What do FIFA and several of the world’s largest law firms by revenue have in common? Write your own punchline, but the correct answer here is the Swiss Verein model.
And indeed, much like FIFA, for the globetrotting firms which employ the Verein model, controversy abounds at every turn. Since Baker McKenzie became the first law firm to pursue a Verein in 2004, members of traditional partnerships have looked down their noses.
Chief among the criticisms: ‘It’s not a real merger.’
In a way, it is an easy enough critique to understand from the perspective of a leader of a firm that has been through the trauma of a full financial merger, in doing so tackling thorny integration questions around cultural alignment and profit pools head-on. The Verein model, which uses a looser ‘membership’ structure (not unlike the many national Football Associations which sit under FIFA), allows firms to tie up with international law firms, sharing branding and often back-office functions, without having to navigate onerous regulatory and integration hurdles.
One Global 100 managing partner is scornful: ‘I do think the Swiss Verein structure is a bit of a cheat. It’s an attempt to have your cake and eat it too. Often it’s trying to present a firm as a one-stop-shop whereas, in reality, it is no such thing.’
The crucial question is, do the ends justify the means? To answer that question, LB has charted the ten-year performance of Verein firms DLA Piper, Norton Rose Fulbright (NRF), Baker McKenzie, Squire Patton Boggs (SPB) and CMS. Arguably the most notable Verein firm, Dentons, often described as having a ‘franchise’ model, warrants an especially deep dive (see box below).
Since its 2017 transatlantic tie-up, Eversheds Sutherland’s Verein-style model is also worth a look. Co-chief executive Lee Ranson, who assumed the role shortly after the merger, asserts that the firm is distinctly not a Verein, rather a ‘company limited by guarantee’; a close relative of the Verein. The questionable reputation of Vereins helped to inform management’s decision to take a different approach.
‘FIFA is a Verein and it hardly has a glittering reputation! We wondered if there was something odd with the structure, so we decided to do something slightly different.’
Lee Ranson, Eversheds Sutherland
Says Ranson: ‘When we were looking at the merger in 2017 there was a lot of criticism around Vereins. FIFA is a Verein and it hardly has a glittering reputation! We wondered if there was something odd with the structure, so we decided to do something slightly different.’
Good behaviour
The logical place to start is with financial metrics – how have the Verein firms fared during the last decade of the Global 100?
On paper, the numbers make for a bullish picture. In the last ten years, CMS’ revenues have expanded 89%, with DLA’s up 62% and NRF’s increasing 59%. For its part, SPB’s turnover has grown 54% and Bakers’ has increased 46% in that timeframe. Dentons meanwhile has fared even better, with revenues surging 313% in the last decade (for more detail on the Verein firms’ various global associations, see box, below).
However, when viewed in the context of the performance of non-Verein peers, the numbers are not quite so compelling. Non-Verein firms have clearly also seen breakneck revenue growth.
Turnover at Latham & Watkins has ballooned 155% in the same timeframe, while Kirkland & Ellis has jumped from ninth in 2012 to the largest firm in the world by revenue in 2022, spring-boarded by an astonishing 245% rise in turnover.
On such comparison, the double-digit increases seen in the Verein contingent seem ordinary. Canvassing the market, many commentators say that rapid geographic expansion often comes at the price of quality control. Says one Global 100 managing partner: ‘I wouldn’t want to be a partner at a Verein firm. They seem to lose quite a lot of partners, and those firms are never going to do the premium work. The quality at somewhere like Dentons is quite patchy.’
When asked if international growth justifies the strategy, one managing partner is sarcastic: ‘The model is all well and good until the client actually has to deal with the “top quality” lawyers of that amazing international law firm.’
Putting this perceived lack of quality to the test via Legal 500 rankings, (see ‘Verein check: how the big six global players have grown over ten years’), the worldwide number of Legal 500 rankings for each of the Verein firms have been charted over ten years. The numbers are telling. Dentons’ total number of rankings have jumped a punchy 106%, albeit those numbers are buoyed by the firm’s long list of global combinations adding sheer scale. The 2015 combination with Chinese firm Dacheng added 4,000 lawyers alone.
