GaWC Annual Lecture 2003

Summary of "The Globalization of Law" by Peter Charlton (Clifford Chance)

power point presentation

"[Globalization] is not about scale, it's about having the right network"

The 5th GaWC annual lecture provided an opportunity to take an alternative perspective to that provided in previous lectures, with a practitioner being invited for the first time to give his perspective on globalization. Peter Charlton, the London Managing Partner for Clifford Chance, a global law firm with an extensive office network, gave his perspective on the globalization of law, the nature of the process and the implications for this producer service sector. In doing so, he provided a working example of many of the theories and concepts so regularly cited in academic research and thus provided a refreshing alternative to traditional academic theorising.

ABOUT LAW FIRMS

The lecture began with an outline of the ‘unique’ nature of law firms and their organisational structure. It was highlighted that ‘human capital’ is the key resource of such firms and that this provides the limiting and defining factor in any globalization strategy. Indeed, the Partner structure of law firms means that each office needs a highly experienced, globally aware employee to be present, but also locally skilled lawyers qualified to operate within the national jurisdiction in which the office is located. It was thus proposed that we view the globalization of law as resulting in a set of ‘networked localised businesses’ which forms a network of knowledge resources in each location. With the diverse range of services provided by many globalized law firms (which includes legal service related to finance, capital markets, litigation, dispute resolution and real estate to name the key components) as well as their role in serving a diverse array of institutions (from investment banks, to global manufacturing corporations) having this human capital located throughout the world is thus vital. In order to highlight the importance of this structure, an example transaction was then provided which could be seen as typical of the work of any office within a globalized legal network. It was highlighted that often several different corporations may be involved, resulting in contracts agreed in several different national legal jurisdictions. As negotiations proceed (in this case to prevent a firm becoming insolvent through the negotiation of capital injection and partial sell-off), the global network of the law firm becomes vital in order to provide the expertise and knowledge to complete the negotiations and ensure all documents are legally binding in the nation to which they are relevant. In using information communication technologies, this has become increasingly simple in recent years as the telex was replaced by the fax and now the internet provides global integration of offices and thus global service provision by such firms.

Not all firms of course follow such a strategy. Some become specialised in certain fields (such as litigation) whilst others simply provide a generalist service in one market, such as London. Those that do chose to globalize, were suggested to fall into one of two categories. Some firms aim for scale, being large organisations which provide full service integration to their clients without being specialists of any nature. These could be said to be the ‘legal conglomerates’ in the global field. Alternatively, the ‘shapers’ are those firms which aim to specialise at providing a globally integrated service, something more unique than simply providing an office in every key location. This is the most profitable sector in which a fully integrated service is provided, and as the speaker noted towards the end of the lecture, "it's not about scale it's about having the right network".

EXPLAINING THE GEOGRAPHIES OF LAW

It was made clear that the patterns of globalization in law firms we witness today are the result of historical economic processes which have influenced the development of the legal profession and helped produce the geographies we witness. Four out of five global law firms are UK based and this can partly be explained by Britain’s historical position in the world economy. The period 1860-1900 represented the apex of British power, and during this time the use of English law for international trade and contractual relations was established, whilst London became the prime financial centre. At the same time the seeds for change were being sown within this period, with the unification of Germany, and the conclusion of the American Civil War. Their nationalism and industrialisation posed a threat to the dominance of the British Empire, with the US finally emerging as the leading power after the first and second world wars which devastated Europe. The post-war period thus saw the consolidation of US power and the increasing importance of US global capital markets, at the same time as the reconstruction of Europe, the creation of the European Union and the rise of Japan as an economic power. Until this period, law films remained nationally orientated. However, at this time we began to witness the globalisation of law and it has been principally the UK firms which have led this globalisation despite the dominant position of the US economy and the subsequent increased importance of US law. This is due to a number of factors, representing both wider processes in the economy and the individual strategies of law firms. UK law firms benefited from expertise developed from the privatisation and de-regulation of national industries during the Thatcher years. London continued to be an important financial centre due to its position between the time zones of New York and Tokyo and UK firms were also in a position to take advantage of the dominance of Anglo-Saxon transaction techniques. However, as will be illustrated by the example of the development of Clifford Chance, the continuing authority of UK firms in terms of global operations has resulted from their employment of a different strategy from those of similarly highly profitable US firms, who have tended to remain concentrated on specialist markets in New York.

