I moved to Beijing two and a half years ago to be the managing partner of Akin Gump’s Beijing office. I had also signed on to teach two courses in the Temple Beijing LLM program at Tsinghua University. I had expected that my lawyering and teaching would be two very different activities and worried that my teaching responsibilities might interfere with my law firm duties. As I will explain later, the reality has been quite to the contrary.
My firm Akin Gump was rather late to China. We opened the Beijing office in 2007, and when I arrived six years later it was a small office with three lawyers and me. Many American and British firms had come to China earlier and were substantially bigger. But being an early mover, in this case, has not improved the chance of success. Many American firms, in particular, are far smaller today in China than they were five or even ten years ago, and some have closed down completely. What happened? Ten or fifteen years ago, China was seen as the place one needed to be if one wanted to be a global law firm. As it was for many multinational companies, so it was for many law firms—the El Dorado of virtually infinite growth and demand. Today, all but a handful of foreign firms are struggling to make a go of it. The resulting question many managing partners ask is not how much money our China office is making, but rather, how much of a loss are we willing to sustain for longer-term strategic reasons?
There are a number of reasons why so many firms are struggling and have shrunk or closed down completely. First, the regulatory scheme makes it difficult for foreign law firms to compete with Chinese firms. Foreign lawyers cannot practice Chinese law and Chinese lawyers who join foreign firms must give up their Chinese law license. For firms that opened in China primarily to advise Chinese companies on US or UK capital markets transactions, such as privatizations and IPO’s, this was not much of a problem. But many firms opened in China to help their US clients with inbound work–opening and investing in businesses in China, through joint ventures or otherwise. For that work, they came up to, but tried not to cross, the line between practicing Chinese law and advising on Chinese legal issues. In the early days when Chinese law firms were relatively small, inexperienced, and unsophisticated (there were essentially no local Chinese law firms until the end of the Cultural Revolution in the late 1970’s), there was a great deal of work for foreign firms, notwithstanding the regulatory limitations, as foreign companies flooded into China to get a piece of the action. But as Chinese law firms have grown in size and experience and as the pace of inbound work has slowed, foreign law firms have been hit by the double whammy of less work and more competition.
Some of this decline in inbound work has been offset by the growth of outbound investment by Chinese companies, as they increasingly seek to become global players. Until recently, almost all of the major outbound transactions have been by large State-Owned Enterprises (SOE’s). And the competition by foreign law firms for their business has been fierce. Too many firms chasing after too few deals. This has led to two rather contradictory phenomena. The SOE consumers of legal services have demanded fierce discounts and fee caps, and foreign firms with underutilized capacity have been all too willing to oblige, often competing for business at money-losing fees. Many of these same firms have also competed for a relative handful of lawyers deemed to have the requisite close relationships with the major Chinese companies, offering large compensation packages with multi-year guarantees.
Law firms do not often advertise their losses, but it is hard to imagine that this business model—paying out large amounts for the opportunity to obtain money-losing business—can persist in the long run.
My firm has adopted a somewhat different strategy. We have not gone after the big name partners with SOE relationships and (supposedly) large books of business. We have sought to grow incrementally, bringing in younger, talented lawyers, building relationships with potential clients and growing, slowly but steadily. To my surprise, one of the best avenues for finding and building those relationships has been teaching at the Temple Rule of Law program at Tsinghua, where many of my students are in-house lawyers at Chinese and multinational firms. For all of the “wine-ing” and dining that has been showered on clients and potential clients (at least until the recent anti-corruption crackdown), and although I am careful never to mix business and teaching, or to solicit business from my students, it turns out that the professor-student relationship that develops and continues through the Temple alumni network has been one of the most effective ways of establishing a relationship of trust and respect that is so important in China in regard to obtaining and keeping clients. The good news for me is that the teaching I so much enjoy has also turned out to be good for business—and good for Temple.
William Rosoff is the managing partner of the Beijing office of Akin Gump Strass Hauer & Feld. He previously served as the Senior Vice President and General Counsel of RJR Nabisco Inc. and of Marsh and McLennan Companies and was for many years a litigation and corporate partner at Davis Polk and Wardwell in New York City. Rosoff is also an Adjunct Professor at the Temple Beijing Master of Laws Program at Tsinghua University. Rosoff has a B.A. from Columbia College, a Ph.D. in history from the University of California at Berkeley, and a J.D. from Harvard Law School.