every post you comment on. Regardless of the subject matter to which you respond, it's always some vituperative variation on two themes: Those ivory tower pointyheads are a bunch of morons, and I (anon) am smarter than all of you. I'm going to concede both points right now so you don't have to bother anymore.

My interest in posting on this site is to share my thoughts on topics that I consider interesting and important, and benefit from the wisdom of the many thoughtful and well-intentioned readers who share this space. Maybe I'm failing in both endeavors. But one thing I know for sure is that you're not helping. I can't stop you from continuing, but if you think that people who read this space don't understand what you're doing and what it says about you, you're sadly misinformed. I invite you to participate in a civil and thoughtful discourse on the subjects presented here. I can't make you participate that way; you have a constitutional right to be an asshole. I just hope you stop exercising it here.

And now I'm going to let you have the last word. I'm not going to answer whatever response you post here. Call me all the names you like; prove to all of us how much cleverer you are. If you're really as smart as you seem to think, you'll stop, either because I've now proved I'm a hopeless loser who can't be redeemed by your brilliance, or because maybe there's a different and better way to interact here at the Lounge. I won't draw any inferences either way if there's silence. I invite our readers to draw any inferences they deem appropriate if there's not.

Bernie

[anon]

Bernie

Wow. I dare say there may be a bit of projection here. I also invite you to consider the sort of tone and "dialogue" in which you have engaged above.

On the merits, in sum, it seems that you observations about the market for legal services, even in China, were not meant to support your overall thesis that the merger of mega firms need not, and should not, be considered a "big deal" in the context of the overall market for legal services. I agreed, quoted from your post, and expressed my view that if only the law academy would redirect its focus to the markets for legal services that matter to most, the downturn in interest in law schools might turnaround.

Whether legal academia can affect the market for its graduates' services is a longstanding debate. You are right: I can't agree that the downturn in employment outcomes is solely attributable to " the collapse of the job market since 2007." I don't think many would so agree, but that is a guess.

You argue that is the only point I have to make. Ok. Fair enough. You are demonstrably mistaken, but that is for another day. More importantly, I certainly can't agree, and certainly don't agree with your assessment of interest here in the FL about how various observations about the market for legal services should be filtered thru the lens of legal academia.

Based on the volume of comments here in the FL, it seems irrefutable that there is a great deal of interest in law school reform to better serve the needs of students and society at large. You would probably say that your post had nothing to do with this subject of focus in legal education, but the first comment demonstrated the impression your post left (perhaps you would say, misimpression).

Mark commented: "Finally, if we're doing our job right in getting our students ready for global law work, any firm(s) with 6,000+ lawyers will be hiring some graduates from U.S. law schools. And so as we all watch the job market for our grads and shape our programs accordingly, this phenomenon on a 3-5 year track should be important too."

You say it was unfair to comment on this comment by referring to the market for legal services, and the efforts in legal academia to prepare graduates to join it. Fair enough. But, please don't spin my comment as disallowing ANY effort to comport with Mark's vision. I argued that such programs should exist but that any disproportionate emphasis on such a narrow sliver of the market would be, for the run of the mill law school, in a word, pretentious. I stand by that. 100%.

And, let's not confuse the failure of existing law school programs to affect their graduates ability to participate in the market for legal services and the failure of the legal academy to find a way to do that. Again, you are arguing a point worth arguing about: I just don't agree with your stance.

Finally, you have advocated at length, but not persuasively, that you bear no responsibility for the tone of your own comments. So be it. I find arguments about arguments sort of boring. Suffice it say that above you invited a better form of discourse, right after you referred to me as "an a**hole." Thanks for sharing.

[anon]

"In fact, a post on Faculty Lounge today notes the new study by Jason Yackee at the University of Wisconsin concluding (and I quote the Abstract)"

You might benefit from reading the comments.