Barring a sweeping move by the government, Xu says, King & Wood Mallesons's strategy is to gain decent market share among large SOEs and the private companies that already hire international law firms—and aim to dominate among smaller, emerging Chinese companies. "The media focuses on the megadeals," she says, "but if you look at the midmarket, there are Chinese companies that are leaders in their industry or region that are very good, very profitable companies but have very little overseas experience."
Still, many of these companies have fairly unsophisticated management structures, with no in-house lawyers and little experience using outside law firms. Price and convenience dictate their choices of counsel more than reputation and experience. King & Wood Mallesons is doing what it can to change that. The firm is currently putting together a plan targeting 50 emerging companies in Zhejiang province, a hotbed of entrepreneurial activity. The goal is to educate managers on how they should use lawyers and how they will benefit from having skilled regular outside counsel.
Getting the firm's Australian and Chinese lawyers to work together on developing new business is one of the key integration tasks the combined firm is still wrestling with. It's become clear that Chinese clients need to be handled differently from Australian ones. "Their style and their pace and their expectations are just different," says Xu, recalling a recent joint project for a Chinese client. The Australian team regularly emailed status reports to the client, outlining the issues ahead and highlighting key decisions that needed to be made.
"Sounds good, right? But the client was upset," she says. "They thought that [the] lawyers should take care of these things themselves and not keep bothering the client. For an international client, this is something they would expect and cause them to say the firm had done a good job. But we need to understand Chinese companies' work style and how to make them comfortable."
Xu does think the Chinese lawyers have lots to learn from their Australian counterparts about operating a modern law firm. She notes that practice specialization is still relatively novel to Chinese lawyers. "We are not so much industry-focused," she says. "In other legal markets, the practitioners have developed more specialized industry-focused know-how and expertise. That's something we need to develop more."
For his part, O'Malley says the Chinese partners are generally more entrepreneurial than the Australians and often have a broader view of the market in which they and their clients operate. "Our Chinese partners, in some respects, are more international than our Australian partners," he says. "That comes from being at the center of things in a very dynamic environment. Some of our Australian partners get that, some of them don't."
As a verein, King & Wood Mallesons has separate profit pools for China, Australia, and Hong Kong. Financial integration is a stated goal of the firm, but no timeline has been set. Premerger, Mallesons was one of the more financially conservative Australian firms; it only this year moved from a full lockstep partner compensation system to a partial lockstep. That makes it more like the Chinese side, also a partial lockstep, but Fuller says the move was mainly a reaction to shifts in the Australian market. Cooperation and referrals across the verein will be taken into account in partner compensation, whether in China, Australia, or Hong Kong.
Chinese government regulations that ban foreign firms from local practice, combined with lower billing rates in China, meant that a verein was the only way forward for a merger between King & Wood and Mallesons. Fuller says the firms did not agonize over it, and he dismisses the argument that only partners who share a profit pool can be motivated to work together [see "Inside the Machine"]. "I don't believe the financial structure drives everything," he says.
It's ultimately the clients whom King & Wood Mallesons expects to judge the success or failure of Asia's first international law firm. And Fuller is confident that clients are ready for something new.
"A lot of law firms are quite the same," he says. "Their branding is the same, their capabilities are the same. We need to be something different."
King & Wood Mallesons By the Numbers
Total lawyers: 1,598
Gross revenues (Fiscal Year 2011): $792 million
Revenue Per Lawyer: $501,000
Total partners: 374
Structure: Verein composed of three legally and financially separate partnerships based in Australia (620 lawyers), China (789 lawyers), and ?Hong Kong (189 lawyers, formed by the full merger of the legacy firms' ?Hong Kong partnerships).
Offices 21, including Beijing (400 lawyers), Sydney (261 lawyers), Hong ?Kong (189 lawyers), Melbourne (178 lawyers), Shanghai (173 lawyers), Perth (80 lawyers), Brisbane (72 lawyers), Shenzen (68 lawyers), and Guangzhou ?(52 lawyers), among others.
Recent clients/deals
• Mining company Xstrata plc—$31 billion all-share merger with commodities trading company Glencore International plc
• Glencore International plc—$6.2 billion acquisition of grain handler Viterra Inc.
• Canada Pension Plan Investment Board and Australia Prime Property Fund—$2 billion investment in Barangaroo property development
• Ministry of Finance, People's Republic of China—RMB 23 billion sovereign bond in Hong Kong
• China Development Bank and other banks—financing for the $10 billion privatization of Alibaba.com
