DLA Piper, the world’s second-largest Swiss Verein-structured law firm, saw global turnover in 2016 drop 3% to $2.47bn from $2.54bn. The drop in overall revenue was attributed by the firm to exchange rate fluctuations across the global firm’s international business, which is divided between an international LLP and a US LLP. In sterling, DLA says, turnover was up 3%.
Similarly, Norton Rose Fulbright saw turnover drop 3% to $1.69bn, with the firm again attributing the performance to currency fluctuations. In a statement, a spokesperson said the firm had seen a 3% increase on 2015 revenue using like-for-like exchange rates, adding: ‘Our stated US dollar figures are very susceptible to currency exchange moves and, in the past year, the sterling, euro, Australian/Canadian dollars and South African rand experienced significant negative moves against the US dollar.’
The currency protestations are wearing somewhat thin. Other firms in the Global 100 are performing well, despite the strength of the US dollar against sterling, raising viable questions about whether vereins are losing their grip on the top of the market. For the first time, there are no verein firms in the top two spots of the Global 100, with Latham & Watkins and Kirkland & Ellis knocking Baker McKenzie into third place.
Despite the fact that verein firms have slipped out of the top spots, Bakers, Hogan Lovells and Squire Patton Boggs have experienced credible years. Bakers saw revenue jump 8% to $2.6bn – despite exchange rate volatility – with the firm’s global chair Paul Rawlinson attributing the rise to a strong contribution from all regions. He also highlighted good transactional performance as the firm’s ‘sweet spot’ alongside strong revenues in compliance, banking, intellectual property, tax and employment.
Likewise, Hogan Lovells saw revenues rise 6% to $1.9bn – an improvement on a relatively flat year for the financial year 2015/16, which saw revenues rise 2%. And Squires is the standout verein performer in the Global 100, with turnover up 6% to $983.1m, while a slight increase in lawyer numbers did little to dampen a 33% jump in profit per lawyer, while profit per equity partner grew 16% to just shy of $1m.
There are ten firms in the Global 100 that are Swiss Vereins or have similar structures. Discounting Eversheds Sutherland and Gowling WLG, which have both only recently moved to adopt this model to pursue transatlantic ties, overall growth over the last three years has been underwhelming. Combined revenues from those eight firms have moved from $13.04bn to $13.8bn, an increase of 6%, and this includes Dentons adding the best part of a billion dollars to its top line through its merger with Dacheng.
‘If you choose a verein structure because that means you have to do the least change, then you are on a hiding to nothing.’
Lee Ranson, Eversheds Sutherland
Unsurprisingly, there continues to be a mixed reaction from the market to the model. Despite increasing evidence to the contrary, according to Paul Edwards, chief financial and operating officer at DLA, the structure works as well as it ever has.
‘Is it a successful model for a global law firm? The answer is a very clear yes. Through a verein we can drive significant amounts of work across the practice. It becomes to some extent a defensive measure – if we have a client who wants to do something in France and we didn’t have a practice there, we would have to recommend them to another firm and that would potentially weaken the relationship with that client. One of our partners here has a lovely phrase: “We love to tell people about our underwear when actually it is the clothes on top that really matter. The Verein is simply how we structure behind the scenes.”‘
However, according to one managing partner of a Magic Circle firm, unless there is a big effort on integration, vereins are nothing more than best-friend arrangements.
‘If there is no integration, there is a lot of competition. It is not a single firm in terms of quality of product, offering or delivery. Until you have that alignment – economically and culturally – frankly, I’m not sure it’s a great offering. If you ask clients, they will tell you a verein is not as good as a single-firm offering.’
According to one managing partner, Hogan Lovells is seen in the market as the verein with the best cultural cohesion: ‘It acts like one firm, but then there is the challenge of – is it still too conservative? Is it taking advantage of the opportunities? That is one I would say, from a people perspective, has done well. DLA is the best from a growth perspective – the verein structure has taken the old UK DLA to a different place. And the two constituent parts in the US – they are clearly a much stronger whole than two separate parts. Norton Rose Fulbright you see a lot of, although its profitability challenges are still there.’
It is clear that the Global 100 would be very different if the verein structure did not exist as a viable option to internationalise a firm. The structure has also enabled the legal profession to act defensively, consolidating at a greater rate than it would have done otherwise. However, as Lee Ranson, co-chief executive officer of Eversheds Sutherland attests, the success of a Swiss Verein ultimately depends on the culture and execution of the structure. Eversheds is using the English company limited by guarantee structure, a model also deployed by Gowling to combine the US and Canadian halves of the firm.
‘If you choose a verein structure because that means you have to do the least change, then you are on a hiding to nothing,’ says Ranson. ‘If you use the structure as an effective mechanism to bring two businesses together so they can work closer together and execute a common strategy, then the structure works fine. But you have to have the will and common purpose to do that.’
The high-profile collapse of a verein came in January this year when King & Wood Mallesons’ (KWM) European arm moved into administration. The debate rages on as to the role its structure played in its collapse.
‘If anyone spent any time with the people at KWM, no part of what went on with KWM had anything to do with structure,’ says Simon Levine, global co-chief executive of DLA. ‘There were a lot of issues to do with the way it was put together. It might be to do with culture; it might have been to do with a strategic plan that wasn’t very good; it might have been down to some of the deals they did with people. But I am fairly confident that it had nothing to do with the actual structure itself.’
As Sue Kench, now global managing partner of KWM, argues: ‘Vereins absolutely do work; the Big Four accounting firms have a similar structure. That in itself tells you that they work. What happened with KWM EUME was not because it was a verein but because the partners in the local business would not invest and capitalise their own business. Verein or not – that wasn’t the issue.’
Kathryn McCann
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