Editor: Where does the globalization of law practice stand today?
Thomson: Globalization of law practice is increasing rapidly, driven by the demands of clients who have increasing presence throughout the world. They want unified, cost-effective, timely solutions to complex legal problems; and there are only a few firms, of which Jones Day is one, which are able to deliver those solutions in most areas around the world.
Editor: Which law firms are the most prominent competitors with Jones Day?
Clossey: Essentially there are two groups. One group is often called the "Global 10" law firms - the very large firms with 2,000 to 3,000 lawyers and many substantial offices outside the U.S. For example, our London office, the fourth largest Jones Day office, has more than 175 lawyers, mostly English solicitors. The concept of the global firms is to be in all the major centers of industry and finance. Today the "Global 10" include four of the five major English solicitor firms - Clifford Chance, Freshfields, Linklaters, and Allen and Overy. Because they are English, they come with England's historical imprimatur, which gives them quite a solid position in the old Empire and Commonwealth countries. In the U.S. there are 4 or 5 global firms. Jones Day is one of the largest U.S.-based firms with more than 2,200 lawyers. Others on the list would include Shearman & Sterling, White & Case, and Cleary Gottlieb.
The second group of global firms are the finance-focused strong firms such as Sullivan & Cromwell, Cravath, Davis Polk and Simpson Thatcher in New York; and Slaughter & May in London. The approach of these firms is to be relatively small, with 600 or 700 lawyers, and a relatively small number of international offices concentrated in the major finance centers.
Many other firms are trying to join one or the other group, but it is difficult and expensive. For example, most of these firms do not have the worldwide structure. Bolting together firms that do not work as one firm does not provide benefits to the clients or the firm. The advantages of a global firm are the synergies of people working together efficiently.
Editor: What characteristics will define the winners?
Thomson: Any firm that wants to be in the winners' category has to be strong in New York and London, the two most important financial and economic cities today. In Jones Day's case, New York is now our biggest office.
Editor: Why is it important for global companies to engage law firms with an international presence?
Clossey: I think the most important factor is quality of service. If a global corporation is acquiring a company that has assets in many different parts of the world, it wants the same quality of service everywhere. Second is the firm's ability to direct and to oversee all the work and to do it efficiently and on a timely basis.
Thomson: Clients these days are increasingly focused on getting comprehensive and coordinated advice whereby issues are addressed in a similar way and where the answers are consistent with each other, to the extent possible.
Editor: What would you say are the key economic or political events which underlie this phenomenon?
Clossey: I'd say there are two. One is the globalization of industry and of finance. The other is the increasing acceptance of the role of the lawyer in the way that U.S. lawyers are used as part of a business team. European firms that stuck to the civil law model, such as many French and German firms, have found it increasingly difficult to compete because they do not have the resources and the experience.
Editor: What is happening in our two largest emerging markets, India and China?
Clossey: China has undergone a radical transformation over a period of less than a decade, reflecting the great success of China's leaders in keeping a fairly tight political system intact during a vast expansion of the economic system. A first-time visitor to China would have a hard time distinguishing Shanghai from some big, vibrant U.S. city. Ten years ago experts projected equivalent changes in India because India and China are roughly the same size; India has the English language and the historic advantage of the rule of law. But India got off to a very bad start. Recently it has been developing economically in a way that attracts foreign direct investment; so, I think India is finally beginning to hit its stride.
Editor: How do you approach these markets?
Clossey: The Firm has an active India practice and it has four offices in what we call "Greater China" - Beijing, Shanghai, Hong Kong, and Taiwan. Today there are nearly 90 lawyers in those offices, a very big commitment; and we expect substantial growth in the future. Our China practice is an integrated practice; it is clearly the most important part of our Asian practice, and I am sure it will be for many years to come.
Editor: Please describe the type of law practiced in your Mainland China offices.
Clossey: Our practice in Greater China breaks down into two broad categories: representation of U.S. and European companies in connection with investments in China and participation in the dispute resolution process, principally in arbitration. Foreign firms are prohibited from practicing Chinese law; so we do not do that. When we need Chinese law advice, we turn to Chinese firms.
Editor: Is it still difficult to enforce contracts in China?
