Page 29 - The Handbook - Law Firm Networks 2018
P. 29
The Handbook: Law Firm Networks
Accounting networks are now facing a new challenge that goes to the heart of the image that firms wish to
project to clients. The perception has been that the Big 4, Grant Thornton, and BDO are single entities that
perform services around the world for clients of this single entity. As a result of court cases discussed in
Chapter 5, this has introduced significant liability issues requiring the networks to distance themselves from
the perception of being a single entity.
Other issues relate to imposed regulations that require the “networks” to define whether they are
“associations” of independent firms, or are more integrated networks operationally and financially. This has
implications regarding vicarious liability where members could be liable for the negligence of another
member. Self-definition as a network or association will affect whether there are conflicts of interest.
Accounting scandals have again focused on the fact that the Big 4 has a near monopoly on audits of public
companies. Networks are demanding regulations to require that auditors rotate and include the smaller
networks in this rotation. The demands also request that mid-market firms be able to participate to break up
the monopoly of the Big 4. These developments are discussed in Chapter 6 in detail.
Today there are 54 accounting networks whose members’ cumulative revenues range from $25 million to
$31.5 billion.126 The top 25 networks have cumulative revenues of $166 billion.127
Law Firm Networks – The Competitive Challenge
There were two distinct and different reasons for developing networks in the legal profession. The first was
internationalization, which became globalization.128 Law firms simply needed international connections. The
second was expansion of a number of large United States firms to become “national.” Smaller firms or firms
with a niche practice required this same expertise in other states.
Internationalization of the legal profession began much later then in accounting.129 There was no real need
because, unlike the accounting firms that conducted worldwide audits, law firms in each country were able to
deal with client matters. This changed in 1949 when Baker & McKenzie began to expand to non-United
States markets in order to assist U.S. clients that were expanding overseas following World War II.130 The
first step was establishing correspondent relationships with firms outside of the United States. This was
necessary in that many countries would not permit a law firm to operate without a local name.131
Internationalization was slow to start because the legal profession was much more restrictive than accounting
in allowing foreign firms to enter and practice in their countries. There were rules requiring that the names of
the partners be present in the name of the firm. As a firm expanded, it began to use its name when possible in
Services.pdf (last visited Feb. 1, 2016); see also KPMG LEGAL, www.kpmg.com/cee/en/services/tax/legal-
services/pages/default.aspx (last visited Feb. 1, 2016); see also BDO LEGAL SERVICES,
www.bdointernational.com/Services/Advisory/Other/Legal-Services/Pages/default.aspx (last visited Feb. 1, 2016).
125 Michael Cohen, PCAOB to Focus on Accounting Firms Growing Consulting Practices, ACCOUNT. TODAY (Nov. 23, 2013),
http://www.accountingtoday.com/news/PCAOB-Focus-Accounting-Firms-Growing-Consulting-Businesses-68855-1.html.
126 See Accounting Associations and Networks Directory, AMERICAN INSTITUTE OF CPAS (2012),
www.aicpa.org/Research/ExternalLinks/DownloadableDocuments/FirmAssociationServices.xls.
127 Smith, supra note 89. See also Liz Loxton, Global Ambitions: a Modest Rise in Fee Income Marks a Year of Consolidation for International
Networks and Associations, ACCOUNTANCY LIVE (July 2011), www.ggi.com/mm/Accountancy_Magazine_Ranking_2011.pdf.
128 James R. Faulconbridge et. al, Global Law Firms: Globalization and Organizational Spaces of Cross-Border Legal Work, 28 NW. J. INT’L L. &
BUS. 455 (2008).
129 Richard L. Abel, Transnational Law Practice, 44 CASE W. RES. J. INT’L L. 737 (1994).
130 See HISTORY OF BAKER & MCKENZIE, www.bakermckenzie.com/firmfacts/firmhistory/ (last visited Feb. 1, 2016); see also JOHN
BAUMAN, PIONEERING A GLOBAL VISION: THE STORY OF BAKER & MCKENZIE (1999).
131 This rule still applies in a number of countries like Brazil where the Baker McKenzie members uses their own respective firm names. See Keep Out
– Brazilian Lawyers Do Not Want Pesky Foreigners Poaching Their Clients, THE ECONOMIST, June 23, 2011,
www.economist.com/node/18867851?story_id=18867851&fsrc=rss. The same applies to India. See Margaret Taylor, Ashurst Seals
Best-Friends Deal with India Law Partners, THE LAWYER, July 15, 2011, www.thelawyer.com/1008640.article.
