Legal Business Blogs

Dentons shakes up profit-sharing arrangement in China

Following its landmark combination with Dentons to create a 7,500-lawyer legal giant, legacy Dacheng is restructuring its practice to reduce the number of profit pools from 15 to five.

With Dentons striving to integrate what is now the world’s largest law firm by employee headcount, the China arm of the firm, headed by senior partner Jinquan Xiao, has carried out a reorganisation to create increased profit-sharing between the firm’s 44 Chinese offices.

Home to some 4,000 lawyers, the partnership has voted through reform that will see the firm move away from office-by-office profit sharing in China and establish five profit pools. These will be: Western China; Mid-Western China; Shanghai; Beijing; and Hong Kong.

With more partners sharing profits, the firm hopes the change will motivate the partnership to share more work and cross-sell clients. It has also been billed as a cost-saving measure, with Dentons’ global chair Joe Andrew, commenting that ‘multiple profit pools means multiple costs – whether that be accountancy fees or admin’.

With Dentons’ rivals still in a catch-22 situation, caught between needing a merger to carry out Chinese law but hesitant to combine with more individualistic local firms with loose governance structures, the overhaul of the legacy Dacheng business comes just five months after the combination completed in November. It is the largest attempt to restructure a Chinese law firm in history and the plans are subject to regulatory approval.

This is the first stage of Dentons’ integration plan for China, with regional reform the first step towards creating a structure that will encourage local lawyers to cross-sell to other parts of the network. The move follows a review of the Chinese practice that aimed to replicate best practice across the Dentons business.

Dentons operates a Swiss verein model, with the legacy Dacheng business one of ten members operating separate profit pools but under the Dentons brand. It has set up firmwide incentives to refer work across the network, with Dacheng undergoing a rapid modernisation process to integrate it into the wider network after agreeing to combine with Dentons at the start of 2015.

Last year proved to be a breakthrough year for Dentons, with six law firms across the US, China, Australia, Singapore, Colombia and Mexico agreeing to join in a merger spree unprecedented in the legal industry.

Despite aggressive expansion, global turnover came in at under the $2.2bn the firm’s management had expected to achieve in 2015, registering $2.12bn in revenue.