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independent firms.4 A series of law firm networks may promote themselves as global law firms
and be perceived as such, despite their structure as a Swiss Verein.5
Professional service firms have over the past century cooperated on an international scale
in different ways. Similar to the correspondent bank network of the 19th century, international
law firms and accounting firms have come to understand that it is essential for them to rely on
strategic partners or associates abroad in order to serve clients better, particularly when it comes
to transnational assignments.6 Historically, a broad variety of different models has arisen, from
very loose “clubs of friends” with no formal corporate structure to the more modern and often
highly integrated and monitored firm model, using a single brand and following global standards,
such as the “Big Four.”
The differentiation between accounting networks or alliances and their corresponding
legal networks has initially been very easy; however, as a consequence of the Parmalat case and
of a series of legal and regulatory alterations, governance and regulations changed considerably
for accounting networks and associations, while they did not for the legal profession. The origin
of accounting networks can be found in the need for listed U.S. companies to be audited in order
to comply with the regulations of the Securities Exchange Commission (SEC).7
Law firm networks began to internationalise much later than the accounting profession,8
since their clients’ needs differ from those of accounting firms. The latter had to be able to
conduct standardised audits globally to comply with consolidated reporting for their nationally
regulated clients. Law firms, however, could rely on vetted correspondent firms if and when a
matter involved another jurisdiction. After the Second World War, law firms followed U.S.
clients in particular, who began to expand abroad as a result of increased internationalisation,
consequently referred to as “globalisation.”9
The global or multijurisdictional aspect of organisations of professional firms allowed
loopholes and a flexibility in the structure and running of transnational organisations of
professional firms. Bad governance together with poor financial reporting led to the Enron
collapse and the introduction of Sarbanes-Oxley.10 The Parmalat case triggered at the EU level
the introduction of the Statutory Audit Directives and a regulatory change regarding
transnational networks of accounting firms.
These regulatory changes have also led to the clear differentiation between “networks”
and “associations” for transnational accounting organisations as defined in the EU Statutory
Audit Directive11 and the derived IFAC definition. According to the IFAC Code of Ethics
4 Baker & McKenzie (numerous national partnerships); Dentons (Canadian, Chinese, European, U.K. and U.S. partnerships); DLA Piper (U.S.
and international partnerships); Hogan Lovells (U.S. and international partnerships); King & Wood Mallesons (Australian, Chinese, Hong Kong,
and European partnerships); Norton Rose Fulbright (U.S. and international partnerships); and Squire Patton Boggs (U.S., U.K., and Australian
partnerships).
5 Peter Kalis, Grand Illusion, AMERICAN LAWYER (May 2011), https://www.law.com/americanlawyer/almID/1202490654307/.
6 Marshall Van Alstyne, The State of Network Organizations: A Survey of Three Frameworks (1996), and his citations,
J. OF ORG. COMPUTING 1: “Sociologists argue that social patterns of human interaction transcend reductionist economic agendas: ‘The pursuit of
economic goals is typically accompanied by [such] noneconomic [goals] as sociability, approval, status, and power... Economic action is socially
situated and cannot be explained by reference to individual motives alone,’” citing M. Granovetter, Problems of Explanation in Economic
Sociology in NETWORKS AND ORGANIZATIONS: STRUCTURE, FORM AND ACTION 471-491 (N. Nohria & Robert G. Eccles, eds., Harvard Business
School Press 1992).
7 M. Barrett et al., Globalization and the Coordinating of Work in Multinational Audits, 30 ACCT., ORGS. AND SOC’Y 1 (2005).
8 Richard L. Abel, Transnational Law Practice, 44 CASE W. RES. L. REV. 737 (1994).
9 James R. Faulconbridge et al., Global Law Firms: Globalization and Organizational Spaces of Cross-Border Legal Work, 28 N.W. J. OF INT’L
L. & BUS. 455 (Spring 2008).
10 The Sarbanes-Oxley Act of 2002 (Pub.L. 107–204, 116 Stat. 745, enacted July 30, 2002), also known as the Public Company Accounting
Reform and Investor Protection Act in the U.S. Senate, commonly called Sarbanes-Oxley, Sarbox, or SOX, is a United States federal law that set
new or expanded requirements for all U.S. public company boards, management, and public accounting firms.
