Merger of law firms seems to be common today, for in a time of expansion, merger is the most efficient and most popular among the four major ways to enlarge a law firm.[1] Earlier merger cases include Shanghai Allbright, Beijing Jingtian & Gongcheng, and JT&N, while more recent examples are Boss & Young, Guantao Law Firm, Dentons, and Docvit, among others. However, merger is never easy for law firms. It is actually reported that globally 61% of law firm merger cases end in failure, only 23% are successful, and the rest are mired in uncertainty.[2] Many failures can be attributed to cultural incompatibility and imbalance in interest sharing.

Indeed, there will always be winners and losers. But East & Concord, the combination of two strong firms, understands thoroughly that the key lies in the harmony of mind. So it spent two years to merge truly in terms of personnel, finance, and possessions, blazing a unique trail in corporate governance. Disruption may be a big and serious term, yet it will be no exaggeration if we use it to refer to the innovative first year of East & Concord.

After only one year since the launch of the new system, East & Concord has achieved a lot, and gleaned various awards from law firm rating agencies such as Chambers[3], Thomson Reuters ALB[4], International Financial Law Review[5], and China Business Law Journal[6]. Moreover, partner Li Dajin won the award of best managing partner of Thomson Reuters ALB of 2016. When you enter the firm, you’ll first see a wall of books in front of you, arranged in a way that is both solemn and modern to indicate the long history and innovative spirit of the firm.

Cornerstone: A Perfect Marriage of Two Strong Firms

Shared visions and complementary business focuses attracted East and Concord to each other and the two marched smoothly into marriage. For many law firm merger cases, problems do not emerge until a while after the two parties are brought together. Quite different from that, East and Concord found each other to be even more appealing after the marriage and became increasingly intimate. To evaluate a marriage, we examine whether the two persons involved each becomes better than before. Similarly, to evaluate a merge of law firms, we check to see if the strengths of the two are truly brought together to form synergy. East & Concord sets a good example.

Law firm merger has been one of the hottest topics in the industry for years, but still each case is something big. Why merge? With whom? What to be? These are three philosophical questions to answer for every law firm involved in a merger case.

Merge to Be Stronger

Both East and Concord started as one of the best law firms in Beijing. East, founded in 1993, boasts leading figures like founding partner Li Dajin with excellent reputation in the industry after over 20 years of development. Concord, established in 1995, also witnessed steady growth before the merger. As two of the first partnerships in Beijing, East and Concord have their respective management models. With a harmonious corporate culture, the two took it easy when new law firms mushroomed and expanded across the country from 2005 onward.

In China, especially after 2005, as the GDP grew by two digits annually, every industry was dashing forward at full speed and the legal industry was no exception although it was a relatively traditional and elite sector of the market. If a law firm did not aim high and forge ahead with strenuous efforts, it may actually have regressed in comparison.

“Both East and Concord were somewhat influential in the legal sphere in their early days. But as time went by we both fell out of the club of first-class law firms. Partners thus felt the pressure and started to change their way of thinking. We are among the first law practitioners and we have our pursuit though it may not be very ambitious. We want our hard work to pay off and bring acceptable results. We want our firms to become century-old concerns. We want to stay at the forefront of the industry in terms of both professional competence and scale. We want to keep to our original inspiration and give all our colleagues the rewards they deserve.”said Zhou Qi, Director of East & Concord Managing Committee and founding partner of Concord.

In Beijing, a law firm is considered a big one if it has more than 100 employees and an annual revenue of more than RMB 100 million. Before the merger, East and Concord each had more than 100 employees and the two shared the same expectation for the merger: to be stronger.

“We have been in this market for quite some years and we are both of considerable scale. We no longer need to get bigger, but we do need to grow stronger,” said Li Dajin.

Harmony of Mind

Whom to merge with? Not everyone can be lucky enough to find the right one. It is difficult enough to spot some candidates with a suitable business structure among tens of thousands of law firms. What is even more difficult though is to find the one firm whose partners share the same mindset with ours and whose history and culture are compatible with ours. So, both East and Concord are very lucky to have found each other.

East was founded by Li Dajin and two other partners and all three are still here in East & Concord now. Similarly, Concord also kept seven out of its original eight founding partners today. Partners of both firms have been in the business for over 20 years on average. A stable core team is something the two have in common and such stability carries profound meaning. The past some 20 years have seen the fastest changes in China and everybody have faced all kinds of temptations. Everyone had sufficient reasons to leave at one point or another but they all stayed.

“My partners and I were determined to merge with another firm because we wanted to build a better platform for those who had been with us for over 10 years, or maybe seven or eight years, as well as some promising young talents.” said Li Dajin.

Surprisingly, Concord wanted exactly the same from merger and this was why the two came together.

