46 LEXPERT MAGAZINE
|
MARCH 2017
| SWISS VEREINS |
e KWM EUME verein controversy
certainly reverberates throughout the Ca-
nadian legal market. In just the past few
years, Norton Rose Fulbright has swal-
lowed up domestic mainstays Ogilvy
Renault LLP and MacLeod Dixon LLP;
Fraser Milner Casgrain LLP is now part
of Dentons' global juggernaut; and DLA
Piper entered the Canadian market via its
tie-up with Davis LLP.
ese combinations, and many others
around the world, were achieved by means
of a structure known as the Swiss verein,
an entity that allows its member firms to
join internationally under a single brand
without sharing revenue or profits, thereby
maintaining their independent status for
liability and regulatory purposes.
"e verein was originally intended for
small domestic social organizations but has
become a common structure for profes-
sional services firms seeking cross-border
combinations who need to address thorny
issues of local professional regulation that
prohibit many one-firm combinations,"
Reeser says. "e verein structure also
avoids undue complexity and cost associ-
ated with competing rules on taxation to
individual partners on worldwide opera-
tions and serves to accommodate widely
disparate cultural, economic and political
issues at the local operational level where
participation by other verein members
would be an unacceptable intrusion."
of collaboration and the sharing of oppor-
tunities, relationships, benefits and risks."
To critics, then, vereins are but a Band-
Aid solution designed to avoid the legal and
practical obstacles to true international
mergers in favour of an illusion driven by
a fear of missing the tidal wave of globaliza-
tion in the profession, or worse, by a desire
to shore up underperforming partnerships.
"e reality of the Swiss verein is that the
strategic imperative of developing an in-
ternational platform quickly before the
market is gone is more important than full
financial integration from day one," says
Tony Williams of Jomati Consultants LLP,
a UK-based legal consultancy.
However that may be, the fact remains
that vereins constituted five of the top
15 revenue-producing firms (Baker &
McKenzie, DLA Piper, Dentons, Hogan
Lovells and Norton Rose) on e Ameri-
can Lawyer's "e Global 100" list for
2015. But none of them cracked the top 50
in terms of profit per equity partner (PEP).
e highest-ranking verein by this mea-
sure was Baker & McKenzie, which stood
57th, followed by Hogan Lovells in 60th
position, and KWM in the 80th spot. It
is against this background that the fall of
KWM EUME must be analyzed.
Until the financial crisis in 2008, Ber-
win was among the UK's most successful
practices, focusing on investment funds,
private equity and real estate. e 2008 cri-
sis, however, undermined these practices,
which as reported by e American Law-
yer, made up more than 50 percent of the
firm's billings. Revenue fell 14 per cent in
the 2009 financial year, and PEP dropped
by almost 50 per cent. Partners began seek-
ing a merger.
Negotiations with US firm Proskauer
Rose LLP failed. One former partner told
e American Lawyer that Berwin's capital
was less than half of Proskauer's: a merger
would have required large capital infusions
and some partner de-equitizations. Capital
underfunding, partners said, was a chronic
problem, with little by way of profit invest-
ed back into the law firm. "In fact, every
current and former partner interviewed
agrees that the firm has struggled for com-
petent management since the resignation
of long-standing senior partner David Har-
rel, one of SJ Berwin's founding partners,
in 2006," e American Lawyer states.
Indeed, Nick Jarrett-Kerr and Ed We-
semann, writing in Edge International
Review, call Swiss vereins the "driving
influence" of international combinations
because the structure "assists firms in deal-
ing with the legal and functional hurdles of
international mergers." From this view, the
international combinations in the Canada
market may not have happened — or at
least not yet or on the scale that they did
— but for the facilitating verein structure.
Soon aer the Norton Rose Fulbright
merger, John Coleman, then the managing
partner of Norton Rose Canada LLP, told
Lexpert that a "financial merger would be a
good thing, but whether it is necessary is an
entirely different question." At about the
same time, Joe Andrew, Dentons' global
chair, told Lexpert that the verein "was the
most efficient structure for us to achieve
our goal of having a single firm using a
common brand."
Still, critics — with K&L Gates LLP's
former chairman Peter Kalis the most vo-
cal among them — insist that vereins are
merely loose associations of separate profit
pools that will never achieve the seamless
service and uniform professional excel-
lence that attracts clients to law firms that
are fully financially integrated. Kalis goes
so far as to maintain that vereins "ossify
differences" among law firms rather than
facilitating their elimination.
e financial integration marking the
traditional single-profit-pool partnership,
he argues, serves clients best because it al-
lows the structuring of incentives toward
an institutional goal of seamless service.
"Because all contributing ships rise with
the common tide, collaboration ranks atop
the pantheon of firm values," writes Kalis
in e American Lawyer. "Partners, offices,
and practice groups a half-planet away are
joined at the financial hip, and the most ob-
durate among them can see, or can be made
to see, the benefits to both clients and firm
PETER LUKASIEWICZ
>
GOWLING WLG
"The advice we got was that Swiss vereins were never
designed to be used by global professional services firms. …
From what I've read, the King Wood Mallesons affair would
have produced a substantially different outcome if KWM had
been a [company limited by guarantee] instead of a verein."
