GaWC Research Bulletin 274

This Research Bulletin has been published in Economic Geography, 84 (2), (2008), 185-210.

Please refer to the published version when quoting the paper.

(Z)

Managing the Transnational Law Firm: A Relational Analysis of Professional Systems, Embedded Actors and Time-Space Sensitive Governance

J.R. Faulconbridge^*

Abstract

This paper argues that the relational approach can be particularly effective for addressing head-on debates about the varieties of capitalism and the dynamics of institutional contexts. Using the case study of transnational law firms and data gathered through interviews with partners in London and New York the paper makes two arguments. First, the paper suggests that the relational approach’s focus upon the behaviour of key agents when new or different work practices are encountered helps better explain the management of institutional heterogeneity by TNCs. Such an approach is used to reveal the peculiarities of professionals and professional service management and how this affects the response of globalizing law firms when home- and host-country business practices diverge. Secondly, the paper shows how relational approaches can help disaggregate existing descriptions of national institutional systems to reveal the importance of studying their constitutive practices. Understanding these micro-level variations, something missed by macro-level categories like Anglo-American, is shown to be essential to explain how firms cope with institutional heterogeneity. It is, therefore, argued that better understanding of the effects of TNCs on national business systems can be facilitated by further developing the actor and practice focussed analyses promoted by relational approaches.

Keywords: Relational economic geography; globalization; law firms; professions; national business systems; varieties of capitalism

Introduction

Theoretical discussions of transnational corporations (TNCs) are associated with both the relational turn (Bathelt and Glückler, 2003; Boggs and Rantisi, 2003) and the reinvigoration of the network concept (Amin and Thrift, 1992; Grabher, 2006; Dicken et al., 2001) in economic geography. In this work the relational network-forms that underlie economic activities are not described as static architectures but as ongoing socio-economic accomplishments constructed through the negotiation of, amongst other things, complex and dynamic institutional backdrops (Ettlinger, 2003; Murphy, 2003; Yeung, 2005). Consequently, as Dicken et al., (2001, 91) argue, “This relational methodology…does not automatically assume individuals, firms or nation states as ‘black boxes’. Rather…to understand networks and their embedded relations requires us to probe into the socio-spatial constitution of these individuals, firms and institutions”.

Perhaps one of the most insightful case studies is the ever-growing cohort of transnational law firms that now exist. It is perhaps surprising, then, that beyond a few important initial forays into the industry (Beaverstock et al., 1999; Beaverstock, 2004; Faulconbridge, 2007a, 2007b; Faulconbridge and Muzio, 2007; Jones, 2002, 2005, 2007; Warf, 2001) geographers have not studied the networks of these firms in more detail. In particular, insights into the way globalizing professional service firms are embedded by time-space contingent, national professional institutional systems can be gained from such studies. As Gertler (2001; 2004) has so convincingly shown, we should not expect these law firms to rollout their home-country models worldwide without major challenges. Instead spatially variegated adaptations are likely to be needed to accommodate differences in business practices between home- and host-countries. Better understanding is, therefore, needed of “how differently organized owners, managers, and employees construct and change different kinds of organizational capabilities and strategies in contrasting institutional environments” (Morgan, 2005, 3).

Here I draw on some notable examples (e.g. Bathelt and Gertler, 2006; Yeung, 2001), in particular from work on retail TNCs (Coe and Sook-Lee, 2006; Wrigley et al., 2005), that begin to use the analytical tools of relational economic geography to address head-on questions about national business systems to explore how globalizing law firms manage across institutional heterogeneity. I argue that further developing relational analyses is important for two reasons. First, to enhance understanding of how the strategies of firms for managing institutional difference are influenced by workers and managers who respond in industry- and firm-specific ways to the implementation of home-country practices worldwide. Second, to further reveal the way practice-level variations in institutional norms and behaviours constrain the activities of TNCs, something often ignored in more abstract descriptions of national systems where coherent units (e.g. Anglo-American; coordinated or liberal market) are the focus of analysis (Crouch, 2005)

The rest of the paper develops these arguments over four further sections. The next section places these issues in the context of existing debates in economic geography and further highlights the strength of relational analyses for developing understanding of the way institutional heterogeneity is managed by TNCs. Sections three and four present empirical material that examines the way transnational law firms manage across heterogeneous contexts and the variations in approach that exist across space and time. Section five offers some conclusions.

Embedded actor-networks and the varieties of capitalism

The challenges faced by TNCs when managing across diverse national institutional systems take centre-stage in the varieties of capitalism literatures (Hall and Soskice, 2001; Whitley, 2001). Here much has been said about the self-sustaining nature of institutional systems and it has been suggested that processes of globalization have actually reinforced rather that challenged national diversity as TNCs are forced to adapt to the complexities of host-country systems. However, as Wrigley et al., (2005) reveal using the case study of globalizing retailers, firms deal with institutional heterogeneity in a variety of ways, sometimes rolling-out home-country practices overseas, sometimes adapting home-country practices but also, on occasions, engaging in reverse-feedbacks where host-country practices are reproduced in the home-country. Consequently whilst there is little agreement about the extent to which such processes are leading to change in national systems, the overall effect is said to mean “national constellations should be thought of as continuously evolving manifestations of institutional conditions and economic structures that support and influence one another in a reflexive manner” (Bathelt and Gertler 2005, 2). Two challenges exist if we are to better develop analyses sensitive to the complexities of the way TNCs respond to differences in national business practices and the effects.