AN EXEMPLAR FIRM - THE DEVELOPMENT OF CLIFFORD CHANCE

Clifford Chance was formed in 1987 through a merger between two London based law firms, Coward Chance and Clifford Turner, bringing together expertise on financial markets and mergers and acquisitions (M&A) respectively. As separate firms the development of operations outside of London had been largely small scale and opportunistic, based on the needs of established client/partner transactions. However by 1989 the merger created the impetus and ambition to develop the target of becoming the leading European law firm, based on a perceived need by the partners to differentiate Clifford Chance from rival firms and their willingness to invest in expanded operations. By 1999 the strategy had progressed to a focus on the development of globalised operations, and subsequently the creation of a network of offices in continental Europe was followed by the establishment of offices in New York and in the Middle and Far East. In 2000 the decision was made to consolidate the position of Clifford Chance as the leading globalised law firm with the formation of a broad base of operations in both Germany and the US, and a merger followed with the firms Pünder in Germany and Rogers and Wells in the United States. Note this means being a global leader in integrated law service, not the largest law firm. Again, network not scale is key.

It was highlighted that the initial opening of a new office in this network is usually overseen by London personnel, subsequently however the aim is to take advantage of local knowledge, with the firm’s operations resting on the use of localised expertise within a global network. As highlighted previously, this is because law remains based on judicial-territories, thus re-emphasising that it is law firms rather than law which globalises. It is also important to remember that this network of offices is not fixed, with Clifford Chance also closing as well as establishing offices, ending for instance ventures into Ho Chi Minh City and Hanoi in Vietnam as business which had led to their inception failed to materialise: globalisation is a dynamic process. Current economic uncertainty caused by the slow-down of the world economy may cause a strategy of consolidation, although forces of globalisation will continue in potentially revised forms. The next ten decades may thus see the globalisation of specialist US firms despite their comfortable markets in the US.

An opportunity was then provided for the audience to ask questions of the speaker which raised some interesting issues and equally interesting responses. The questions asked were as follows.

How might China’s entry to the World Trade Organisation affect your global strategy?

Clifford Chance does have a base in China, and the countries position in attracting significant inward investment could create the potential for work. However it is a difficult environment to make money in and there are still question marks as to how it will develop, especially considering how the Tiger Economies fizzled out.

How much mobility of personnel is there within your network of offices?

There is less mobility in Law than in other professional services, clients normally go to the firm’s location or to a particular lawyer. For example two global businesses wishing to engage in a transaction may choose to conduct it in London due to its expertise in law. The exception is infrastructure projects, where personnel move to the location of the project, however this does not involve many people. The image projected ten years ago of the ‘travelling lawyer’ taking their laptop to the client hasn’t materialised.

Can you explain why Anglo-Saxon transaction techniques have continued to dominant law, so that the Japanese expansion in international banking for instance has not been met by a similar globalisation in Japanese law firms ?

This again can be partly explained by the history of the UK’s position within the world-economy, and its exportation of English Law. English common law also allows a large degree of flexibility in contractual arrangements, as compared for instance to that in continental Europe where it’s format is more regulated. The dominance of the English language and the lack of easy transferability of Japanese law also helps, whilst its position economically isn’t dominant .

Given the globalisation of law in response to the needs of trans-national business and international legal agreements on trade are business interests dictating the nature of legal practices?

The dominant economy does influence the use of law internationally, however law is still domestically driven. The spread of certain types of law is thus a function of the economic position of its country of origin and the willingness of the rest of the world to accept its use.

How haves the events of September the 11^th affected Clifford Chance in terms of its location strategies?

Clifford Chance’s New York office is located at the top of the Pan Am building in the centre of Manhattan. Employers working there could see the events of September 11^th taking place. This traumatic experience consequently led to worries that the premiere building in which they were themselves located could also be a target for latter attacks. However this feeling has lessened in time and increased security measures, which London has had to employ for some time due to the IRA threat. There won’t be a move of location outside of Manhattan since it is the top financial centre and the ‘place to be’ for both businesses and the professional services which support them.

To what extent does the establishment of international law firms in different locations provide the mechanisms for globalisation to occur, or to what extent do they simply follow other businesses into new locations?

It is a bit of both. The process is mostly client driven, and locations are often chosen for having some degree of sophistication and infrastructure, ie. they already function as a major business centre, it is not usual for a law firm to be a trail-blazer.

CONCLUSION: A NETWORKED GEOGRAPHY OF LAW

The lecture highlighted in no uncertain terms the importance of global networks in driving globalisation strategy in such firms. The speaker was keen to emphasis the territorialized nature of law and hence the need to connect such places through the corporate network as part of the integrated globalisation strategy many law firms pursue. The process is relatively immature compared to many producer services, but already we clearly witness a geography of globalisation reflecting the world city network. This will remain dynamic over the forthcoming years as economic process remain in flux thus effecting strategy. What we are certain to see however is the continuation of an office network spanning the globe, and increasingly penetrating the emerging economies. Clearly the practitioners view of globalisation is tangential to that of the academics, something useful to reflect upon in a time where academic relevance to the ‘real world’ is regularly questioned.

- Clare Blake and James Faulconbridge