Page 63 - The Handbook - Legal and Accounting Networks 81
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Law and Accounting Networks and Associations
the authority on which demands are based. Network structures ... are flexible, flat, complex
and rife with conflict and “recurring conflict is inevitable.”
Hierarchies solve these problems by vertical integration and owning the assets they use.
Networks typically solve them by granting multi-party residual claims to the output from
co-specialized production in order to align incentives.275
Sharing control almost always involves investment inefficiencies and overhead in
governance structures, but it may be that agents cannot be separated from their assets i.e.
they are indispensable to asset deployment. This occurs, for example, in the case of
consulting know-how but it also implies that organizations cannot simply purchase such
assets and vertically integrate them. If combining complementary assets creates more value
than sharing control with indispensable agents, network organizations might emerge in
preference to hierarchy.276
Other Issues – Application to Professional Services Networks
While Van Alstyne addresses the negative side of the human equation in the network, there is an equally
compelling positive aspect that can be learned from the analysis. By accepting human nature as a given, the
mature network works around the issues by encouraging collaboration at many different levels. This
collaboration is not an art but a science.277
The process of controlling these natural tendencies should be set out in the bylaws and policies adopted by the
network. However, having a policy and effectively implementing it are very different. Personality issues are
very important variables. A network can have the correct bylaw provisions, but it is ultimately dependent on
people to make it work.
As the network matures, more and more members are going to change. A mature successful organization has
different issues from those of a new network. These issues can be anticipated and dealt with up front. Policies
are decided on before the problems arise. The network should have a method for addressing the changes.
The first conscious decision the organizing committee makes when founding a network is whether it is to be a
Level 2 or 3. A network that operates as a mere extension of members’ interests or as a business with its own
objective, which is to promote the members’ business, is a very different model. This decision will set the stage
not only for how the organization is governed and functions, but also in anticipation of the issues that will arise
as the network matures.
Led by the members who undertake all of the actions, Level 2 networks may fall prey to every member having
veto power over decisions. Many of the issues raised by Van Alstyne become immediately apparent when
people from different cultures and life experiences govern the network. When a network operates by consensus,
every member acquires the right to comment regardless of his or her experience. The tendency is to horse trade
275 Id., citing J. Rockart & J. Short, The Networked Organization and the Management of Interdependence, in THE CORPORATIONS OF THE 1990S 189-
216 (M. S. Morton, Ed. 1991).
276 Id., citing S. J. Grossman & O. D. Hart, The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration. 94 J. OF POL. ECON.,
691, 691-719 (1986).
277 DUPONT LEGAL NETWORK, supra note 241: “But this technology still depends on the human element and on the willingness of committed participants
to implement and use it constructively in furtherance of an articulate vision and clear goals. In a virtual law firm, participants must share a common
culture.” The network must systematically create this culture among independent members and professionals.
51
the authority on which demands are based. Network structures ... are flexible, flat, complex
and rife with conflict and “recurring conflict is inevitable.”
Hierarchies solve these problems by vertical integration and owning the assets they use.
Networks typically solve them by granting multi-party residual claims to the output from
co-specialized production in order to align incentives.275
Sharing control almost always involves investment inefficiencies and overhead in
governance structures, but it may be that agents cannot be separated from their assets i.e.
they are indispensable to asset deployment. This occurs, for example, in the case of
consulting know-how but it also implies that organizations cannot simply purchase such
assets and vertically integrate them. If combining complementary assets creates more value
than sharing control with indispensable agents, network organizations might emerge in
preference to hierarchy.276
Other Issues – Application to Professional Services Networks
While Van Alstyne addresses the negative side of the human equation in the network, there is an equally
compelling positive aspect that can be learned from the analysis. By accepting human nature as a given, the
mature network works around the issues by encouraging collaboration at many different levels. This
collaboration is not an art but a science.277
The process of controlling these natural tendencies should be set out in the bylaws and policies adopted by the
network. However, having a policy and effectively implementing it are very different. Personality issues are
very important variables. A network can have the correct bylaw provisions, but it is ultimately dependent on
people to make it work.
As the network matures, more and more members are going to change. A mature successful organization has
different issues from those of a new network. These issues can be anticipated and dealt with up front. Policies
are decided on before the problems arise. The network should have a method for addressing the changes.
The first conscious decision the organizing committee makes when founding a network is whether it is to be a
Level 2 or 3. A network that operates as a mere extension of members’ interests or as a business with its own
objective, which is to promote the members’ business, is a very different model. This decision will set the stage
not only for how the organization is governed and functions, but also in anticipation of the issues that will arise
as the network matures.
Led by the members who undertake all of the actions, Level 2 networks may fall prey to every member having
veto power over decisions. Many of the issues raised by Van Alstyne become immediately apparent when
people from different cultures and life experiences govern the network. When a network operates by consensus,
every member acquires the right to comment regardless of his or her experience. The tendency is to horse trade
275 Id., citing J. Rockart & J. Short, The Networked Organization and the Management of Interdependence, in THE CORPORATIONS OF THE 1990S 189-
216 (M. S. Morton, Ed. 1991).
276 Id., citing S. J. Grossman & O. D. Hart, The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration. 94 J. OF POL. ECON.,
691, 691-719 (1986).
277 DUPONT LEGAL NETWORK, supra note 241: “But this technology still depends on the human element and on the willingness of committed participants
to implement and use it constructively in furtherance of an articulate vision and clear goals. In a virtual law firm, participants must share a common
culture.” The network must systematically create this culture among independent members and professionals.
51