First, as Djelic and Sahlin-Andersson (2006) argue, we need to develop more studies that bring in the multitude of actors in TNCs involved in negotiating the management and evolution of national institutional contexts. As Crouch (2005) notes, workers and managers are active players determining the outcome of interactions between the home-country practices of TNCs and host-country norms. Thus focussing in detail upon their behaviours is vital to explain the way institutional difference is managed as outcomes can rarely be predicted in advance. Existing studies often fail to do this. Second, we also need to avoid describing national systems as coherent, static units. As both Becker (2007) and Crouch (2005) argue, this situation exists because the varieties of capitalism approaches, such as that of Hall and Soskice (2001), usually assume all parts of a national system are complementary and can be captured as holistic models using terms such as Anglo-American. This leads to studies of the management of institutional difference focussing upon the macro-scale (system-level) rather than the micro-scale (practice-level). Moreover paradigm-like shifts away from one model (e.g. Germanic) towards another model (e.g. Anglo-American) are sought as evidence of change, even though more subtle forms of instability might be equally significant. Some manage to skirt around these issues in empirical research more effectively than others (e.g. Morgan, 2006) and the approach of relational economic geography is useful for further resolving these problems.

Relational Analyses of Institutional Heterogeneity and Change

One of the tenets of the relational framework is an approach that identifies “actors in networks, their ongoing relations and the structural outcomes of these relations” (Dicken et al., 2001, 91). This provides detailed consideration of how “economic agents are situated in particular contexts of social relations and operate under specific institutional and cultural conditions” (Bathelt, 2006, 226). This inseparability of the economic and the socio-cultural has long been debated, often drawing on the concept of embeddedness (Granovetter, 1985; Peck, 2005; Polanyi, 1944) as most recently demonstrated by Hess’ (2004) three-pronged analysis of the embeddedness of TNCs. At one level this means unpicking the national and international regulatory actors shaping the globalization strategies of firms (Hess and Coe, 2006; Liu and Dicken, 2006). At another level the related cultural and institutional embeddedness of actors in TNCs also has to be examined (Gertler, 2001; 2004). For example, Murphy (2003) provides an insightful and detailed study of the way credit, reputation and information spaces are used by workers in manufacturing industries in Tanzania to facilitate their activities. These spaces can only be maintained when appropriate, culturally informed behaviours are exhibited by workers familiar with local norms. Similar findings have been noted in relation to the way individuals negotiate spaces of learning and knowledge management in TNCs (Faulconbridge, 2006; Uzzi and Lancaster, 2003).

Significantly, such relational analyses all insist on developing “an understanding of the intentions and strategies of economic actors and ensembles of actors and the patterns of how they behave” (Bathelt and Glückler, 2003, 125). This avoids the analytical error of privileging spatially assigned institutional structures as the main influence on the activities of TNCs and recognises the agency of workers and managers and the way their responses to institutional influences also affect firms’ strategies. For example, the systems of management used by firms, and the power relations these produce between workers and mangers, determine the extent to which top-down, hierarchical implementation of home-country norms is possible. So for Yeung this approach means studying relational geometries that “are neither actors (e.g. individuals and firms) nor structures (e.g. class, patriarchy and the state), but configurations of relations between and among them” (Yeung, 2005, 38).

The relational approach also allows us to more effectively explore the fine-grained detail of how difference is managed. The focus upon actor-networks in relational analyses has spawned what might be called a ‘practice-turn’ in economic geography, with scholars focussing upon the way the practices of workers and managers give TNCs their characteristics (Ettlinger 2003; Faulconbridge 2007b; Jones, 2005, 2007; Palmer and O’Kane, 2007). Using a practice-focussed epistemology helps reveal that the management of institutional difference and the forms of change that result from the activities of TNCs are at the practice-level, not at the level of the coherent systems described under banners such as Anglo-American.

The rest of the paper, therefore, examines the way the governance practices used in transnational law firms are defined as a result of three overlapping influences. First, the unique national varieties of professional, institutional and cultural context that characterize the work practices of lawyers in each country. Second, the desire of managing partners to implement ‘global’ (usually home-country influenced) ideals throughout the firm. And third, the sector-specific socially constructed management processes that determine the ways different actors in the firm exercise control and react to management decisions. This reveals that the approach of law firms is determined not only be the degree of institutional difference between home- and host-countries but also by the willingness of lawyers in host-countries to adapt the new ways of working, something that varies from practice to practice.

Globalization, Institutional Contexts and Varieties of Professional Practice in Transnational Law Firms

The emergence of a cadre of transnational law firms (see table 1) is an ongoing process. The aim of these globalizing organizations, as one firm’s promotion material suggests, is “to collaborate across all our offices and practices to deliver our services to uniformly high standards, in a well rehearsed manner and for a competitive price” (http://www.allenovery.com [accessed 3/5/2006]). However, as Beaverstock et al., (1999) describe, it could be argued that beyond Baker and McKenzie few, if any of the other leading firms (table 1), are truly global¹. Instead, the globalization strategy of these firms involves seeking out important locations from where key corporate clients can be served. Hence the term transnational is often used when referring to these firms to indicate the partiality of globalization processes and the continued influence of place and states over activities. Nevertheless, as figure 1 shows, the number of strategically important locations that leading firms operate in has grown in recent times (compare the locations to those highlighted by Beaverstock et al., 1999). As a result, the managerial challenges associated with creating local-global integration and embedded organizational network forms have become multifaceted. Indeed, as Flood (1995, 175) notes, “Law firms, as organisations, were originally built to function within particular societies with particular mores. Now they transplant themselves across borders where the same principles and mores do note necessarily obtain. Inevitably there are strains”.

