Herbert Smith's Alliance With Gleiss Lutz And Stibbe: An Alternative To The Single-Branded Global Firm

Thursday, January 1, 2004 - 01:00
Herbert Smith
Richard Fleck

Editor: Can I ask each of you to provide our readers with something of your background?

Metzelaar: I am the Managing Partner of Stibbe, which is one of the three firms that constitute the Herbert Smith/Gleiss Lutz/Stibbe alliance. I have spent my entire career with Stibbe, which I joined in 1982 following my law studies at Leiden University and military service.

Wegen: I have been with Gleiss Lutz for 20 years, which is my entire legal career. I studied law at the Universities of Hamburg, Geneva and Tübingen and at Harvard Law School. I am admitted in Germany and in New York.

Fleck: At Herbert Smith I am what we call a Practice Partner, which means I am responsible for developing the strategies that will drive the firm and its practice forward, all of which is presented to the firm through our governance structure. I have been at Herbert Smith for 33 years, following my studies for a law degree.

Editor: Could you tell us something about the origin of your respective firms?

Herbert Smith was started in 1882 in London and continued to be a small firm through the 1950's. At the end of the 50's it began to grow, and there was substantial expansion beginning in the 1970's. Today Herbert Smith is a full-service firm with about 1800 members of staff.

Metzelaar: Stibbe's modern life began in the late 1960's. There was a great deal of growth in the 80's culminating in a merger with a Belgian firm in 1990. Today we have more than 300 lawyers.

Wegen: Gleiss was founded in Stuttgart in 1949 by Dr. Alfred Gleiss, an expert in German cartel law, who had gone into voluntary exile in Scandinavia during the period of the Third Reich. Returning to Germany after the war, he was requested by the Allied Occupation Authorities for help in dismantling the Hitler-era cartels. From very small beginnings, the firm grew into a large full-service firm over the next 50 years. Today the firm has about 225 lawyers. Gleiss Lutz is a full-service firm with a particular focus on corporate and commercial law.

Editor: How did the alliance among the three firms originate?

In the late 90's there was a great effort on the part of the UK firms to develop a Pan-European capability. They went about this by either setting up a new office and recruiting locally to staff it or by merging with smaller firms that they then proceeded to build up. We at Herbert Smith have always taken the view that opening our own offices in mature legal jurisdictions was not a sensible way of proceeding. We took the view that if you simply open an office and try to recruit people for it, you are not going to achieve a capability that will compare favorably with that of the established legal firms. Our approach was to look for firms of high quality and established reputations with whom we might develop a relationship.
At a certain moment a number of rather important mergers between German and English law firms occurred: Pünder, Volhard, Weber & Axter with Clifford Chance, Bruckhaus with Freshfields, Oppenhoff with Linklaters and so on. While all of this was going on, we were engaged in talks with Gleiss, but what we were exploring were ways of establishing a relationship which did not involve a merger. There were two basic reasons for this. In the first place, we do not believe it makes any sense to try to tell people who have been running a successful business practice in Germany for many years how to run that practice. Secondly, we believe that the important thing to focus on in such a relationship is not the governance issues or the sharing of profits, but rather on how best to provide the most effective and most integrated service to our clients. We had a number of meetings in the course of which these ideas were discussed at considerable length, and the upshot of all this was a formal alliance between Gleiss and Herbert Smith.
When I say formal alliance I mean that there is an agreement between the two firms under which we commit to work together toward providing the very finest service we can to our clients, and to cooperate with each other in many other areas, but what it makes abundantly clear is that each firm is free to manage its financial affairs and partnership governance matters as it sees fit.

Some time after Herbert Smith and Gleiss had finalized their relationship, we discussed bringing Stibbe into the arrangement. That took place about eighteen months after the initial Herbert Smith-Gleiss undertaking, and Stibbe joined the alliance on an equivalent basis.

Editor: What do you mean by seamless service?

One of the guiding principles in our relationship is that the firm originating the work is the one to determine how it is to be done. The reason for this is that, in Germany for example, the client is looking for a work-product that is quite different from one done in Anglo-American style. In such a case, and even if Herbert Smith was actually doing the work, we would be guided by Gleiss as to how to go about it and as to what the work product should look like when delivered to the client. Seamless service is about providing service in such a way that the three firms contributing to it are indistinguishable.

Editor: Can you tell our readers in what way your alliance differs from the model that seems to be in vogue at the moment, that of the single-branded global firm?

