As the gulf in size between the global behemoths and independent firms grows ever larger, Justin Cash looks at how local firms can continue to compete for prized international mandates

Nobody said being a general counsel at a multinational was easy. Juggling varied work in tens of jurisdictions simultaneously, it might seem like finding the best advisers in each location is an impossible task.

As global law firms pin their corporate flags all over the world map, the temptation is growing for general counsels to visit a one-stop shop to save on the hassle of finding and keeping tabs on the strongest independent offerings available.

How independent firms make their presence felt in this environment without having offices in multiple jurisdictions is absolutely critical to their success in securing the most lucrative deals and relationships. Each independent firm needs to have a differentiator to ensure they stay competitive with the bigger fish in the global pond. Some manage their niche well, while others struggle to attract the attention of global companies.

"Independence is a great thing no matter how you look at it," insists Dimitris Zepos, managing partner of 10-partner Greek firm Zepos & Yannopoulos. "We remain independent because for us it makes business sense. We want to be free to select the firms that best suit our clients' needs abroad and we believe they should be able to do the same."

Zepos maintains his firm's independence with a policy of not entering into any exclusive associations with foreign law firms. Indeed, he says he has turned down several such offers in the past.

That's not to say that Zepos doesn't care about his firm's international footprint. Zepos & Yannopoulos is the sole Greek member of the Lex Mundi international association of firms, which now comprises more than 21,000 lawyers in over 100 countries. The firm is also involved in other practice-orientated groups such as Taxand and the Energy Law Group.

Like most independents, there is a compelling reason for this approach: while two-thirds of Zepos' work arrives directly from clients, the other third comes to it through referrals by foreign firms. That would be a significant chunk of revenue to lose if any of those referral relationships fell through.

"It goes without saying that we value each and every referral by any foreign firm," says Zepos. "We take each referral extremely seriously, no matter how small. It's very important that we never fail nor disappoint any colleague from a large law firm who is kind enough to refer us to a client."

This preoccupation with reputation and trust is the mantra most independent firms have adopted to survive (expertise in their particular jurisdiction should be taken as a given).

Referrals are important, even for a larger firm like Dublin-headquartered Arthur Cox. It is a powerhouse in the region that has won roles on many of the largest mandates in Ireland, including advising the Irish government on its €85bn (£71.2bn) bailout package in 2010, and medical device maker Covidien on its buyout by Medtronic earlier this year. But despite its local strength it relies on major international firms to refer a lot of M&A and litigation work. In contrast it tends to pick up much of its structured finance work directly from investment banks.

"We've been working and doing deals with major UK and US firms for 40 to 50 years now," explains Arthur Cox managing partner Brian O'Gorman (pictured). "They know they can trust us with their biggest clients. The best way to build a relationship is to work together on a deal – we have a great track record of not wasting that opportunity."
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Recommendations from international firms can take on a heightened significance when a global corporate is setting up in a new jurisdiction for the first time, typically relying on their regular, most trusted advisers to point them in the right direction to find local expertise.

Both Arthur Cox and Zepos & Yannopoulos have ambitions to expand their relationship networks. For the Irish firm, which has traditionally been focused on the UK and US, the main areas to build will be Italy, Germany, France and Spain, while Zepos, which has mainly cultivated ties in western Europe, is setting its sights on the Far East, particularly Korea.

Local rules prohibit the payment of referral fees between firms in some jurisdictions, such as in the Nordic region. Helsinki and Stockholm-centred Roschier is one of the leading Scandinavian independents, and has shifted its focus slightly to concentrate on tightening links with overseas clients directly as opposed to tie-ups with law firms that have a greater geographical presence.

"Most major law firms in the Nordic region are independent, so the fact that you are an independent firm does not differentiate you," says Roschier managing partner Rainer Hilli.

"In order to be competitive you need to manage client relationships extremely well, have the trust of your local or regional clients and keep up an excellent international-standard quality on the legal advice you give."

What GCs want
Global firms will of course argue that today's GCs are looking for fewer advisers to cover a larger proportion of their mandates. And they might have a point, to some extent at least. Legal Week's recently published Client Satisfaction Report found that 33% of the 1,400-plus respondents to the survey preferred to work with global law firms, compared to the 27% that favoured local independent firms.

In terms of pure numbers, that gap isn't so great, especially after you add in the 21% who said they preferred working with a global firm together with a local outfit that have some kind of relationship.