Table 1. Key data on leading global law firms.

Source: The Lawyer (2005) and fieldwork.
*: figures based on the combined values for the firms DLA and Piper Rudnick who have now merged.
N/A: data not available

Figure 1. Strategic locations of leading law firm offices.

One of these strains, alongside the fact that law itself remains a nationally fragmented system, is the need for firms to hire lawyers trained and qualified to practice in each of the jurisdictions they operate in. Law, as a formal profession with defined regulatory authorities and closure regimes to restrict entry to those with suitable qualifications (see Abbott, 1988), has a powerful national institutional context. As Trubek et al., (1994, 411) suggest, each national jurisdiction exists as a ‘legal field’. As they describe, “By ‘legal field’ we mean the ensemble of institutions and practices through which law is produced, interpreted, and incorporated into social decision-making”. One key contingency of each field is the peculiarities of the national cultures and work practices of lawyers, what Trubek et al., (1994, 415-416) describe as “The actual behaviours of lawyers and others within a dynamic set of relationships”. This has been described elsewhere as the ‘national system of the professions’ and the ‘varieties of professionalism’ (Dietrich and Robins, 1990; Faulconbridge and Muzio, 2007; Lane et al. 2002; Nelson and Trubek, 1992; Torstendahl and Burrage, 1990) in work which dovetails with that on the varieties of capitalism. This recognises the varying relationships that exist between a number of important actors to give each national ‘field’ its own unique identity and characteristics.

Table 2 details the actors and their relational influence on national professional fields. The outcomes in terms of the peculiarities of each national system have been widely documented (Trubek et al., 1994; Flood, 1995). These include, first, differences in the way legislation informs the structuring of transactions (interpretation in civil law versus scientific application in common law). Second, influence over whether large law firms capable of managing large corporate mergers and restructurings are permitted. This in part determines the ‘norms’ of the working conditions of lawyers – i.e. whether they are used to working in large firms with their related formalities (see Morgan and Quack, 2005). This links to the third effect noted and the focus of the paper, the way institutional systems create nationally specific work practices. This pertains to micro-scale factors such as how lawyers are managed, remunerated, treated at different stages of their career and, more broadly, how lawyers behave in their day-to-day work. Consequently, as Smigel (1965, 266) notes, “the practicing organization (the large law firm) does not have to create its own rules to the extent that they are provided for by the outside agencies”.

It is somewhat surprising, then, that the way transnational law firms deal with this spatially variegated legal practice and ‘culture’ has not been explored in detail. This offer insight into the way firms become embedded by the institutional contexts of the overseas locations they operate in and the role of managers and workers alongside the other actors detailed in table 2 in determining the place-specific nature of the way difference is managed. Here I focus upon two of the five components Hall and Soskice (2001) suggest give a national system is characteristics - employer-employee relations and training and education systems – and consider how law firms deal with international variations in norms².

Table 2. The main actors in the national system of the legal profession.

Source: From Torstendahl and Burrage (1990); Lane et al., (2002)

Managing local-global integration in law firms

Methodology

The following analysis is based upon insights from two sets of data. The main themes of the analysis were explored and initial ideas developed through a series of 29 interviews completed in 2003-2004. This was then supplemented with more focussed discussions with 25 partners working for transnational law firms in London and New York in 2005-2006. It is data gathered from this latter round of interviews that is presented below. These 25 interviews were with partners in 15 different firms. Individuals held positions in several practice groups and had a range of differing career experiences (table 3). Partners (and not more junior lawyers) were selected both because of their role in the negotiation and adaptation of firm practices and because of their positions, in theory at least, as autonomous co-owners of the firm (see below). All interviewees were quizzed about their approach to four main aspects of legal work (conflict of interest management; remuneration practice; practice group divisional strategies; and training practice) as well as the importance and role of autonomy in their work, the type of managerial structures in place in the firm and the strategies used for creating local-global integration. Interviews lasted between 35 and 95 minutes and, with the exception of two, were recorded and fully transcribed. Analysis was completed by coding the interview transcripts and identifying the key themes to emerge from discussions (table 4). All quotations used in the paper have been made anonymous to protect the identity of interviewees.

Table 3. Biographic data relating to interviewees.

Table 4. The three substantive themes and sub-themes that emerged from the coding of interviews.

While it would have been preferable to complete a more extensive set of focussed interviews, this proved impossible and places a number of limitations on the analysis below³. Interviews were only conducted in two cities, London and New York. Most interviewees were, therefore, only able provide insights into on goings within offices located in those cities. The exception was four interviewees who had worked in several offices of the firm. Consequently discussions with lawyers without experience outside of their home city can only be used to examine norms of legal practice in one country and not variations between countries. Also, only when interviews were completed in both London and New York, or when individuals with experience in multiple offices were interviewed, can discussions be entered into about variations in practices between the offices of one firm.

Defining Characteristics

As noted, one of the strengths of relational analyses is their ability to get to grips with the way institutional contexts emerge but also how the differential agency of actors in TNCs determines the way firms manage across heterogeneous contexts. This means it is important to understand how the social systems of management in TNCs enhance or inhibit the influence of different parties and the way this effects the management of institutional heterogeneity. As both Ferner et al., (2006) and Løwendahl (2000) argue, the chosen management strategy of a firm determines the extent to which actors in subsidiaries can negotiate with headquarters about the implementation of (home-country influenced) governance practices. This is especially significant in the case of law firms.