We aim to deliver a certain quality of service that is among the very best in the international market of legal services. The global firms have precisely the same objective. Which business model is the most conducive to the delivery of top quality service across a number of jurisdictions? I think that some of the global firms see the world from the perspective of the founding firm, which is often American. That is, the offices abroad are operated in such a way as to support the interests of the parent firm, and they are driven by that imperative, not by the anything derived from the environment in which they operate.

Fleck: I think what you get with this model is a greater degree of integration than with a merged firm. Because we are not merged, we have to work very hard at the relationships. If I wish Stibbe to do something, I must explain the matter, and this results in a two-way discussion. As a result, we do not take each other for granted. Another way of putting this is that lacking a formal relationship structure acts as a stimulus. That is, without formal supports for the relationship, the only thing that holds it together is the common vision of people who are willing to make the effort to ensure that it works. Our model permits a firm to avoid being subordinated or submerged, but rather to act as an equal player on a playing field occupied by firms of the highest quality and providing advice at the top level.

Wegen: When I introduce my firm I often say that it is the largest non-merged firm in Germany. This is helpful in recruiting the talent we must have to maintain our position as a leading law firm. We are very attractive as a result of the alliance because it gives particularly young lawyers the international dimension they seek today and, at the same time, provides them with the autonomy, the latitude and the ability to function within their own firm's culture which does not exist to anywhere the same degree in the global model.

Editor: You have described three strong institutional personalities that are trying to work together but, at the same time, trying to maintain three distinct firm cultures. This would appear to be a difficult thing to accomplish.

It is inevitable that a large partnership will include people with a great variety of views. At Herbert Smith we have partners whose practice is substantially domestic. Their attitude toward what is being done on the international front is very different from that of a partner involved in, say, international financings. At the time we entered into discussions with Gleiss I am sure some of our partners, whose practice areas would be minimally affected, wondered whether any of this was going to be worthwhile. Today I think it is universally recognized at Herbert Smith that the development of an international capability has been hugely beneficial for the firm. And not merely because of an increased volume of work or a larger client base. Our international presence is very important in terms of public image and of our standing with our peers, and in the case of recruitment of young talent it is absolutely essential.

Wegen: The personal relationships we have developed, firm to firm, are extremely important in addressing any issues that derive from cultural or institutional personality differences. At the same time, we are all conscious of the necessary tension that exists between autonomy and uniformity. We do seek to maintain our separate identities, but at the same time we are working, and working very hard, toward the achievement of a certain uniformity in our branding and marketing efforts. Our clients are the beneficiaries of a seamless service, and they expect us to relate to them in a way in which the three firms that constitute our alliance are indistinguishable.

Editor: What does the future hold? Do you see your relationship evolving into something different from what it is today?

Where is this relationship going? In the first place, we have always said that our objective is to have a Pan-European capability in the key jurisdictions. Whether through membership in the alliance or through other relationships, an objective each firm has is to ensure, and hopefully enhance, its ability to provide quality advice. Secondly, we all agree that we must be responsive to the market. If the market tells us it is comfortable with the relationship we have in place, there is little reason to change it. If, however, it appears that the alliance is not succeeding, and the single-branded global firm proves to be the appropriate model to meet market needs, then we shall have to consider a further integration of our three firms. We all recognize that our relationship, whatever its form, is driven by the market.

Wegen: At the time of the initial discussions between Gleiss and Herbert Smith we undertook due diligence on both sides to determine whether there were systemic differences in the partnership model of each firm to preclude integration. We concluded that there were no such differences. At the same time, the attractions of the alliance model appeared so obvious to us that we did not pursue the alternatives leading to greater integration. The groundwork has been completed, however, and if greater integration is indicated we are prepared to go forward.

Fleck: One of the things law firms forget is that clients have their own ideas. Virtually all of the Fortune 250 companies have offices throughout the world and established legal relationships in the places where they have operations. Once a firm gets into the pattern of merging with local firms, there is a risk that the client will perceive they are being forced down a particular route as to who is going to do the work. Our alliance takes that into account. Herbert Smith does not say to its clients that they must use Gleiss in Germany or Stibbe in Belgium or Holland. Indeed, we have all found that long-established relationships ought not to be disturbed, if they are working well, and that the clients appreciate an arrangement like ours that permits them to work with whom they like without pressure from us. I think that attitude engenders respect for us among our clients that would not be there if we were perceived as forcing the fruits of our merger policies on them.

Editor: Is there anything you would like to add?

There is one message I would like to convey to your readers. This initiative of ours is an attempt to respond to the growing market for multi-jurisdictional legal services in a way which focuses on the provision of service at the top level of quality in every jurisdiction in which the alliance operates. There is an old saying that you are only as good as your weakest elements. We are not willing to have weak elements.