Clossey: Enforcement is tough in China. When U.S. companies are investing capital, they want to get as much protection as they possibly can. Typically, there are arbitration clauses, but today there often is difficulty enforcing an arbitration award in China. Most arbitrations with Chinese companies take place either in the PRC, where the practice is becoming very active, or in Hong Kong, the traditional center of arbitration.
Editor: Do you find that you have the same difficulties in a place like Singapore, which had been under British rule for a very long time?
Clossey: In some respects Singapore is the opposite, because it is a country of many laws that are strictly enforced. Contract rights in Singapore are respected and enforced. Singapore is a regional base from which services are provided throughout Southeast Asia; for example, there are many bankers and lawyers based there. About five years ago, the Singapore government decided to establish a serious arbitration practice in Singapore. They have developed it, and it is becoming an alternative in Asia to Hong Kong.
Editor: What is the status of the rule of law in Europe, specifically Eastern Europe, and Russia?
Thomson: I think practicing law is challenging in Eastern Europe. Many of these countries had their 15 minutes of "legal fame" when they transferred to market economies. There is only one such economy that is very sizable by Western standards, namely Poland with 40 million people, although much of the economy continues to be rural. By comparison, Hungary has only about 10 million people.
Russia is a much different situation. It is going to be a critically important component of the world economy, due in large part to its immense wealth in natural resources. Energy companies, among others, are making huge investments there. Last year, Jones Day represented the shareholders of the third largest Russian oil company, TNK, which did a widely publicized deal with BPplc. The Russians felt this transaction was so important that the closing reception was hosted in the Kremlin.
Enforcing a contract in a Russian court has been considered problematic. Russian courts are still somewhat lacking in resources and sophistication by Western standards. For the time being, contracts for larger transactions frequently call for dispute resolution outside Russia in judicial or arbitral proceedings applying New York or English law. Increasingly, however, participants in smaller transactions are agreeing to resolve disputes in Russian courts under Russian law.
All in all, not only Russian counterparties, but also the Russian government, are recognizing the importance of the rule of law in attracting foreign investment. Jones Day is moving towards establishing an accredited branch office in Russia in support of our rapidly growing practice there.
Editor: Our readers have read about the Middle East as viewed by Emad Khalil, one of your lawyers there. Would you give us an update about the viability of the rule of law in that area?
Clossey: The pace of inbound investment is increasing in places like Saudi Arabia and the Gulf countries. This is a major development resulting from the changes taking place economically and politically. We have clients that are active in Iraq now; most of them are in businesses that require minimal capital investments so they can move in and move out without major economic risk. We are also representing companies which are considering substantial capital investments, and their decisions are significantly influenced by the economic and political situation.
Editor: Are there any particular industries that you wish to comment on?
Clossey: The two dominant industries that come to mind are energy and technology. The energy industry is enormous, world-wide and powerful. These industries create significant opportunities for law firms. The core concept of project finance is to build assets which are financed not by the credit worthiness of an issuer but by various components of the structure. Russia, China and the Middle East provide many good examples. The technology and intellectual property practice is becoming important both in Europe and in Asia. We have an office in Munich, which is the heart of this business in the European community because the European and German patent offices are both located there. In Asia we see it everywhere. Each of our four offices in Greater China has a significant and growing IP practice.
Editor: I would like ask you both about the rule of law. Do you feel that there is a greater consciousness of the rule of law in both developed and developing countries?
Thomson: There is certainly a greater consciousness. The major developing countries, which would of course include China and India, recognize that the rule of law is essential to being part of the advanced global economy. The attraction of sizable capital investment requires, in part, confidence that the answers to key legal questions can be predicted with reasonable certainty and that business disputes can be promptly and fairly resolved. Whether that confidence can be engendered quickly in these countries is uncertain. Although the Chinese have made notable advances in their legal system, they cannot yet be said, in Western business terms, to have an effective rule of law. India has had an established legal practice and court system for generations, but dispute resolution in Indian courts can be extremely time-consuming.
Clossey: Latin America is often forgotten because of its relatively small importance to most U.S. companies in comparison with Europe and Asia. Jones Day has a significant Latin American practice, doing primarily M&A and financing work for both U.S. and Latin American clients. We are active in all markets. Historically, the two large, relatively steady markets are Brazil and Mexico. Argentina, Chile and a few other countries come in and out of vogue. In these countries there is the belief that at some level the rule of law does exist. Naturally, the price of capital is related to the strength of the rule of law.