A core feature of a professional occupation such as law is the need for skill, knowledge and judgement to deal with undefined problems in everyday work (Dietrich and Roberts, 1997; Freidson, 2001; Raelin, 1991). Because of this, professionals normally resist being directly supervised or managed and place value on having the freedom to organize and execute their work as they see fit. This facet of the management of professional service firms (PSFs) has long been recognized, the result being, according to Mintzberg (1979) and more recently Alvesson (2002), an ‘adhocracy’ – a style of organization that prioritizes the discretion of individual professionals rather than management control. This contrasts with the accepted norm in most manufacturing firms where direct managerial control and hierarchies – what Mintzberg (1979) calls bureaucracy – are used to coordinate and supervise activities.

Further distinguishing the behaviour of key actors in a unique stratum of PSFs is the use of the partnership model of governance (Empson and Chapman, 2006). In this system those granted partnership become the co-owners and, therefore, joint managers of the firm. All law firms, as with accountants, operate as partnerships because of regulation preventing the commercial structuring and public ownership of such practices⁴. This is said to, first, remove commercial pressures from the delivery of such ‘public safeguard’ services. Partnerships are not responsible to shareholders and do not have to provide ‘shareholder value’ or ‘returns on investment’. Second, partnership creates ‘reputation’ advantages for firms. Because of the intangible nature of professional services and the inability of the client to judge their quality, being governed by partnership and having co-owners as service deliverers is seen as a way of indicating the commitment of all providing the service to high levels of quality (Empson and Chapman, 2006)⁵.

Combined the values of professionalism and the partnership logic mean senior partners or those given the title ‘managing partner’ are not managers as exist in hierarchically structured manufacturing or non-professional serve firms. Lazega (2001) describes how partnerships are, nonetheless, more efficient than they might first appear because of their relational nature. Individuals can only succeed if they strategically negotiate the support of their peers both with work but also in exercising influence over decision-making. The most influential partners are those who have cultivated such relational assets over time and, in particular, those partners who can provide work for others and thus command their respect (see also Lazega and Krackhardt, 2000). Consequently it is often the way these influential partners, who are often given the title of ‘managing’ or ‘senior’ partner’, deal with the resistance from other lawyers to ‘management decisions’ that is key to the successful coordination of firms.

These peculiarities of management affect the way key actors in law firms manage the spatially contingent institutional conditions of professional practice. As Jones (2002) has previously argued, a high degree of consultation is needed in the decision making and ‘management’ process in PSFs. This was reflected in interviews when, again and again, lawyers (particularly those working for English firms) commented upon the fact that rarely was a decision made or ‘strategy’ implemented without consultation with all the partners. It was recognized that anything more than a very small group of unhappy individuals could lead to disaster. Individuals might refuse to implement the decisions made or, alternatively, leave the firm, taking their intellectual capital with them. As one lawyer summarized the situation:

“One of the reasons professionals, and particularly lawyers, become professionals is they are quite defensive and proud of the fact that they have a considerable amount of autonomy. And one of the issues that any management in a law firm has to deal with is the trade of between maintaining lawyers autonomy and…developing a [global] strategy that lawyers can buy into” (2).

As the quotation suggests, lawyers were nonetheless aware of the need for some degree of coordination in large-scale transnational firms. However, even within firms there was disagreement about the extent to which autonomy should be constrained by this. While the English lawyer quoted above described the importance of recognising lawyers’ desire for autonomy, an American colleague in the same firm suggested an alternative strategy. As he put it, “I don’t think there’s anywhere near enough management…the approach we take [respecting partners’ autonomy] makes management clunky and less efficient than it should be (22). Nevertheless, in all of the firms studied the partnership governance mechanism continues to require major management decisions to be authenticated through an all-partner vote. This inevitably requires consultation and consensus building and as the American lawyer quoted above noted:

“if you picked up a management textbook you would read that the critical tools of management include the ability to hire and fire and set the compensation. The tools available to the [firm x] management do not include the ‘hire and fire’ and setting compensation” (22).

Consequently attempts by ‘managers’ within law firms to rollout home country models and negotiate their acceptance in host-countries are always tainted by the professional systems discussed above, something that highlights why an actor-centred analysis of the effects of TNCs on institutional practices is so valuable. In non-professional services such as retail or manufacturing responses are likely to be influenced by different types of relationship between managers and workers leading to the implementation or adaptation of home-country practices in alternative ways. This suggests that responses to institutional difference are always likely to be contingent, firm and place specific, rather than predictable and understandable through analyses of degrees of difference between home- and host-country systems. Below I consider how the peculiarities of professional values influence the strategies of law firms and the way firms deal with variations in four work-practices. I do this using a practice-level analysis of institutional conditions.

Structuring transnationally and locally embedded practice

Table 5 provides analysis of the way institutional agents and legacies affect the work culture of lawyers in relation to conflict of interest management, remuneration practice, divisional strategies and training practice. Because of the distinctive nature of approaches in each jurisdiction that are determined by various influential actors (table 2), and the autonomous preferences of lawyers that require ‘management’ techniques sensitive to their expectations and values, law firms are forced to adopt highly flexible governance strategies. The rest of section, therefore, draws on the typology of Bartlett and Ghoshal (1998) as a heuristic for identifying the four ‘ideal-type’ approaches available to transnational law firms for overcoming these challenges. In this typology four approaches are described:

• Global – where headquarters (HQs) create strategies and ‘best practice’ all subsidiaries implement;
  International – where HQs defines strategy that each subsidiary implements using their own forms of practice;
• International – where HQs defines strategy that each subsidiary implements using their own forms of practice;
• Multinational – where each subsidiary defines its own strategies and practice;
• Transnational – where vertical (between HQs and subsidiaries) and horizontally (subsidiary-subsidiary) consultation leads to firm-wide negotiated and agreed strategies and ‘best practice’.

