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© 2019 AILFN ASSOCIATION OF INTERNATIONAL LAW FIRM NETWORKS

Law Firms and Multidisciplinary Networks

Updated: Jun 25, 2018




By Michael Reiss von Filski[1]


For the past five decades, law firms as well as accounting firms have tried to achieve broader coverage and obtain referrals through establishing and joining networks and associations of professional firms. The prevailing legal structures are mainly companies limited by guarantee, Delaware member corporations, and Swiss Vereins.[2]


The collapse of Italian dairy product giant Parmalat and the Enron case led to a restructuring of the regulatory framework for accounting Transnational Organisations and Practices (TOPS), resulting in higher regulation through the 8th EU Directive and the Statutory Audit Directive from 2006 as well as in the commonly accepted network definitions according to the International Federation of Accountants (IFAC). Consequently, there needs to be a differentiation between integrated networks of accounting firms and loose networks of accounting firms referred to as “alliances” or “associations,” regardless of their effective legal structure. Integrated networks of accounting firms require thorough independence checks prior to accepting new clients and are potentially exposed to more vicarious liability.[3]


Organisations consisting purely of law firms enjoy much more flexibility and are not yet subject to global regulations, restrictions, or limitations. It is unavoidable that potential conflicts arise from the different corporate structures chosen; in particular, conflicts of interest can even lead to malpractice suits against law firms, members of TOPS. The choice of the legal structure has, however, very little impact on vicarious liability for law firm networks. A substantial conflict can be identified by the market perception of clients and by elements of misrepresentation, in particular if networks of law firms label themselves as global law firms when in fact they are Swiss Vereins and therefore factually single-branded networks of independent firms.[4] A series of law firm networks may promote themselves as global law firms and be perceived as such, despite their structure as a Swiss Verein.[5]


Professional service firms have over the past century cooperated on an international scale in different ways. Similar to the correspondent bank network of the 19th century, international law firms and accounting firms have come to understand that it is essential for them to rely on strategic partners or associates abroad in order to serve clients better, particularly when it comes to transnational assignments.[6] Historically, a broad variety of different models has arisen, from very loose “clubs of friends” with no formal corporate structure to the more modern and often highly integrated and monitored firm model, using a single brand and following global standards, such as the “Big Four.”


The differentiation between accounting networks or alliances and their corresponding legal networks has initially been very easy; however, as a consequence of the Parmalat case and of a series of legal and regulatory alterations, governance and regulations changed considerably for accounting networks and associations, while they did not for the legal profession. The origin of accounting networks can be found in the need for listed U.S. companies to be audited in order to comply with the regulations of the Securities Exchange Commission (SEC).[7]


Law firm networks began to internationalise much later than the accounting profession,[8] since their clients’ needs differ from those of accounting firms. The latter had to be able to conduct standardised audits globally to comply with consolidated reporting for their nationally regulated clients. Law firms, however, could rely on vetted correspondent firms if and when a matter involved another jurisdiction. After the Second World War, law firms followed U.S. clients in particular, who began to expand abroad as a result of increased internationalisation, consequently referred to as “globalisation.”[9]

Read more of this article in Leaders in Legal Business.

[1] Michael Reiss von Filski is the global CEO of GGI and director of a Swiss-based family office and consulting firm, having more than 15 years’ experience in advisory services. He is accredited as observer to the European Parliament and serves in the Advisory Committee of EGIAN (European Group of International Accounting Networks and Associations, www.egian.eu) and is the chairman of AILFN (Association of International Law Firms Network, www.ailfn.com). Michael is a member of the International Advisory Board of LSM, the Louvain School of Management. He was a member of the Editorial Board of the International Accounting Bulletin and publishes articles on a regular basis. In his leisure time Michael enjoys classic cars, art and antiques, literature, heraldry, and nobiliary law, as well as shooting, fencing, and some sailing and horse riding.


Michael has a truly international background. His activities include several selected board memberships of national and international companies including holding companies, real estate companies, financial services providers, and luxury good corporations. He has executed many cross-border M&A transactions and participated in transnational tax and estate planning for individuals of high net worth. Michael was executive director of the Spanish Chamber of Commerce in Switzerland. Prior to that, he worked as a diplomat in Rome, New York, and Buenos Aires, finishing his diplomatic career in the rank of First Counsellor.


Michael studied international law, history, and modern literature in Zurich, Hagen, Madrid, and Manchester and holds an LL.M. in international commercial law. He is an honorary professor of international law.


Michael received the Presidential Lifetime Achievement Award from the Hon. President Barack Obama in 2016. He has been awarded several grand crosses, honours, and knighthoods from the Vatican, Spain, Portugal, Italy, Georgia, Hungary, Indonesia, and Vietnam, among others.


[2] Douglas R. Richmond & Matthew K. Corbin, Professional Responsibility and Liability Aspects of Vereins, the Swiss Army Knife of Global Law Firm Combinations, 88 St. John’s L. Rev. 917 (2014).


[3] BDO Seidman, LLP, v. Banco Espirito Santo International, etc., et al., Nos. 3D09-324, 09-197, 07-2746, 07-2472 (2010).


[4] Baker & McKenzie (numerous national partnerships); Dentons (Canadian, Chinese, European, U.K. and U.S. partnerships); DLA Piper (U.S. and international partnerships); Hogan Lovells (U.S. and international partnerships); King & Wood Mallesons (Australian, Chinese, Hong Kong, and European partnerships); Norton Rose Fulbright (U.S. and international partnerships); and Squire Patton Boggs (U.S., U.K., and Australian partnerships).


[5] Peter Kalis, Grand Illusion, American Lawyer (May 2011), https://www.law.com/americanlawyer/almID/1202490654307/.


[6] Marshall Van Alstyne, The State of Network Organizations: A Survey of Three Frameworks (1996), and his citations, J. of Org. Computing 1: “Sociologists argue that social patterns of human interaction transcend reductionist economic agendas: ‘The pursuit of economic goals is typically accompanied by [such] noneconomic [goals] as sociability, approval, status, and power... Economic action is socially situated and cannot be explained by reference to individual motives alone,’” citing M. Granovetter, Problems of Explanation in Economic Sociology in Networks and Organizations: Structure, Form and Action 471-491 (N. Nohria & Robert G. Eccles, eds., Harvard Business School Press 1992).


[7] M. Barrett et al., Globalization and the Coordinating of Work in Multinational Audits, 30 Acct., Orgs. and Soc’y 1 (2005).


[8] Richard L. Abel, Transnational Law Practice, 44 Case W. Res. L. Rev. 737 (1994).


[9] James R. Faulconbridge et al., Global Law Firms: Globalization and Organizational Spaces of Cross-Border Legal Work, 28 N.W. J. of Int’l L. & Bus. 455 (Spring 2008).

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