Currently, financial issues are usually the top priority when law firms merge. People try to match money with resources in the hope that after the merger, their brand value will grow or resources can be shared. True integration does not attract much attention most of the time. As a result, they usually come to realize only after the merger that without shared values, a good match goes no deeper than the surface. In comparison, a harmonious East and a family-like Concord shared something rare. They two got in touch in 2010 but did not start formal negotiation until 2012. In the two years in between, the two spent 80% of their time exchanging ideas rather than facts and figures.

As Li Dajin said, “You have to communicate fully about your philosophy and ideas and forge consensus wherever you can. After that, specific systems like interest distribution will come out and be agreed upon very easily.”

With harmony of mind leading the way, the more than ten partners of East and Concord cooperated perfectly to establish and implement new systems besides the practicing systems.

Complementary Business Structures

Complementary business structures are also an important reason why the two decided to merge. As time-honored law firms, both parties were mentally well prepared for the possible conflict of interest and clients. We allowed half a year to check for conflict of interest between East and Concord by sorting out thousands of our clients. Yet the result was quite surprising.

The check was completed in less than three months with only three cases identified and two were only potential conflict. We seem to have been lucky. The complementary business structures of the two reinforced the foundation for the merger.

2016: The Brilliant Inaugural Year: We Can Give up Because We Know What to Pursue

Talking about corporations, you may think of King & Wood Mallesons, Zhenghan Law Firm, or LockStep. Or you may think of partnerships that adopt corporate governance, like Junhe, Zhong Lun, and Fangda. Actually, what a company is called does not really matter. The central purpose in governing a law firms is to gather and unite all the smart partners to form synergy and build a platform. Simply put, for a law firm, the corporate system is good because it performs management in a unified way. For young partners, this system helps them grow and in the meantime they will not be underpaid in this system for lack of seniority. East & Concord adopted this system thanks to the selflessness and tolerance of its more senior partners.

The year 2016 marked a new era for East & Concord. From this year on, the firm embarked on a journey towards a great law firm that is built to last and thrive.

“The merger brought the two firms onto the same train and when boarding, we had a shared hope that everyone of East and Concord would board together, with no one left behind. When we signed the merger agreement in 2014, we were happily surprised that we lost no one and even attracted 17 new potential partners from within or out of the firms as the new partnership agreement and system were announced.” said Li Dajin.

Before the merger, East and Concord had drastically different partnership, distribution and management systems and the new system was worked out with strenuous efforts over a whole year. The year 2015 was a year of system building for East & Concord. A system building group was established to include more than ten partners of the firm. Over the year, this group met every week to discuss system building, drawing up a detailed plan and a clear timeline to define the deadlines for the design of each part of the new system. At the weekly meetings, opinions were solicited from all partners to broaden the vision and collect more good ideas, putting together the wisdom of everyone on board.

In the meantime, they also borrowed experience from seven other Beijing-based law firms that already adopted the corporate system to understand why they had succeeded and what obstacles and confusions they had encountered. With so much time and energy devoted, East & Concord produced a new internal system that best fit its development model and goals, which served as the train we boarded and the rails for it to travel along. In the end, the new system was adopted article by article and then put into use. According to Li Dajin, this was the most worthwhile investment in the integration process.

Law firms have existed in China for over 30 years and many firms gradually came to accept the concept of integrated management. However, the Lock Step style distribution mostly failed. Its central problem is that it fails to motivate partners who bring in the most money or younger partners. In the legal profession, seniority translates almost directly into income level. Senior attorneys take this for granted but it sometimes blocks the way for our younger peers.

Quite different from other firms, East & Concord gave up the seniority-based system when it adopted integrated management. Founding partners of East and Concord, like Li Dajin, Zhou Qi, Chen Feng, and Yao Yi, all having been in the profession for around 30 years, all gave up their benefit of seniority when trying to build the new distribution system.

“In 2016, led by our senior partners, all the 89 partners of East & Concord opted to give up the benefit of seniority unanimously and announced the year 2016 to be the new inaugural year of East & Concord. An inaugural year means that we would start anew. This was for more sustainable development and a better future and no one grumbled. We vowed to start from zero. Everyone who was with us at the time was a founder of East & Concord.”

This is hard to believe because adopting such a new system means that all the senior staff members now have no advantage over any of the green hand of the firm in terms of seniority. Everyone who was a partner in 2016 was a founding partner of East & Concord and would have the same status in the new distribution system. Everyone’s seniority will be counted with 2016 as the first year. In 2016, East & Concord welcomed new partners one after another but not a single old partner left.

If no one had sacrificed, the new system would not have been launched. For the founding partners of East & Concord, choosing the corporate system means embarking on a more difficult and complex journey. For these senior professionals, after 20 or 30 years in the profession, they have their status, wealth, loyal clients, and almost everything they need to live a relaxed life. However, they chose to start anew and walk down the narrow bridge of the corporate system. They chose pressure over leisure because they still want to fight for the purpose of the merger. They know on the other side of the bridge is the view they have always longed for and forging ahead their firm will grow to last. Li Dajin and other founding partners of East & Concord now want something different for this firm: Years from now, when people talk about East & Concord, hopefully they will remember what this firm has achieved as a team, rather than several individual practicing lawyers.