And while some independents are eyeing international office openings, even without this expansion the gulf between what independents in conjunction with referral firms and truly global players can offer might not be as vast as firms such as DLA Piper and Baker & McKenzie may argue. After all there is a limit to how many lawyers global outfits will employ in each location. And as demonstrated by UK firms such as Slaughter and May, Travers Smith and Macfarlanes, being independent does not damage reputation or quality – far from it.

"Some of the independents are opening international offices; that may continue to develop and increase their share of work," comments Edward Gretton, GC at building materials manufacturer Hanson, who points to Travers as the kind of independent UK firm that is taking some of the work that would have gone to the magic circle in the past.

That said, he's not surprised that global players continue to nudge out locals on some high-profile panels for multinational companies. Streamlined services and the ability to cross-sell between practices within a firm, as well as being able to draw on large cross-border teams of lawyers – hopefully of a consistent quality – are all virtues that GCs still value at top-tier international outfits.

"We obviously see the success of transactions and litigation cases as they are delivered, but it's key that the process was handled smoothly," says Gretton. "My experience is that the magic circle and the big US firms might be better at that communication because they have more jurisdictions to deal with and practise maintaining good partner links."

Cost is also a very important part of the decision. "When we do go to big international firms they do provide value because they have such depth of support and quality," Gretton adds.

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Local strengths
Given how important fees are for companies trying to squeeze the most out of their advisers, locals still have the edge when it comes to work lower down the food chain. As Gretton puts it: "It's absolutely clear that we still need both [types of firms].

"Our approach is that it would not be appropriate to use global firms on mandates of a smaller magnitude where we are best served by local firms with more realistic cost models.

"[In contrast] when we have big corporate finance transactions spreading across several jurisdictions we need huge cross-border teams, that's very labour and time-intensive and you need all types of corporate capability… Having that offering is crucial to maintaining the work of global corporations."

In politically difficult or economically turbulent jurisdictions in particular, there may be few better placed to navigate the intricacies of regional politics than a well-entrenched local outfit possibly combined with a GC on the ground in the jurisdiction – which some corporates now have – who will inevitably know the market better than most foreigners parachuted in from a global giant.

And the more locally integrated the corporate, the more sophisticated its overseas business presence, the greater the likelihood that they would need to work with the local firms that not only have the relevant legal knowledge but also the connections with the local kingmakers who can make or break a deal.

But there's still the task of identifying the genuinely outstanding indigenous players that can deliver the quality of service that legal heads at sprawling conglomerates are used to receiving on a daily basis.

A deputy GC at a large multinational, whose preferred firms include De Brauw Blackstone Westbroek in the Netherlands, Hengeler Mueller in Germany, Bredin Prat in France and Garrigues in Spain, says that he makes his choices based on a combination of legal directory listings, recommendations from international law firms and talking to in-house counsel at other corporates.

"It's not the case that all global firms are the best firms in all jurisdictions," the GC argues. "They may have a good antitrust capability, but are no good for M&A, say.
"A lot of corporates just need to make a bit more of an effort to choose the right partners."

Getting the name out there
Some local firms make a real effort to actively sell themselves to in-housers. Of the roughly 90 partners at Arthur Cox, some 25 to 30 are abroad in any given week, whether as part of a deal or for the purpose of relationship building (though O'Gorman says they "don't go cold-calling because all the major firms know us well").

There's still an onus on GCs to do the greater part of the legwork though, to add to their own intelligence that they have built up on individual foreign markets over the years and to make sure they really still are getting the best deal.

Even if global panels are for a period of three or four years, independents can't afford to rest easy, as legal heads have always got their eye out for potential upstarts that can save on bills. They also receive a performance update every time a transaction or piece of litigation closes.

According to Zepos: "It doesn't take a great amount of work to find out which are the best firms in any jurisdiction. If you ask the legal counsel at Coca-Cola or Shell in Spain, Italy, wherever, who the best guys are, they could pick four or five names off the top of their head."

Indeed, last year Shell set out to actively increase the number of independents it used after the company announced plans to ditch its single global legal panel, asking firms instead to tender for work in 20 high-spend jurisdictions separately. Firms had to have their own office in those jurisdictions to have a chance of securing a place. In the end, Shell appointed more than 150 local outfits to advise on specific practice or regional matters.

Hopefully, some of these will stick in the minds of the lawyers at Shell and elsewhere. If they do, it proves that it is possible, with a decent niche and enough hard-selling, for independents not just to make it onto the roster of some of the most respected global corporates, but to offer them something unique and valuable in the process.
Make no mistake: if they waste the opportunity then their larger rivals won't be far behind.