Table 5. Professional institutions and their effects on four governance issues in law firms.

The empirical material revealed that firms do not use one of these ‘ideal type’ models. Instead complex relational geometries produce inconsistent responses to the roll out of home-country systems, both between countries but also within different elements of one national system. This means combinations of the four models are adopted differently in each country. Examples of how English-originating transnational law firms in which multiple interviews were completed have experienced this challenge are examined below whilst table 6 provides examples of the way US-originating firms use the different approaches.

Global Coordination

Globally uniform policies are used when professional logics in relation to the issues being managed are influenced in a limited way by forms of ‘local’ or ‘societal’ embeddedness (Hess, 2004) and partners in overseas offices are willing to adopt global, home-country practices. An important example of this is the worldwide control by management committees of conflict of interest standards. This existed in all of the firms studied because of the forms of transnational best practice described in table 5 and because of the recognition of lawyers in all offices that using a global model was the most appropriate way to run the firm. Despite variations in the technicalities of a conflict, corporate lawyers worldwide tend to accept and use US or UK standards. As one lawyer argued commented in relation to the production of client contracts and the management of conflicts “we do have resolutions at the global level and we have an in house lawyer who does all that, our engagements letters and how we check conflicts, and we can’t deviate from that” (1). Another noted how this was important and seemed to be agreed upon by lawyers throughout the world because:

“we have structures to avoid conflicts …We’re a transaction driven firm and you don’t want a situation where you could have had a primary role on a deal but because someone had done something small in the past you’re going to get dinged.” (9)

Table 6 provides examples of when global coordination is used by US firms as well as examples of their use of the international and multinational approaches discussed below. In all cases it is the agreement of partners to use a global model, as well as convergences in norms, that makes firm-wide policies possible.

Table 6. Further examples of coordination strategies used to manage US law firms.

International Coordination

International coordination is used in transnational law firms when, first, degrees of firm-wide coherence are needed but when global approaches threaten to excessively impede the autonomy of individuals and responses to global models are hostile; second, when global coordination would create ‘culture’ clashes due to moderate degrees of variation in the approaches to and ‘norms’ of legal practice. Such ‘moderate’ degrees of variation usually exist when the basic principles and values of the profession have always been or have become similar in two countries.

One example of the way these two factors necessitate international coordination is the way several English firms manage the structuring of practice groups in the USA (New York specifically). Transnational firms ideally need the same types of legal practice to be developed in every office so global projects can be managed through cross-border teams. For example, if a TNC is merging with a rival and anti-trust advice is needed relating to multiple jurisdictions it is essential that lawyers with expertise in this issue exist in each office. However, one interviewee that had experience of working in multiple offices of an English firm described the ‘international’ approach used to deal with differences in the norms of practice group use and structuring in the USA as follows:

“It’s a bit like Vogue magazine. The magazine is published in 31 countries and each one has some common elements but at the same time all the countries are able to develop their own unique features to reflect local markets and expectations…A good example is how the M&A, finance and securities practices are organized in the firm. In the UK, each one is very separate, despite often working together. So there are clear teams for each. Here in the US they are much more blended together, so we’ve kind of merged the three and even located them together in the office” (16).

In this scenario the New York office, and individuals within it, had the freedom to develop practice groups as they see fit as long as the core group of services are provided. An international approach is suitable because of the degrees of convergence that exist - practice groups are common in both jurisdictions and expected by lawyers - alongside differences in the implementation of the practice group logic – different configurations of groups of workers who support one-another in diverse ways. Failing to recognise such variables can be detrimental to the success of an overseas office as lawyers’ value being able to control the structure of the practice groups they are part of and are unlikely to fully support the implementation of approaches they dislike. As one interviewee in New York working for a different English law firm that hadn’t recognised the important variations in how practice groups are organised commented in relation to a recent decision to disband the group that provided advice on how to manage, amongst other things, charitable giving and asset transfers in non-public organizations: “The decision was made not to have a trust and estates practice even though it’s normal and unfortunately that can help in my work in New York. And that’s one of those things where economically it was a wise decision not to have it, but certainly it would be preferential for me and it’s made me uncomfortable with things” (19).

This shows the danger of using global structures in situations where partners disagree with the practices being implemented. Variations in practice group implementation are not influenced by regulatory issues but the need to avoid the type of upset described above and the potentially negative effects on the performance of the firm when lawyers react against decisions they find uncomfortable through either exit (leaving the firm) or voice (openly challenge management decisions) means international coordination has a more important role in law firms than might be expected.

Multinational Coordination

When the institutional legacies affecting professional values create fundamental spatial variations in practice with little cross-jurisdiction commonality, and when these values have strong and powerful legacies that continue to influence lawyers each office is left to define and implement its own ‘national’ organizational strategies. At one level this is necessary because of the nationally-specific nature of law. This is the regulatory embeddedness many firms experience. In addition, variations in the cultural norms of workers are also significant. For example, differing national cultures influencing the way newly recruited lawyers are treated and trained require the use of multinational strategies. Differences between the practices used in England, the USA (New York) and Germany and responses of lawyers to attempts to implement home-country norms where regulation permits exemplify why multinational coordination is so important.

