Network Governance, Finance, and Operations

Updated: Jun 25, 2018

In traditional law firm networks, governance and operations will define the stature and overall quality of the network.

They are joined because the nature of the network is to create a structure in which members can pursue their personal interests. In attaining these interests, they benefit themselves, the other members, and the network itself. Governance and operations issues overlap because governance of the network can have a significant influence on the efficiency the network.

This article will analyze governance and operations from the point of view of their interactions. It will not analyze the governance of the integrated vereins, since they operate closer to the "command and control" model of a law firm. They do have similar issues, as the individual firms are independent and the partners may not be partners of the verein.

Governance is defined as:
"[t]he set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled."

Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors, suppliers, customers, and communities affected by the corporation’s activities. Internal stakeholders are the board of directors, executives, and other employees. Corporate governance is a multifaceted subject.

Governance in a network is different than corporate governance. Network governance constitutes a "distinct form of coordinating economic activity," which contrasts and competes with markets and hierarchies. As such, governance networks distinguish themselves from the hierarchical control of the state and the competitive regulation of the market in at least three ways: In terms of the relationship between the actors, governance networks can be described as a "pluricentric governance system" as opposed to the "unicentric system of state rule and the multicentric system of market competition." In contrast to state rule and competitive market regulation, governance networks involve a large number of interdependent actors who interact in order to produce public purpose. In terms of decision making, governance networks are based on negotiation rationality as opposed to the substantial rationality that governs state rule and the procedural rationality that governs market competition.

Compliance is ensured through trust and political obligation that, over time, becomes sustained by self-constituted rules and norms. Law firm networks are also different from other forms of network collaborative efforts in a number of ways. As stated, their objectives are to support the business interests of their independent members. They can also act for their own self-interests. The network itself has vast inherent authority and can require members to comply with agreed-on policies. Members, as professional firms, are subject to government and professional regulations. Professional services networks are subject to these same regulations. As organizations of professionals, members have strong feelings on how the organization should be governed, operate, and function -- because they are professionals.

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