Partners of East & Concord developed a ten-year plan for the firm. Over the next years, going through the preliminary, intermediate and advanced stages, the firm will become a strong law firm with clearly defined specialties, great brand reputation, a well-structured talent team, and good opportunities for youngsters.

Every law firm wants to be professional, of scale, and international, but each firm defines these goals differently. This is a problem to solve before East & Concord can truly build up its strength. To be professional, a law firm must be determined to devote more to some business areas and give up on some others. To be professional, a law firm must handle every case with strong professionalism but moreover, it must offer academic insights, serve high-quality clients, and has its voice in the professional circle. Scale means orderly, controllable and well-planned expansion. Being international, a law firm must conform to even more stringent standards.

“First, your people and the state they are in serve as an important basis for a firm to become international. Second, your clients must be international and this involves the service you deliver to them, the quality of the clients, where they come from, and whether they are international themselves. Third, you must have extensive connections and close cooperation with other law firm and other institutions, and you must also have your influence and your voice on the world stage. These are what makes a law firm international.”

The New System: Refined Management and Reasonable Distribution

The corporate system of East & Concord is exactly what being integrated means. In an integrated management system, all the staff, money and properties of all offices, including branch offices, are managed in a unified and refined way. For example, every practitioner has his/her set salary, must sign in and sign out every day at the set time. The annual evaluation system includes minimum required working hours, and promotions follow a nine-level and three-category system.

The partners’ meeting is the top governing body of East & Concord and its power is defined in detail in the articles of incorporation. The management committee is responsible for routine management tasks and it includes seven members, respectively taking charge of administration, finance, business, partner affairs, etc.

Currently, under the management committee, there are the core business committee, the conflict interest review committee, the dispute mediation committee, the training and research committee, recruitment and evaluation committee, the publicity and communication committee, and the internal affairs committee.

In addition to that, East & Concord also has six specialized departments. That plus its four branches make a total of 10 management departments. The firm follows a strict regular meeting system, holding two training sessions per month and a department meeting every week with no exception. Every one of these meetings are face to face.

In terms of the distribution system, East & Concord does not follow exactly the Lock Step model. Instead, it still connects a partner’s income with his/her performance.

“In our opinion, East & Concord is still a developing law firm for the present. We have nearly a hundred partners who differ vastly, so egalitarianism may cause many problems. However, we do want to promote cooperation between partners, intensive management, and teamwork, with an aim to build good reputation for the firm within the shortest time possible. For this purpose, we made some changes to the Lock Step model.” said Zhou Qi, one of the designers of the distribution system.

Li Dajin, as well as all other members of the management committee, set the goal of staying in the first echelon of law firms in Beijing for East & Concord. For this, over 100 members and more than RMB100 million of income are only the fundamental requirements. East & Concord must do better in build its talent pool, grabbing market shares, strengthening its influence, and expanding and improving its customer base. Meanwhile, East & Concord practitioners are also expected, in addition to having strong professional qualities, to be learned, well-mannered, and quality-oriented, devoting themselves to lofty pursuits rather than seeking only money.

 “Currently in the legal profession, it seems that people feel embarrassed to talk about their dreams, pursuits, or faith. I found this weird and disappointing. If a legal professional has not pursuit, or dream, or faith, it will be horrible.” said Li Dajin, “Every great lawyer starts as an ordinary craftsman. This is the right path to follow. A great lawyer must be very careful, devoted, and responsible. He must work like a craftsman, willing to see to each trivial part of his job.”

A craftsman-like lawyer must have worked on numerous cases carefully and meticulously before he can become a great lawyer. There is no exception to this.

Business Development: Wide Coverage and Specialization

East & Concord regards itself as a big law firm with its brand and specialties. Criminal litigation and financial lease are two hallmark business areas of East & Concord since the early days of its predecessors. Chen Feng was the first to work on financial lease cases in China. Starting in 1987, Chen has so far been devoted to this area of legal services for 30 years. He worked as legal counsel for China Orient, the first financial lease company of China, and undertook the first litigation case related to financial lease, i.e. China Orient vs. Henan Dengfeng Shaolin Tourism and Rental Company.

As for criminal litigation, the focus is on the protection of clients’ privacy. East & Concord undertook many highly influential criminal cases but never did any publicity on them. We have always been loyal to our duties and responsibilities and observed the principle not compromising progress of our cases or our commitment to the clients for any gains for ourselves.