And yet, while there were respectable scores (CMS sees a 68% increase in rankings, DLA is up 58% and Baker McKenzie has grown its number of rankings by 31%) SPB and NRF grew only 6% apiece over ten years.
The Verein print
- Baker McKenzie
Baker & McKenzie International (Baker McKenzie) is a global law firm structured as a Swiss Verein which operates through a number of professional firms and constituent entities (the member firms) located throughout the world to provide legal and other client related professional services. - CMS
CMS Legal Services EEIG is structured as European Economic Interest Grouping that co-ordinates 18 member firms, each of which are independently licensed and regulated. - Dentons
Dentons is structured as a Swiss Verein. It is comprised of 43 member firms and affiliates, as well as one strategic alliance, each of which is its own legal practice. - DLA Piper
DLA Piper’s business is governed by DLA Piper International LLP, which is not itself engaged in delivering legal services. These are instead provided through its members, 49 separately constituted legal entities. - Eversheds Sutherland
Eversheds Sutherland (International) LLP and Eversheds Sutherland (US) LLP are members of Eversheds Sutherland Ltd, a company limited by guarantee. The two entities were created as a result of the 2017 merger between Eversheds and Sutherland, Asbill & Brennan. - Squire Patton Boggs
Squire Patton Boggs International Association (a Swiss Verein) does not itself provide client services. Such services are provided solely by its members, Squire Patton Boggs (US) LLP and Squire Patton Boggs (UK) LLP, and their respective affiliated entities. The two platforms were established following the union of Patton Boggs and Squire Sanders in 2014. - Norton Rose Fulbright
Norton Rose Fulbright US LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP and Norton Rose Fulbright South Africa Inc are separate legal entities and all of them are members of Norton Rose Fulbright Verein, a Swiss Verein.
Delving deeper, of the six firms analysed, only CMS has increased its share of Tier 1 Legal 500 rankings over the decade, from 23% to 27%. Baker McKenzie has stayed flat at 33%, with the rest seeing declines: -10% at Dentons, -7% at SPB, -5% at NRF and -3% at DLA.
Critics may leap on this as evidence of a decline in standards. After all, how can you expect quality work globally if the firm is not totally unified on profits and financial incentives? A global 100 managing partner says: ‘If you ask people to work together well, about 50% will and the rest will be selfish. If you pay people to work together well, about 98% will. That, in a nutshell, is why the
integrated model is better. You’re more incentivised to collaborate.’
But this comment doesn’t explain the greater picture – there is nothing inherent in the Verein model which means those firms cannot incentivise cross-selling and quality control. SPB’s European managing partner Jonathan Jones answers the point: ‘Although we are a Swiss Verein, with two LLPs, we operate as one business. We do everything as one business to the extent that we are regulatorily permitted to do so. Having a Swiss Verein in our structure has been useful in enabling us to get over those regulatory challenges in a manner which is culturally consistent with our business overall.’
Zulon Begum, employment and partnership law partner at CM Murray and adviser to law firms on operating Swiss Vereins, adds: ‘I don’t think you can assume that if a firm is a Verein then it isn’t integrated. A Verein just makes it easier to add members as you go along. You can’t dismiss a firm just because a Verein means its profits are not aligned.’
Case in point, Eversheds Sutherland. Again, while not strictly a Verein, the firm opted for a looser association for the 2017 merger between UK firm Eversheds and the American Sutherland Asbill & Brennan, with the firm operating under separate US and international LLPs.
Ranson is very much alive to the potential pitfalls of incentivisation: ‘The model of most firms which operate in our space is that they want to be strong locally but connected globally. A Verein allows you to do that more easily because you get a better balance between local and global. The danger is creating a structure that prioritises one above the other. You get that [uncollaborative] behaviour. People quickly realise what is more important. It’s not just the Verein, you have to have very clear incentives for the global point.
