KWM deconstruction a lesson for foreign tie-ups

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The European partnership of King & Wood Mallesons (KWM) has recently been haunted by news of its personnel departure and possible takeover by others, but the law firm’s Swiss verein structure probably implies a limited influence on the rest of the platform.

KWM-178053199One of the benefits of the verein structure is that “although its Europe part catches a cold, the rest of the platform does not necessarily get the flu”, Kent Zimmermann, a consultant of Zeughauser Group, a consultancy for law firms, told Asia Business Law Journal. Since the different partnerships on the KWM platform are not fully financially integrated, it should not be difficult to detach any part.

As this issue went to press, KWM’s European arm had gone into administration. According to KWM China’s statement, its European partnership has officially quit the KWM verein. The administrators are now negotiating with several parties, including KWM China, over the purchase of the assets of KWM’s European arm.

Although there might be bumps in the road, Zimmermann said it was possible that the rest of the firm would be fine, and perhaps even stronger, after this. “Because they don’t share profits, so the rest of KWM will not be affected as much as if they are fully financially integrated,” he said.

In its statement, KWM China said a number of prominent partners and their teams from the European branch would join the offices that KWM China has set up in Europe and the Middle East as the firm’s new presence in Europe.

A spokesperson for KWM Australia told Asia Business Law Journal that “under the verein structure used by KWM, KWM Australia is a separate legal, functional and financial partnership from KWM Europe”, and “there is no financial integration or interdependence between them.

“Any financial instability or any other financial or business issues in KWM EUME will have no impact on KWM Australia, whether financial or operational,” the spokesperson said. “The stability of KWM Australia – and, in fact, its business and financial strength and performance – are and will be unaffected by any event that may occur in KWM EUME.

“In fact, the ‘core’ of KWM – KWM Australia, KWM China, KWM Hong Kong and KWM Singapore – have strengthened their positions in terms of brand, reputation, league tables, client feedback and financial performance over the last two years, and while we always believe that we can continue to improve our client experience and never rest on our laurels, the core of the firm, in business terms, is stronger than it has ever been.”

PRC law firms are longing for a growing presence on the global stage, as the Chinese market has been increasingly connected with the world economy. Some PRC firms have also established a similar kind of combination with foreign law firms like that of KWM, and many are mulling the possibilities. They may not encounter the same issues that KWM is undergoing in Europe, but they are prone to bigger headaches if the combination option is not carefully assessed.

In general, Zimmermann said a successful combination usually had at least two basic ingredients. First, the firms considering combining with each other have common strengths so that they can create a dream team for a certain practice, or in serving a particular industry sector or geography. Second, those firms have shared aspirations about the future, ready to focus on the same or a similar direction.

“Early in your discussions with another firm about combination, you need to define a value proposition that is extremely compelling to both the clients and the talents who you are keen to keep and attract,” said Zimmerman. “The value proposition needs to differentiate the combined law firm from its competitors. You certainly want to have a combination that not only advances the strategy of both firms, but also provides incentives for the lawyers and the firms to grow clients across the platform, to serve clients across geographies, and to make the most out of the combination.”

Before looking for a combination, it is important to be as strong as possible on your own, he said. “The reason is that if you bring your firm to a higher level, you may have better options when it comes to firms that may have interest in talking with you.”

It is also necessary for PRC firms to understand themselves first. “The Chinese firms should also focus on coming to consensus among their partners on what their aspirations are for the firm’s future. The reason is that you want to combine with those firms that can help you achieve your existing aspirations.

In other words, you want to look for firms that can help you accelerate your progress towards achieving your aspirations – that is, your aspirations independent of whether you do a deal.”