When is a law firm not a law firm?
That sounds like the setup to the driest joke of all time. In fact, it's the subject of serious debate within the industry.
Take Norton Rose. This summer the London-based firm will finally secure a long-sought-after American deal, when it combines with Fulbright & Jaworski to create a 3,800-lawyer, 55-office giant that will rank among the world's 10 largest law firms by revenue and second to only Baker & McKenzie by attorney head count.
The move marks the latest step in a remarkable transformation for Norton Rose. Less than a decade ago, it was in danger of sliding into insignificance. While the firm was a major competitor to the Magic Circle as recently as the early 1990s, a series of ill-judged strategic decisions left it floundering in an increasingly competitive midmarket.
That all changed in 2009, when a resurgent Norton Rose announced that it would combine with Deacons, one of Australia's largest firms. Just over 12 months later, it garnered more headlines by pulling off a three-way tie-up with Canada's Ogilvy Renault and South Africa's Deneys Reitz. In early 2012, it added another top Canadian practice, Macleod Dixon.
The moves have catapulted the firm onto the global stage. In The American Lawyer's 2010 Global 100 survey, which ranks the world's 100 largest law firms by revenue, Norton Rose placed 67th. This year, it was 14th, with revenues of $1.32 billion—an increase of 175 percent in just two years. With aggregate revenues of around $2 billion, the new firm, Norton Rose Fulbright, would have ranked sixth—ahead of Magic Circle firms Linklaters, Allen & Overy, and Freshfields Bruckhaus Deringer.
On paper, it should be celebrated as one of the legal industry's great modern success stories. But not everyone is convinced. Some would argue that Norton Rose isn't a law firm at all, thanks to its use of a little-known corporate holding structure called the Swiss verein. Put simply, a verein allows participating members to join forces yet retain their existing forms. So, while each of the group's six firms now practice as Norton Rose Fulbright, they remain distinct legal entities and are not financially integrated.
Norton Rose is not alone. Almost every major cross-border law firm merger of the past three years has utilized the verein, including the tie-ups that created Hogan Lovells, King & Wood Mallesons, Squire Sanders, and SNR Denton. Baker & McKenzie and DLA Piper are also structured as vereins.
Popularity is growing
It's easy to see why the structure is becoming so popular. Combining through a verein separates liabilities and removes many of the common hurdles to large-scale combinations, such as balancing disparate profitabilities or the complex and potentially costly reconciliation of contrasting tax, accounting, and partner compensation systems. (This is a particular challenge in transatlantic tie-ups, with U.S. firms generally operating on a cash-based accounting system on a calendar fiscal year, and United Kingdom firms typically utilizing an accrual-based setup with a fiscal year that ends April 30. There is also the matter of squaring U.S. firms' predilection for more performance-based partner compensation systems with the U.K.'s traditional lockstep approach.)
A verein structure also permits greater flexibility for future expansion, with the option for new members to join the group. It is highly unlikely that Norton Rose could have successfully completed five substantial deals in the space of just three years through conventional mergers. "A full financial merger is a hugely time-consuming and distracting business," says Norton Rose's global CEO, Peter Martyr. "With a verein, we could focus on business immediately."
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