‘A Verein gives you the name and the marketing materials, but if you don’t change anything else, and you’re effectively just a local firm under a franchise, that isn’t the answer at all.’
The firm has sought to address the issue with a ‘centralised pot’ of bonuses which can be awarded throughout the network to reward ‘good behaviour’ when it comes to referrals. Ranson also expects his divisional heads to ensure all parts of the global business are aligned. ‘They’re working to ensure what’s being done is all linked up globally while also being strong locally,’ he says.
So far, so good. Since 2017 the merged firm has enjoyed an eye-catching 152% upturn in revenues, swelling from $595m to over $1.5bn. In Global 100 terms, Eversheds Sutherland has been catapulted from 70th to 34th place in that timespan.
Jones is confident that SPB has struck the right balance. ‘As an organisation we are LLP agnostic. The driver around decisions, business or otherwise and whichever LLP may be involved, is what is best for the overall business. You don’t get that in a franchise model which is necessarily focussed on the entity making the decision.’
Dentons, largely viewed as the main proponent of that model, does not have shared profits. But UK and EMEA chief executive Paul Jarvis insists that the firm’s Verein members share everything else, including compliance functions, conflict checking, IT and global branding.
‘NRF is not fully integrated and has achieved huge global scale much quicker than if it had tried the integrated model in every jurisdiction.’
Zulon Begum, CM Murray
This line of thinking is shared by NRF. Global chief executive Gerry Pecht argues that its Verein structure allows its global members to operate independently from a financial standpoint but function as a ‘co-ordinated practice’. Pecht says: ‘Our decision was to focus on the clients and their business rather than on our own internal structures.’
Pecht also claims that it has ‘dramatically increased [its] business opportunities by going global’, difficult to dispute, given the firm’s international expansion to the US, Australia, Canada and beyond since 2010. For Begum, this alone can be enough to justify the strategy: ‘NRF is not fully integrated and look at what it has done. The firm has achieved huge global scale much quicker than if it had tried the integrated model in every jurisdiction.’
Suffice it to say, this view is not widely held. When questioned about DLA’s rapid rise from regional UK outfit to global behemoth via the Verein approach, one managing partner scoffed: ‘Does DLA prove the concept? Not for me. Whenever we hire people from those kinds of firms, we always hear the same thing: “Your model is much better.” You’re right when you say that, in terms of trajectory and performance, a firm like DLA has done well, but what is it like to actually work there?’
This view chimes with Griffiths. ‘What people dislike about the mega-sized Verien model is the corporate structure within a legal environment. Firms like that have tended to alienate the practice heads and the top practitioners – they don’t like feeling as if they don’t have control of their business. It’s not in partners’ DNA to like being told what to do by senior management rather than working in a consultative environment that a global partnership delivers.’
The plumbing
It would be remiss to ignore the protestations of the Verein anoraks, who assert that the term ‘Verein’ is widely misunderstood. Like Begum, Addleshaw Goddard partner Aster Crawshaw advises firms on Vereins, and he makes heavy reference to the ‘network model’. He insists: ‘Verein isn’t a model; it is just the plumbing used to implement a network model.’
More pressingly, Crawshaw believes that firms which have fully embraced the network approach are potentially leaving themselves open to unlimited liability. He and Begum both note that the network model was rapidly abandoned by the accountancy firms in the early 2000s after the Enron scandal heightened fears over liability.
Begum explains: ‘The reason the accountants moved away from it is because they didn’t think the structure protected them enough. You have different liabilities as an auditor – if you are doing an audit you basically have an unlimited liability to the company you are auditing. Traditional law firms, however, are not liable to anyone other than their clients. It will be interesting to see if firms move away from it eventually for the same reasons.’
‘It is very much time for law firm networks to review their structures, and move away from the Verein as the vehicle of choice.’