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Accounting networks are now facing a new challenge that goes to the heart of the image that firms wish to
project to clients. The perception has been that the Big 4, Grant Thornton, and BDO are single entities that
perform services around the world for clients of this single entity. As a result of court cases discussed in
Chapter 5, this has introduced significant liability issues requiring the networks to distance themselves from
the perception of being a single entity.
Other issues relate to imposed regulations that require the “networks” to define whether they are
“associations” of independent firms, or are more integrated networks operationally and financially. This has
implications regarding vicarious liability where members could be liable for the negligence of another
member. Self-definition as a network or association will affect whether there are conflicts of interest.
Accounting scandals have again focused on the fact that the Big 4 has a near monopoly on audits of public
companies. Networks are demanding regulations to require that auditors rotate and include the smaller
networks in this rotation. The demands also request that mid-market firms be able to participate to break up
the monopoly of the Big 4. These developments are discussed in Chapter 6 in detail.
Today there are 54 accounting networks whose members’ cumulative revenues range from $25 million to
$31.5 billion.126 The top 25 networks have cumulative revenues of $166 billion.127
Law Firm Networks – The Competitive Challenge
There were two distinct and different reasons for developing networks in the legal profession. The first was
internationalization, which became globalization.128 Law firms simply needed international connections. The
second was expansion of a number of large United States firms to become “national.” Smaller firms or firms
with a niche practice required this same expertise in other states.
Internationalization of the legal profession began much later then in accounting.129 There was no real need
because, unlike the accounting firms that conducted worldwide audits, law firms in each country were able to
deal with client matters. This changed in 1949 when Baker & McKenzie began to expand to non-United
States markets in order to assist U.S. clients that were expanding overseas following World War II.130 The
first step was establishing correspondent relationships with firms outside of the United States. This was
necessary in that many countries would not permit a law firm to operate without a local name.131
Internationalization was slow to start because the legal profession was much more restrictive than accounting
in allowing foreign firms to enter and practice in their countries. There were rules requiring that the names of
the partners be present in the name of the firm. As a firm expanded, it began to use its name when possible in
Services.pdf (last visited Feb. 1, 2016); see also KPMG LEGAL, www.kpmg.com/cee/en/services/tax/legal-
services/pages/default.aspx (last visited Feb. 1, 2016); see also BDO LEGAL SERVICES,
www.bdointernational.com/Services/Advisory/Other/Legal-Services/Pages/default.aspx (last visited Feb. 1, 2016).
125 Michael Cohen, PCAOB to Focus on Accounting Firms Growing Consulting Practices, ACCOUNT. TODAY (Nov. 23, 2013),
http://www.accountingtoday.com/news/PCAOB-Focus-Accounting-Firms-Growing-Consulting-Businesses-68855-1.html.
126 See Accounting Associations and Networks Directory, AMERICAN INSTITUTE OF CPAS (2012),
www.aicpa.org/Research/ExternalLinks/DownloadableDocuments/FirmAssociationServices.xls.
127 Smith, supra note 89. See also Liz Loxton, Global Ambitions: a Modest Rise in Fee Income Marks a Year of Consolidation for International
Networks and Associations, ACCOUNTANCY LIVE (July 2011), www.ggi.com/mm/Accountancy_Magazine_Ranking_2011.pdf.
128 James R. Faulconbridge et. al, Global Law Firms: Globalization and Organizational Spaces of Cross-Border Legal Work, 28 NW. J. INT’L L. &
BUS. 455 (2008).
129 Richard L. Abel, Transnational Law Practice, 44 CASE W. RES. J. INT’L L. 737 (1994).
130 See HISTORY OF BAKER & MCKENZIE, www.bakermckenzie.com/firmfacts/firmhistory/ (last visited Feb. 1, 2016); see also JOHN
BAUMAN, PIONEERING A GLOBAL VISION: THE STORY OF BAKER & MCKENZIE (1999).
131 This rule still applies in a number of countries like Brazil where the Baker McKenzie members uses their own respective firm names. See Keep Out
– Brazilian Lawyers Do Not Want Pesky Foreigners Poaching Their Clients, THE ECONOMIST, June 23, 2011,
www.economist.com/node/18867851?story_id=18867851&fsrc=rss. The same applies to India. See Margaret Taylor, Ashurst Seals
Best-Friends Deal with India Law Partners, THE LAWYER, July 15, 2011, www.thelawyer.com/1008640.article.
- 16 -
