Biglaw, In-House Counsel, Partner Issues

Inside Straight: If Not For Clients, Then Why Do Firms Open New Offices?

Back to a topic we've covered before: why do law firms like to open all these far-flung new offices? In-house columnist Mark Herrmann may have solved the mystery....

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This week marks the second anniversary of my “Inside Straight” column at Above the Law.

Two years. Two hundred columns. One book. And 1.5 million clicks through the “jumps” to “continue reading” my silly little ditties. Your favorite columns were here (but it was a fraud, and I admitted as much), here, and here (and the kid landed a great job within weeks after the post went up!). I’ll lift my exhausted typing fingers to crank out these words: Thank you!

But back to business.

Oooh, oooh, oooh.

I wrote back in September that clients don’t prompt law firms to open new offices by insisting on one-stop shopping, and I suddenly became a popular guy. The letter carrier was exhausted, schlepping all those e-mails to my e-mailbox.

Remarkably, few people fundamentally disagreed with my thesis. I wrote that clients don’t insist on one-stop shopping, and I expected to hear that my experience was limited, my evidence anecdotal, and my position ridiculous. Instead, I heard largely that law firms open new offices for many and varied reasons, but client insistence on one-stop shopping is far down the list.

So why do firms launch new offices?

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Several people wrote to suggest that law firms open new offices to capture work that they would otherwise have to refer out. When Bigg & Mediocre agrees to represent BigCo, Bigg & Mediocre implicitly agrees not to accept representations adverse to BigCo. At that point, several correspondents suggested, Bigg & Mediocre might as well maximize the amount of work it does for BigCo. If you’re doing BigCo’s litigation, then build an employee benefits practice and start doing that work, too. And do the real estate work. And the M&A deals. And, if BigCo needs help in London, then open an office there, too.

These correspondents thus suggested that I had it backwards: Clients don’t insist on one-stop shopping. Rather, law firms expand to meet the needs of their clients, because the alternative is to give away a fortune in referrals.

Several of my correspondents suggested that firms open new offices not for business reasons, but to meet the personal goals of law firm leaders. Folks who are running big firms want to impress their colleagues and the world, and to burnish their egos. The best way to impress people is to move up the ranks of the Am Law 100 by increasing your firm’s revenue. Law firm expansion, under this theory, is little short of empire-building. Managing partners want to impress the world, so law firms grow.

I heard several other cynical explanations for why law firms open new offices. “Law firms have always grown, so they will continue to grow.” I think that’s Newton’s first law of law firms.

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Or: “Size is an easy objective measure often believed to be associated with quality. If you want the world to perceive your law firm as being good, make it big.” Even this correspondent, though, acknowledged that there’s not necessarily any correlation between size and quality.

I heard other explanations for law firm expansion that were not cynical, but more survivalist. In the [paraphrased] words of a guy on the executive committee of an Am Law 20 firm, with whom I recently had dinner: “You’re on the management committee of a second- or third-tier firm based in, say, New York or London. Your competitors are eating your lunch: You can’t compete for clients; you can’t compete on profitability; and other firms are starting to woo your key rainmakers. What are you going to do? Sit still and watch the firm die? And get voted off the executive committee, because you’re an ineffective leader? Or do something — anything — that might help the situation? So you merge, showing action in the short term, increasing revenue (which many folks mistakenly confuse with profit) and getting yourself re-elected to another four-year term on the executive committee, after which you can retire.”

Or another survivalist supposition: “A firm may sense that the economy upon which it depends — the industrial midwest; the United States; somewhere else — is either in decline or long-term stasis, and the firm feels compelled to chase a growing economy elsewhere.”

Needless to say, several of my correspondents also offered more positive reasons for firms to expand: “Why can’t you accept the fact that firms often see a good fit — either with a particular group of partners or a smaller firm — and firms open new offices to capture opportunities? That’s not ‘client-driven’ in the sense that clients insisted on the new office, but it’s expansion that may benefit both the firm and its clients.”

But my favorite reaction to the “one-stop shopping” post came in person, rather than by e-mail. I had lunch several weeks ago with a guy who had worked at a London firm that recently merged with a big American firm. He told me that my thesis was wrong by 180 degrees: “Clients do insist on one-stop shopping,” he said. “You’re just wrong!”

“What makes you say that?”

“When we were a London firm without a New York office, we simply did not get work from the big banks. All the big deals have New York aspects, and the banks wouldn’t instruct [that’s British for “retain”] our stand-alone firm in London. They told us that they couldn’t use a firm without a New York presence.”

Completely innocently (I swear it!), I followed up: “Do the big banks give you work now?”

Sheepishly: “No. But now they give us different reasons for not hiring us.”

So that solves the puzzle: Law firms open new offices so that they can hear new and different reasons for not being retained! It seems a lot of bother for not much payoff, but I’m glad I’ve solved the puzzle. And I must admit: If not for my lunch date, I never would have guessed.

Mark Herrmann is the Chief Counsel – Litigation and Global Chief Compliance Officer at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at inhouse@abovethelaw.com.

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