Aster Crawshaw, Addleshaw Goddard
Crawshaw says it is ‘surprising’ that firms are still willing to use the model, describing the law surrounding Swiss Vereins as ‘complex and uncertain.’ He adds: ‘There are risks in using the Verein for a network with a commercial purpose, like a law firm. Even if that is permitted, which no one can say for sure, a Verein with a commercial purpose should not have any economic activity. That includes being too close to the economic activity of its members, which severely restricts the scope of the Verein’s powers. If a Verein falls on the wrong side of the line, it is treated as a general partnership, whose members have unlimited joint and several liability.
‘It is very much time for law firm networks to review their structures, and move away from the Verein as the vehicle of choice.’
Crawshaw recommends the system that Eversheds Sutherland plumped for, namely, the English company limited by guarantee structure, saying it has ‘a clear legal framework and none of the same constraints on its activities’.
Ranson might well be reassured, yet he is philosophical about how his firm’s model will stand the test of time. ‘We push ourselves on alignment all the time. We have never formed the view that what we achieved in February 2017 is the end of the journey, and I constantly have discussions with my fellow CEO in the US around what the next stage of alignment is. I wouldn’t say we’ve taken anything off the table.’
And what of the burning question of whether a Verein counts as a ‘proper’ merger? For Griffiths, it’s a matter of effort: ‘It’s lazy to say it’s wrong outright. But if you sell yourself as a global law firm it doesn’t work if you have a different document preference opinion policy in different jurisdictions. Whether you’re a Slaughters with one or two firms in a best friends network, or a Verein, or fully financially integrated, no matter what, you have to work hard to continue the integration. ‘I’ve just come back from New York, and the partners are always delighted to see you. When you go and physically see them it feels more like you’re working together. You have to create that sense that the New York partners are working next door to you.’
Perhaps this existential question is best left to the experts. Begum leaves the door open: ‘Does a Verein count as a merger? If you simply mean do you become part of a global firm, then I think it works from a Dentons perspective. But if you understand it to mean full integration, shared partner profits, culture and workflow, then probably not.’ LB
A closer look: Dentons
‘There’s a spectrum of different integrated models within a Verein. I don’t think you can compare Dentons or Norton Rose or Bakers. Dentons is more of a franchise model, focused on sweeping up smaller firms. It’s a “McDonald’s” strategy, if you like.’
The assessment of Zulon Begum, partner at CM Murray and industry leader in partnership law, may seem tongue-in-cheek, but it is a pithy way of describing the model of the world’s largest law firm by headcount. Often referred to as a ‘franchise model’ by market pundits, Dentons has transformed over the last ten years. Following the vision of longstanding global chair Joe Andrew, the firm has aggressively pursued a strategy of combining with local firms in different markets, using a Verein structure to do so.
It is a strategy that has paid dividends in recent years. In the 2012 edition of the Global 100, Dentons (then SNR Denton), occupied 44th position in the table with revenues of $712.2m. Fast forward ten years and the firm now sits in sixth place, on the back of a transformational 313% explosion in turnover to almost $3bn.
The growth in lawyer headcount is even more striking. The highly publicised 2015 tie-up with Chinese firm Dacheng created a 6,600-lawyer juggernaut. Since then, a slew of other combinations has seen the firm’s fee-earner headcount swell to more than 10,000 lawyers.
‘Part of being polycentric is we don’t have a dominant headquarters. We’re a firm that by its very nature is international.’
Paul Jarvis, Dentons
Despite this, Dentons now finds itself at something of a crossroads. This year’s 1% improvement to its top line may not at first glance set alarm bells ringing, but it is the joint-second worst performance among all the firms in the table, in what has otherwise been a banner year where the majority of global players achieved double-digit revenue growth. Even looking medium-term, 33% growth since 2017 is distinctly pedestrian, suggesting that this year’s performance is more than a blip. Equally worrying is its profitability; it was one of just four firms in the table to see a fall in profit per equity partner (PEP). These underwhelming figures, coupled with the recent announcement that Andrew is stepping down as global chair, leaves the firm in an uncertain position, and raises questions about the long-term sustainability of the model.