11 Directive 2006/43/EC: “‘[N]etwork’ means the larger structure: which is aimed at cooperation and to which a statutory auditor or an audit firm
belongs; and which is clearly aimed at profit- or cost-sharing or shares common ownership, control or management, common quality control
121
and be perceived as such, despite their structure as a Swiss Verein.5
Professional service firms have over the past century cooperated on an international scale
in different ways. Similar to the correspondent bank network of the 19th century, international
law firms and accounting firms have come to understand that it is essential for them to rely on
strategic partners or associates abroad in order to serve clients better, particularly when it comes
to transnational assignments.6 Historically, a broad variety of different models has arisen, from
very loose “clubs of friends” with no formal corporate structure to the more modern and often
highly integrated and monitored firm model, using a single brand and following global standards,
such as the “Big Four.”
The differentiation between accounting networks or alliances and their corresponding
legal networks has initially been very easy; however, as a consequence of the Parmalat case and
of a series of legal and regulatory alterations, governance and regulations changed considerably
for accounting networks and associations, while they did not for the legal profession. The origin
of accounting networks can be found in the need for listed U.S. companies to be audited in order
to comply with the regulations of the Securities Exchange Commission (SEC).7
Law firm networks began to internationalise much later than the accounting profession,8
since their clients’ needs differ from those of accounting firms. The latter had to be able to
conduct standardised audits globally to comply with consolidated reporting for their nationally
regulated clients. Law firms, however, could rely on vetted correspondent firms if and when a
matter involved another jurisdiction. After the Second World War, law firms followed U.S.
clients in particular, who began to expand abroad as a result of increased internationalisation,
consequently referred to as “globalisation.”9
The global or multijurisdictional aspect of organisations of professional firms allowed
loopholes and a flexibility in the structure and running of transnational organisations of
professional firms. Bad governance together with poor financial reporting led to the Enron
collapse and the introduction of Sarbanes-Oxley.10 The Parmalat case triggered at the EU level
the introduction of the Statutory Audit Directives and a regulatory change regarding
transnational networks of accounting firms.
These regulatory changes have also led to the clear differentiation between “networks”
and “associations” for transnational accounting organisations as defined in the EU Statutory
Audit Directive11 and the derived IFAC definition. According to the IFAC Code of Ethics
4 Baker & McKenzie (numerous national partnerships); Dentons (Canadian, Chinese, European, U.K. and U.S. partnerships); DLA Piper (U.S.
and international partnerships); Hogan Lovells (U.S. and international partnerships); King & Wood Mallesons (Australian, Chinese, Hong Kong,
and European partnerships); Norton Rose Fulbright (U.S. and international partnerships); and Squire Patton Boggs (U.S., U.K., and Australian
partnerships).
5 Peter Kalis, Grand Illusion, AMERICAN LAWYER (May 2011), https://www.law.com/americanlawyer/almID/1202490654307/.
6 Marshall Van Alstyne, The State of Network Organizations: A Survey of Three Frameworks (1996), and his citations,
J. OF ORG. COMPUTING 1: “Sociologists argue that social patterns of human interaction transcend reductionist economic agendas: ‘The pursuit of
economic goals is typically accompanied by [such] noneconomic [goals] as sociability, approval, status, and power... Economic action is socially
situated and cannot be explained by reference to individual motives alone,’” citing M. Granovetter, Problems of Explanation in Economic
Sociology in NETWORKS AND ORGANIZATIONS: STRUCTURE, FORM AND ACTION 471-491 (N. Nohria & Robert G. Eccles, eds., Harvard Business
School Press 1992).
7 M. Barrett et al., Globalization and the Coordinating of Work in Multinational Audits, 30 ACCT., ORGS. AND SOC’Y 1 (2005).
8 Richard L. Abel, Transnational Law Practice, 44 CASE W. RES. L. REV. 737 (1994).
9 James R. Faulconbridge et al., Global Law Firms: Globalization and Organizational Spaces of Cross-Border Legal Work, 28 N.W. J. OF INT’L
L. & BUS. 455 (Spring 2008).
10 The Sarbanes-Oxley Act of 2002 (Pub.L. 107–204, 116 Stat. 745, enacted July 30, 2002), also known as the Public Company Accounting
Reform and Investor Protection Act in the U.S. Senate, commonly called Sarbanes-Oxley, Sarbox, or SOX, is a United States federal law that set
new or expanded requirements for all U.S. public company boards, management, and public accounting firms.
11 Directive 2006/43/EC: “‘[N]etwork’ means the larger structure: which is aimed at cooperation and to which a statutory auditor or an audit firm
belongs; and which is clearly aimed at profit- or cost-sharing or shares common ownership, control or management, common quality control
121
