Andersen leaves legal vacuum

PUBLISHED : Thursday, 20 June, 2002, 12:00am
UPDATED : Thursday, 20 June, 2002, 12:00am


IT TOOK NEARLY a decade to build Andersen Legal and, in a heartbeat, it is gone. The legal arm of the rapidly-evaporating Big Five accountancy firm is unravelling fast.

Set up as a network of law firms, Andersen Legal epitomised the 'one-stop' school of thought: multi-national clients need cross-border legal advice and do not have time to shop around in different jurisdictions.

It also broached the prickly issue of multi-disciplinary practices (MDP). While not sharing profits with Andersen itself, there was a referral system for the accounting giant's clients.

This got around the issue of regulation. Most jurisdictions do not allow MDPs per se, banning such profit-sharing. Yet a separate legal entity, albeit using the Andersen name, would not fall foul of the law.

It made brash claims: 'We are the active champions of the core values of the legal profession and have a fierce commitment to their protection and promotion.'

The pace of success was fast. Andersen Legal made it on to the American Lawyer's global 100 list for the first time last year - in ninth place. It tied with Shearman & Sterling with US$590 million in revenue.

In terms of numbers, it was huge. Its head count was second only to Baker & McKenzie, with 2,880 lawyers.

The firm also ranked 12th in the British league of initial public offering earners (IPO), according to The Lawyer magazine. It just seemed to be getting bigger and bigger. Although its revenue per lawyer was on the low side, it seemed to be on an expansion binge.

Hong Kong was the latest to join the global network.

Local firm Kwok & Yih joined the Andersen Legal umbrella of firms last year. At the time, partner Larry Kwok spoke of the great opportunity to join the 'Andersen cruiser'.

Mr Kwok yesterday said: 'Any internal communication has all been broken.

'The Andersen Legal network has already broken down or has de facto disintegrated.'

Kwok & Yih now operates 'as an independent law firm'.

It is now on the lookout for another tie-up or will go it alone.

In Britain, Scottish firm Dundas & Wilson - the country's biggest - has also quit the Andersen team after five years.

Garretts, the English end, is more or less out. Partners are desperately securing deals with other London firms and regional practices to take on their lawyers.

In Australia, Andersen Legal is to be wound up by the end of the month after eight years of practice. Most partners have signed on with former rivals, such as Deacons and Corrs Chambers Westgarth, Clayton Utz, Maddocks.

Malaysia's largest law firm Zaid Ibrahim & Co left the Andersen network of law firms last month. Its managing partner gave notice that it no longer considered itself part of the network which had ceased to exist. It had joined Andersen Legal in 1998.

Singapore's Rajah & Tann, likewise, gave notice that it was no longer part of the network and 'in any event, the network has ceased to exist'.

In just months, it has been a case of every firm for itself.

Andersen Legal may have soared as one of the top fee-earners and IPO players, but it was obviously not cohesive.

Part of the problem was that it was set up as a partnership of law firms rather than one united practice. It operated on a detached basis. This is apparent at the Hong Kong end. According to Mr Kwok, since Andersen's indictment on obstruction of justice charges, there has not been 'any kind of support'.

In a way, however, the firm was more fortunate than others solely dependent upon Andersen referrals. Kwok & Yih were simply sucked into the brand-association vortex. In just a matter of months, the giant has vanished from the legal landscape.

But the jury is still out on just how this will bode for future MDPs. On both sides of the Atlantic, regulators have traditionally two-ed and fro-ed. Recently, the issue seemed more distant.

As vows to toughen auditor independence gather pace, it seems unlikely that the cross-selling of legal and accountancy services to audit clients will follow.

There is nothing quite like a sensational case of conflicting loyalties (Enron) to do that.

The Dutch bar broached the issue in April by taking a spat with PricewaterhouseCoopers to the European Court of Justice. The court decided there may be 'a degree of incompatibility between the advisory activities carried out by a lawyer and the supervisory activities carried out by an accountant'.

It was thus appropriate to impose measures to restrict associations between lawyers and accountants 'because those measures are necessary for the proper practice of the legal profession'.

Hong Kong has pretty much been ambivalent to MDPs. There has been no demand, so why get in a froth? It could be argued that the law firms themselves offer so many business counselling services in their own right, there is no real threat if MDPs did appear on the landscape.

The demise of Andersen Legal may ultimately just serve as a bad luck story to most people in Hong Kong. As Mr Kwok admitted: 'Life goes on, we have to move on to find our new big cheese.'

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