Breaking new ground
Many of the benefits of the Dentons strategy are self-evident from the data. Through its liberal use of the Verein model, the firm has grown at a rate matched by very few firms operating under traditional partnerships. Paul Jarvis, chief executive of the UK, Ireland and Middle East (UKIME), offers an explanation: ‘ There are a number of things that the Verein model allows you to do. One of the things you’ll hear a lot about at Dentons is the word polycentric. Traditional law firms can tend to have the UK or the US as the centre of gravity. Part of being polycentric is we don’t have a dominant headquarters; we don’t treat ourselves as a UK firm or a US firm. We’re a firm that by its very nature is international. Starting from that outlook allows you to grow in a different way.’
A look at the jurisdictions where the firm operates backs up Jarvis’ claim. It is clear that Dentons has set up shop in regions in which firms committed to a traditional model have been unable to penetrate, and its geographical coverage is unparalleled. The network of outposts includes numerous jurisdictions largely ignored by big law, ranging from Uruguay (following a combination with Jiménez de Aréchaga) to Zambia (after a combination with Linyama Legal Practitioners). Most recently, the firm launched a combination with Zaanouni, thereby entering the Tunisian market.
A striking recent example of this expansion is the combination with Indian firm Link Legal, unveiled earlier this year. Strictly enforced domestic regulations have thwarted any attempt by international law firms to get boots on the ground in the jurisdiction, making Dentons’ arrival in the country something of a watershed.
At the time of the announcement, Andrew expounded on its significance: ‘[Link Legal] will be full complete members of Dentons; there is no difference between their relationship to the firm than that in London or Paris or New York or anywhere else. It’s a full combination. And that’s what’s unique about it, it just has never been done before, not anything close. Everyone else has had these attenuated relationships and they have tried to do something that’s different, to be able to manage either their own perceptions of the regulatory market or their fears about the regulatory market.’
However, hard traditionalists may argue that a combination under a Verein model is not a complete merger, it is clearly more than peers have been able to achieve, and Dentons now has access to a large and lucrative market free from direct international competition.
And Dentons’ growth in non-traditional markets is not just due to overcoming regulatory hurdles. Jarvis argues that the decentralised model facilitates a different way of thinking: ‘Lots of law firms are hierarchical, in the sense that they’re headquartered somewhere, and decisions are taken centrally. That can make it quite difficult to grow in a global way. The Verein structure, certainly the way we’ve implemented it at Dentons, means that there isn’t one centre of power from which decisions emanate. If you aren’t polycentric, if you have headquarters, then there can certainly be the perception that you have someone telling another part of the world what to do, which makes it quite difficult to grow in non-traditional legal markets.’
The flexible structure further proved its worth this year. Russia’s invasion of Ukraine in February 2022 put significant pressure on the international business community to abandon their operations in Moscow. The legal industry was no exception to this. Cue sleepless nights for executive committees everywhere as they wrestled with the logistics and moral implications of winding down in the region.
By contrast Dentons, and indeed many of its Verein peers, was able to simply detach its Russia business and leave behind an independent firm. Begum explains how the Verein structure enables this swift uncoupling: ‘You keep the profit pools separate, so it’s like dipping your toe into the water of a merger. The benefit is that it’s much easier to disentangle from a Verein in five years than if you transferred all your business into one entity.’
Jack of all trades
The concerns expressed in the market about Dentons’ strategy can be distilled down to one word: consistency. Under that umbrella, market sources raised issues relating to culture, client service and strategy.