In England it is widely accepted that having a dedicated cadre of ‘professional support lawyers’ is essential. These are not paralegals as in the US sense and do not engage in any fee-earning work. Rather, this is a group of support staff that, amongst other things, provide training for interns⁶. Trainees in England also usually sit in the same office as a partner. These norms are a result of the way lawyers’ training is regulated in England. Here law graduates must complete a two year training contract whilst working as an ‘intern’ at a law firm. This programme is scrutinized by The Law Society and requires partners to mentor trainees and write reports on their performance. Only on successful completion of this programme do individuals become fully licensed lawyers. Professional support lawyers provide training and office sharing facilitates ongoing partner review of trainees, both of which allow regulatory requirements for training to be met.

English firms tried and would still like to implement the professional support lawyer and office sharing systems in all of their branches. However, there is no regulatory requirement elsewhere for such arrangements and consequently training norms are very different. In New York partners feel that it is inappropriate to share office space with their subordinates. As one New York-based lawyer familiar with the English approach because of the time he had spent in London commented, “If I got a partner here and told him to share an office with a first year associate he’d be out the door – so we don’t – partners get the big offices to themselves” (24). In the USA graduates from law school must pass the State BAR exam in order to become a registered lawyer and partners and associates tend to live very different lives and only interact as and when work requires. One US lawyer commented upon the fact that “they [partners] just expect people by osmosis to figure it out. And that’s how I learned, I taught myself. And it’s very hard and a lot of people fall through the cracks, but that’s just how it is” (25).

The German offices of English firms operate with different dynamics again. The need for trainees to complete a range of formal exams suggests greater emphasis on formal learning and ‘legal scholarship’ than exists in the USA or England. To become a qualified lawyer in Germany individuals must first complete a four to five year degree programme and pass their first state examination (the erstes Staatsexamen). They then have to fulfil a two year training contract (the Referendariat) and finally sit a second state exam (the zweites Staatsexamen) (see Lane et al., 2002). The German offices of transnational law firms usually take graduates after completing the erstes Staatsexamen and then provide the necessary training to complete the following stages. Training in Germany is, then, designed using the German ‘technik’ logic that emphasizes quality through the creation of expertise in employees (see Gertler [2004] for discussion of a similar process in manufacturing). Trainees and partners consequently spend a large amount of time studying ‘the law, something which is required in many civil law jurisdictions but considered unusual in the common law jurisdictions that transnational firms emerge from. As a lawyer who had worked in Germany for a number of years commented about his German colleague’s behaviour:

“And there’s the German lawyer who does the excellent research pieces and a contributing editor to 300 books and teaches at a university, all of which is good, but how are we going to pay for this?…So it’s the same basic structure but the German partner says I’ve this huge profile because I’m a leading author” (21)

Proven human resource best practices such as the office sharing used by English law firms in London are not, then, implemented universally, both because regulation does not require such practices but also because lawyers react vigorously against their implementation. Such responses couldn’t have been predicted and have resulted in the flexing of strategies in a way that would be avoided in a non-professional context where international strategies that respect regulatory variations might be used with hierarchical command and control used to globally implement practices such as office sharing, even if it initially caused some discomfort to workers.

Transnational Negotiation

As both Gertler (2001) and Whitley (2001) suggest, there are relatively few examples of what might be termed ‘strong convergence’, where the home-country systems of a firm are influenced by overseas experience and subsequently reconfigured. More common is transnational negotiation that leads to home-country norms being applied overseas but in a mutated form. Such negotiation is used by transnational law firms when an aligned worldwide approach is considered important for the successful functioning of the firm but where there are significant variations in culture and norms between jurisdictions and lawyers in host-countries are unwilling to change their work practices. For example, remuneration models are a constant source of tension in transnational law firms. This has been noted most extensively in relation to the differences between ‘eat what you kill’ and ‘lockstep’ remuneration logics (see table 5). In the case of transnational law firms this is crudely a distinction between US firms that tend to use eat what you kill models and English firms that prefer the lockstep approach (table 1).
Firm x, a major English firm in table 1, faced just such a challenge when opening an office in New York and as one of the London-based managing partners commented:

“the dominant culture of our firm is very much a consensus driven, collegiate, lockstep driven institutional business. And that, to some lawyers in the States, is deeply unattractive…That means we’re not going to grow as fast as we would like…But our conclusion has been that its better to have a business in the US that’s aligned to our overall culture than to allow it to develop as a separate sub-culture” (2).

A lawyer in the New York office of the same firm also recognised this challenge. As he put it, “I think there are very very significant cultural benefits that come from a shared lockstep system…[but] you know, that’s [also] caused a migration of talent away from the firm, it has diminished profitability…It is not a system that has its first goal profit maximisation and if that’s your first goal you’re repelled by it” (22). Spatially variable remuneration models that would cater for such differences are considered unsuitable in the global professional partnerships used in law firms. Lawyers expect their peers to be paid using the same formula worldwide because of the team culture of partnership. As the previous quotation suggests, this can create tensions though and overseas partners often refuse to implement home-country models, despite agreeing on the need for firm-wide systems. In hierarchical management systems it might be expected that global (home-country) models would be forcible implemented in such scenarios. However, in professional systems negotiations between partners, driven by the senior partner and those with power and influence, have been necessary to find a compromise and way forward that all partners throughout the world feel comfortable with and will sign up to and support. This involves the canvassing of opinion from partners in all offices, the development of proposals that allow the adaptation of home-country models, and the championing of these proposals by managing partners, senior partners and others with influence so that when the all-partner vote is implemented the vast majority have been convinced of the new model’s legitimacy.
Ultimately the partnership in firm x agreed to a modified lockstep model that resulted in the adaptation of home-country norms to allow ‘super points’ to be awarded in recognition of the predominance of ‘eat what you kill values’ in some jurisdictions. Such tortuous negotiations can only be explained when considered in the context of both institutional influences but also professional values that require law firms to ensure partners feel valued and listened to. Indeed, the power relations setup by partnership agreements effectively prohibit firm leaders ignoring the concerns of overseas partners.