In addition, East & Concord is also well-known for dispute resolution, merger & acquisition, PPP, energy, and other business areas, with its name frequently seen among forerunners on various relevant ranking lists. In terms of dispute resolution, for example, Zhou Qi was one of the Top 15 lawyers of China for dispute resolution according to ABL’s list of February 2016. Also, in November 2016, East & Concord was recommended by Legal 500 Asia Pacific for dispute resolution. East & Concord was also awarded as the best law firm for dispute resolution in China by Global Legal Experts in 2016.

In terms of merger & acquisition, both Asian Law Review, and Chambers recommend East & Concord for M&A cases and four of our cases were recommended by China Business Law Journal as outstanding deals. Specifically, they are the antidumping investigation of Eurasian Economic Union for Chinese bulldozers led by Mr. Wang Di. Capital Tourism Hotels’ major asset reorganization cum acquisition of Home Inn led by Xing Dongmei, the launch of Hubei Yangtze River Economic Belt Industrial Fund led by Wang Jianrui and Wang Desheng, and the sponge city construction PPP project of Qian’an, Hebei, led by Yao Yi.

Yao Yi, who was awarded and “gold medal lawyer for PPP projects in China” is now taking charge of business operations in the management committee. With the corporate system launched, making and implementing plans become the routine and our business priorities for the next five to ten years depend heavily the macroeconomic conditions of China.

“When making the budget and development plan for the next year, we decide on which business department to support or promote more based on the overall situation. Promising business areas over the past several years are family trust, intellectual property, anti-monopoly, and anti-unfair competition, and we will focus more on them. For sure, with an emphasis on specialization, in principle, we do not allow staff of one department to undertake cases belonging to the business area of another department. For example, a lawyer from the department of non-litigation business is not allowed to handle a case of dispute resolution. Once a partner is found on our management system to have worked on cases out of his/her business scope, the management committee will step in.” said Yao Yi.

Epilogue

At the end of the interview, Li Dajin said following when he was asked how willing clients are to pay the fee.

“Chinese lawyers should not complain so much. We must have the ability and take the responsibility to cultivate the market. The legal profession has gone a long way in developed countries. Lawyers had spent years to build their expertise, offer quality services, disseminate their messages gradually, and exert their influence before the clients understood what were lawyers and what lawyers could do. We should take initiative and be acute to cultivate the market whenever we can, not to look on and wait for the market to mature or to stay indifferent, or even to ruin it. Otherwise, one may get some immediate benefits but in the long run, the legal profession will lose its status in the eyes of clients and the general public.”

For any profession to be respected by the general public, people in this profession must first respect themselves and their peer professionals. In the coming decade, the legal profession in China is expected to be the liveliest and most hopeful in the world. Chinese lawyers have made their mistakes and learned from them over the past 30 plus years, which is very precious for us today. We used to be dashing ahead recklessly but now we are turning onto a path that fits us better after reflecting and ruminating on the past. Whether the overall legal environment will become better or worse in China, we lawyers will always look into the future.

During the interview, you can see clearly how the older-generation Chinese lawyers are devoting themselves to greater goals and loftier pursuits and how they are willing to sacrifice for better growth of the younger generation. You can also see that they are actually worried about whether the younger generation can fully understand the new system and the potential problem that may result from misunderstanding. They are still ambitious in spite of their age and the firm will move up a step every three years, have a plan for every five years, make a leap every decade. I am happy to see a law firm start anew. I would like to follow it up in the over the coming decade. And I hope it will become what is envisioned for it in ten years.

We gather for common ground and integrate following the trend. We forge ahead to pursue profound goals.

Notes:

[1] The for ways to expand a law firms are natural expansion (e.g. King & Wood Mallesons, Junhe and Zhong Lun), merger (e.g. Shanghai Allbright, Beijing Jingtian & Gongcheng, and JT&N, Hubei Dewell & Partners, Shandong Jointide, Sichuan Mingju, and Guantao), forming alliances (e.g. Bafang Alliance, ECLA, Sino-Global Legal Alliance, and Jingzhuan Alliance), and online platform building (e.g. WinTeam 500).

[2] See “Professionals Talking about Chinese Law Firm Mergers: Aim for Big Firms with International Influence” available at http://www.cnr.cn/gundong/201302/t20130223_512017177.shtml

[3] Chambers, a world-renowned rating agency. East & Concord is recommended in Chambers Global Guide and Chambers Asia-Pacific Guide of 2016 as an outstanding law firm for M&A, energy and natural resources, and international trade/WTO.

[4] Thomson Reuters ALB annual awards are hailed as the Oscar of legal firms and East & Concord won the award of Rising Law Firm of the Year in 2016.

[5] East & Concord was recommended by International Financial Law Review for banking & finance and energy & infrastructure.

[6] China Business Law Journal named four of East & Concord’s deals as Deal of Year in 2016.

[7] Thomson Reuters ALB grants awards to the best managing partners annually.