There's big buzz about the legal marketplace competition coming from China. What's the scoop?
I recently had the opportunity to lead a delegation of lawyers to China. With all the buzz about the booming economy in that country and the number of U.S. firms opening offices there, I'm departing from my usual Q&A format so I can share with you some of the scoop on what's happening with the practice of law and law firm management in China.
During our remarkable trip, our delegation met with a number of Chinese lawyers and judges, as well as with one of the many U.S. firms that have offices there. One Chinese lawyer we met is Ye Ming, a senior partner with the Keenmore Law Firm in Shanghai, and another is David Livdahl, a partner in Paul Hastings, an American firm.
I was surprised to find out that Mr. Ye is a graduate of Willamette University School of Law in Salem, Oregon (my hometown), and spends part of each year living in Salem. Before returning to Shanghai after graduation, he also served as an international legal consultant for an Oregon law firm for five years. Mr. Livdahl led another U.S. firm's Tokyo and Beijing offices for over 10 years before opening the Paul Hastings office in China five years ago.
I first asked Ye about how the practice of law is different in the People's Republic of China (PRC). In his view, the differences are largely the result of the Chinese legal market being "young and immature." Some of the problems that he sees as he runs his law firm and works with other lawyers as one of the leaders of the Shanghai Bar Association stem from a lack of trained people and the unavailability of books, CLE programs and other resources on law practice management. His list includes the following:
- Lack of manuals or reference materials dealing with law firm management
- Lack of trained law office management professionals
- Lack of information on developing and marketing legal services
- Lack of knowledge in developing, managing and maintaining clients
- Lack of quality control tools
I also asked him about whether the booming Chinese economy is resulting in more legal work for Chinese and foreign law firms. He says it has not resulted in a dramatic increase for two reasons: One is that, culturally and historically, the Chinese have a tradition of solving their legal problems without hiring legal professionals. Another reason is that Chinese clients are often reluctant to pay fees based on hourly charges—preferring instead an agreed-on fee for a particular legal service. He also points to the fact that throughout China, the costs of doing business are increasing but the fees charged by law firms are not going up as fast.
Both Ye and Livdahl report that finding good legal talent in China can be a problem, in part because of the 11 percent admissions rate among bar applicants and also in part because it is difficult to find bilingual lawyers. They told me that there is increasing competition for the small pool of new lawyers and that much of the competition comes from other industries, as well as governmental agencies. What's more, many young lawyers are taking managerial jobs in China's growing corporate sector or starting their own businesses.
The Shanghai Bar Association has launched efforts to assist local practitioners by offering continuing legal education and establishing committees to assist lawyers and law firms in improving their practices.
A U.S. Firm in Action
Livdahl's perspective comes from the point of view of an American law firm with offices in China. He indicates that there is a growing pool of highly qualified legal professionals in the PRC, but recruiting for the top-level students who can function in Chinese and English is becoming increasingly competitive. One incentive his firm offers its best young PRC attorneys is support for selected ones to attend a one-year LLM program in the United States and the possibility to work in an overseas office of Paul Hastings before returning to China. Paul Hastings is also focusing on CLE for its legal staff by providing formal in-house training programs in English, plus substantive presentations on key legal topics.
Livdahl says his firm is also able to take advantage of its size and that "with 170 legal staff on the ground in Beijing, Shanghai and Hong Kong, we are able to draw on a wide talent pool of experts in various fields for such presentations." Thus far, the majority of Paul Hastings clients in its China offices are Western and Japanese multinational corporations, although recently it has represented certain leading PRC companies as they engage in overseas IPOs and M&A work, or as they become involved in commercial disputes outside of China. Livdahl adds, "Although PRC corporate legal departments are expanding in size and improving in quality, PRC companies are not yet that accustomed to the hourly billing rates charged by international law firms or aware of the value of early involvement of such law firms in structuring deals."
Considering how far the Chinese economy and its legal system have come in the past decade, I feel certain the problems described by Yi and Livdahl are sure to be resolved with time and experience. It is a fascinating area to watch and I'm delighted to have the opportunity to share news of it with you!