Hogan Lovells has always maintained it is not a Verein ever since London firm Lovells merged with Washington DC shop Hogan & Hartson in 2010, and while some may dispute that claim, the firm is nonetheless closely aligned on profits and remuneration. Chief executive Miguel Zaldivar argues: ‘The franchise model is not what we’re trying to do. The difficulty with it is that if you keep doing it, opening new offices everywhere, you become more of a loose association than one firm with one cohesive strategy. How are you going apply a consistent strategy when you’re not making decisions centrally? It’s one of the reasons that there is a division in the market between the global firms and the real global elite. We are one firm, with one partnership and one strategy, which means we don’t have those issues.’
A valid criticism, and one which is a necessary trade-off when allowing offices to maintain an element of independence. Nevertheless, Jarvis emphasises that the firm is more unified than not: ‘There is autonomy within regions to pay our people what you need to pay in accordance with local markets and to charge in accordance with local markets, but it doesn’t make it any less of a single firm.’
This is an important point, and the logical extension of the reasoning that has led many recent transatlantic mergers to be completed using the Verein structure. A firm such as Dentons enabling independent fee and remuneration decision-making across its offices is no different from the incompatibility that Begum describes: ‘We’ve talked about the differences in profitability in the UK and US which tend to be the trickiest issue. Vereins can achieve a merger on the face of it without that full integration.’
Simply put, not all legal markets are created equal. Trying to achieve synergy between a US and UK firm is difficult enough, but reaching complete harmony across jurisdictions as diverse as Germany, Georgia and Guatemala seems nigh on impossible. With that in mind, even a Verein combination is an impressive feat, and it could be argued that Dentons provides a more unified and consistent platform than what has existed across such geographies before.
There are also concerns around the firm’s ability to deliver at the business end of the market. Clifford Chance co-head of corporate Melissa Fogarty remains sceptical of the suitability of the model in that context: ‘It’s very, very common that the deals we’re doing involve several of our offices. And it’s culturally a better model for clients, in my view, if you don’t have a structural distinction between one office or the other and you’re one profit pool and you’re one firm.’
The financial data adds weight to this point. This year’s 27% profit margin is the lowest of all the firms in the top 25 of the Global 100, perhaps pointing to a firm not pursuing elite tier work in the most sophisticated markets.
A look at The Legal 500 rankings is also revealing. The number of rankings has ballooned from 275 in 2013 to 566 this year, but the proportion of those rankings which are top tier has fallen noticeably from 30% a decade ago to 20% now, suggesting that claims the firm has prioritised quantity over quality hold an element of truth.
Crossroads
Clearly, Dentons would not have been able to make the progress it has without the use of the Verein model. The speed at which it has grown, and the geographies it now covers are largely unrivalled among single partnership firms.
Furthermore, the recently unveiled five-year plan for UKIME points to a leadership that knows it cannot rest on its laurels. A key pillar of the new approach is the so-called ‘golden thread’, whereby the firm will place greater emphasis on ensuring connectivity across jurisdictions and practice areas. Another element, termed ‘client uplift’, seeks to invest further in its most important client relationships. Both of these elements counter common criticisms levelled at the firm, and their implementation globally will be key if it wishes to develop further.
‘Differences in profitability in the UK and US tend to be the trickiest issue.’
Zulon Begum, CM Murray
That said, there continues to be danger lurking. As much as Dentons has made the most of the flexibility the model offers, it remains a double-edged sword; the lack of complete integration that has seen the firm grow so rapidly in the last decade contains within it the potential for an equally swift unravelling should the tables turn. Equally, a certain amount of inconsistency is a necessary trade-off of bringing lawyers from such diverse markets together.
Despite this, what Dentons has achieved should not be underestimated. It has found routes into markets where others have struggled, and has provided a structure to connect local expertise in lesser known jurisdictions to an international platform. Jarvis remains wedded to the idea that the structure is the best of both worlds: ‘The Verein model allows firms to be both global and local. You get all the benefits of being a global firm, because you have the global presence, you have the global reach. But you’re local in the sense that you can set standards and pay in accordance with what your local market dictate.’