Spatial, temporal and home-country complications in the management of institutional difference

The discussion above highlights how both the influence of the state, professional bodies and education on institutional norms and the need to ‘negotiate’ with partners and appease their autonomous tendencies leads to professional service firms being particularly sensitive to institutional difference and managing in what could be described as inefficient and irrational manners. As the example of transnational negotiation suggests, this does not mean ‘managers’ abandon all hope of rolling out home-country practices overseas. Instead firms use a combination of the four approaches outlined above depending on degrees of difference between home- and host-country systems at the practice-level and the ability of managing partners to gain acceptance from overseas partners of home-country models. This results in spatially variable approaches with different types of coordination used in different countries to manage any one practice. For example, the ‘international’ approach used by a US firm in Germany for promotion to partnership (table 6) is not used by the same firm in London. Instead, ‘global’ coordination is used with standard US procedures in place because of the smaller degrees of variation that exist and the willingness of partners to follow the US model. Similarly, the South East Asian offices of English transnational law firms are more often managed using multinational coordination than other offices. Regulatory restrictions prevent foreign law firms entering the market in many countries unless they form an alliance with indigenous firms where over fifty percent of ownership is local. Consequently, multinational coordination is the only way to accommodate the practices of lawyers that are first and foremost determined by the local cultures of the powerful local partner firm. These cultures are often very different to those of the home-country and reflect the unique nature of ‘Asian business systems’. As Yeung (2001) describes, although these have evolved in recent times as a result of various forms of global influence (including overseas trained managers and graduates) the systems continue to retain many of their distinctive characteristics and diverge from Anglo-American practices in many ways. The same is true for the legal field (The Lawyer, 2006). As one managing partner in a UK firm described:

“our Asia offices…have a higher degree of autonomy. Not withstanding the developments in information technology and communications, they are a long way away and have different approaches. So the influence is diluted…they’re actually left to get on with it, so they have a higher degree of autonomy is all respects (2).

In addition the data collected also suggests temporal variability exists in the management strategies of transnational law firms. Comments made by those with direct experience of working in multiple European jurisdictions, particularly France and Germany, highlighted how the challenges of institutional difference change over time as acceptance of home-country norms is ‘manufactured’ by managing partners. This again shows the importance of analysing both the degrees of difference between national systems but also the ways the agency and interactions of workers and managers influences how difference is managed. This is not hierarchical command and control implementation but gentle persuasion to change practices. Careful negotiations have made it possible for more and more international and global strategies to be implemented (figure 2). One lawyer provided the following example of the affect of this on his firm’s French operations:

“They [the French] never liked the name and approach of [English firm x] as they’ve seen it as an Anglo Saxon…That’s changed now and [firm x] has now become a dominant name in the French marketplace. And it’s partly to do with what I call the Europeanization or the Anglo-Saxon-ization of Europe” (2).

Indeed, as figure 2 suggests, firms seem to be adept at managing the priorities of contending parties to minimise wherever possible the amount of adaptation needed in home-country business practices. Predicting the future trajectory of the change this results in is difficult but it does suggest that increasing points of convergence might develop in legal business systems in the future. Significantly though the extent to which such change occurs is geographically variable (see also Gertler, 2001; 2004; Wόjcik, 2006). The influence of transnational law firms has primarily been on the practice and organization of law firms in major world cities (Beaverstock et al., 1999) and not ‘second order’ cities (e.g. Birmingham in England) where offices often do not exist. Consequently, as one interviewee noted:

“Germany...They’ve got a lot of financial institutions there so they’ve had to adapt and Frankfurt firms are now very good competitors for London whereas the rest [other firms in Germany] are still catching up” (1).This, then, raises questions about the strategies used by firms to drive such change and also the wider impacts on host-country systems.

Moreover, change only occurs in relation to some and not all practices, as the continued use of multinational coordination of training reveals. It should not, then, be assumed that type of change described in figure 2 is leading to ‘strong convergence’ (Gertler, 2001).

Figure 2. Changes over time in international and global management strategies of transnational law firms.

Conclusions

The findings presented in this paper begin to move us beyond analyses that focus solely on the effects of institutional contexts in defining the way TNCs manage across institutionally heterogeneous contexts (e.g. Whitley, 2001). They do this by highlighting two important issues missed in existing analyses. First, the relational approach and its focus on actors and the influence of their agency alongside (but not subordinate) the effects of institutional legacies helps reveal how the principles of professional autonomy and partnership, the values of which underlie the actions of workers and managers in law firms, exaggerate the challenges of managing institutional heterogeneity. At a theoretical level this suggests that the actor-centred approach of relational studies might allow us to better unpick the differential forms of agency that lead to diverse strategies being used by TNCs to manage institutional difference. Negotiations between contending parties trying to deal with clashes in institutionally informed perspectives determine the approaches used to manage business practices. Only by understanding the nature of and outcome of such negotiations can we understand the reciprocal effects of host-countries and TNCs on one-another. Mapping the degrees of difference between national business systems as a way of understanding these impacts without analysing the influence of the actors involved is, then, too simplistic.

At an empirical level the analysis of the effects of professional values on the strategies of law firms highlights the importance of recognising the potential sectoral differences in the ways TNCs manage across institutional heterogeneity. Studies of these issues in the context of manufacturing (e.g. Gertler, 2004) have outweighed studies of services until recently when, for example, retail has acted as empirical lens for analysis (Coe and Lee-Sook; Wrigley et al., 2005). Consequently there has been an underestimation of the importance of studying the inter-firm and inter-industry differences in the systems of management used. This can lead to variations in the agency of workers and managers, something that affects the strategies used by firms when rolling-out or adapting home-country practices. Further comparative, cross-sectoral studies of the way TNCs deal with institutional heterogeneity would seem, then, essential.

In addition, the relational approach taken here also allows a second contribution to be made to existing debates. The recent ‘practice turn’ in economic geography that is associated with the relational approach has been used here to help reveal the practice-level intricacies of national business systems instead of focussing upon the supposedly coherent units identified by titles such as Anglo-American or liberal market economies. The discussion shows that categories such as Anglo-American are internally differentiated with significant variations in practices between the US and English contexts. It also reveals that the responses of firms to institutional heterogeneity are conditioned by differences at the level of practices (e.g. remuneration and associate training). The use in any one country of both global (convergence driving) and multinational (persistence promoting) strategies provides evidence of the way firms chose to manage at this practice level and the resultant persistence and change that can exist simultaneously in any one country after the arrival of transnational law firms. Indeed, the empirical material also suggests that when the agency of managers is used to drive change this also works at the level of practices rather than on systems as coherent units. This can be seen in how, for certain practices but not others, firms change over time from using multinational to international approaches as strategies to win the approval of overseas partners allow more home-country dictated practices to be implemented.

Together these two insights into the strength of the relational approach for analysing the way TNCs negotiate and influence national institutional systems opens up a number of avenues for future research. In particular further examining the ways TNCs negotiate diverse business contexts using a practice-level epistemology is likely to allow economic geographers to move beyond the polarised and simplified debates about persistence versus convergence that have plagued many literatures (Lane, 2003). As the analysis presented here suggests, the effects of TNCs actions sometimes, but not always, results in change, but change that is unlikely to lead to aligned worldwide systems (convergence). At the same time though systems are equally unlikely to remain completely untouched by the influences of globalization (persistence). Instead what might be termed converging divergences seem most likely (Katz and Darbishire, 2000), where some practices change but others do not. To further develop this idea we still need to know more though about the tactics used to drive change and the way they facilitate evolutions in both the perspectives of workers but also, where relevant, regulators and other institutional agents. This requires detailed empirical studies of the actions of influential managers in TNCs, the reactions of workers to strategies designed to drive change and the wider effects on indigenous firms of the introduction of foreign practices. Addressing in a head-on fashion such questions might prevent debates about the varieties of capitalism and change being another ‘missed boat’ for economic geographers (Dicken, 2004).

ACKNOWLEDGEMENTS

The research presented in this paper was made possible by funding provided by the Department of Geography, Lancaster University. The comments of three anonymous referees helped to focus the argument of the paper and I appreciate the patience of one referee in particular who kept pushing and providing detailed feedback so as to improve the paper. I am also grateful to Henry Yeung for his detailed comments and for his assistance in seeing the paper through the review process. An earlier version of this paper was presented at the Department of Geography, Manchester University and the constructive feedback of the audience further helped enhance the arguments made here. The usual disclaimers apply.

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NOTES

* Department of Geography, Lancaster University, Email: j.faulconbridge@lancaster.ac.uk

1. Beaverstock et al., (1999) identified Baker and McKenzie, Clifford Chance and Coudert Brothers as the only firms showing global tendencies – i.e. they had offices in all three major economic arenas (Europe, North American and South East Asia). Since this time Coudert Brothers have ceased operating.

2. The other three components identified by Hall and Soskice (2001) are labour and industrial relations, corporate governance and inter-firm relations.

3. These interviews were completed during a period of high demand for legal services, many during as one interviewee put it, the busiest summer on memory. Consequently it was not possible to secure interviews with all of those targeted in the original research design. Such difficulties in securing the access needed to develop extensive interview datasets with ‘elite’ actors in corporations has been well documented (Geoforum, 1999). As a result it is always necessary to approach such research pragmatically and to recognise the limitations imposed by access restrictions on the collection of datasets.

4. This has begun to change in some countries with the Clementi reforms in the UK making it possible for the first time for law firms to be structured as commercial organizations with shareholders. Indeed, in Australia the firm Slater & Gordon listed on the Australian Stock Exchange in 2007 after re-regulation permitted partnerships to be replaced by public ownership. This trend has yet to spread elsewhere but may do in the future.

5. The commitment to quality is thought to be secured in two ways. First, partners have to provide capital from their own salaries to support the firm. This capital is used to fund the opening of new offices and other strategic ventures. If the firm fails, due to poor client relations or otherwise, the partners lose their capital, as happened to partners at Coudert Brothers when the firm was wound up in 2005. Second, partners are liable to varying degrees if the firm is sued for negligence. The limited liability model of partnership has slightly changed this, limited the amount that partners are liable for and using insurance to cover anything in excess of set limits.

6. Other duties of professional support lawyers include the maintenance of knowledge management systems, the provision of legislative updates to all lawyers through newsletters and briefing sessions, and the development of electronic resources such as online precedent databases.

Note: This Research Bulletin has been published in Economic Geography, 84 (2), (2008), 185-210