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In the present article the author briefly discusses the rise of the new corporate ecosystem in the three important emerging economies taking cue from the article authored by David Wilkins, David M. Trubek & Bryon Fong titled
“Globalization, Lawyers, and Emerging Economies: The Rise, Transformation, and Significance of the New Corporate Legal Ecosystem in India, Brazil, and China.”[1]
The author attempts to identify and explain the important differences among the three emerging economies’ corporate ecosystems that have led to the development of distinct corporate legal sectors in these three countries. The author lastly explains the Cravath Model and its subsequent transformation into the New Cravath Model vis-à-vis the emerging economies as identified by David Wilkins et. al.
I. Brief Discussion on the rise of the new corporate ecosystem in the three important emerging economies taking cue from David Wilkins et al article: The rise of the new corporate ecosystem in the three important emerging economies can be directly attributed to the political and economic transformations during the late 1980s and early 1990s. In the article by David Wilkins et. al the said period is described as the “global shift” which provided the platform for the rise of the new corporate ecosystem based on the structural model of the U.S. Corporate Law Firms. According to Wilkins et. al the “global shift” begins from the Fall of the Berlin Wall in 1989 and continues through the 1990s up until China’s membership in the World Trade Organization in 2001.
The period saw most closed economies undertake the process of liberalization, privatization and globalization. The article has recognized the events in each of these countries that provided the push towards liberalization policies.
(a) India: Balance of Payment Crisis, 1991.
(b) Brazil: The end of 20 years of military rule in 1985 and the adoption of new Constitution in 1988.
(c) China: The process had begun since the Deng Xiapong reforms in the 1970s and we can observe a gradual increase in ties to the West through the years. Further, an intentional effort by China to distance itself from political crackdowns.
The economic revolution led to two essential changes in each country which led to the rise of the new corporate ecosystem which were:
(1) Increase in Foreign Direct Investment
(2) Privatization.
The changes occurring in the economic policies led to a new legal regime in order to control and facilitate the rapidly evolving economic circumstances. With the new legal and regulatory regime came a demand for the “new lawyers” and a fresh corporate ecosystem to deal with legal needs of their new sophisticated corporate clientele.
II. A highlight of the important differences among the three emerging economies’ corporate ecosystems that have led to the development of distinct corporate legal sectors:The author has identified the following differences:
1. The Role of Important Connections: The author recognizes the role of the connections that lawyers in these countries had even prior to the global shift. However where in India and Brazil these connections meant business houses, international clients and economic resources but in China the important connection for these lawyers were in the nature of party affiliation and personal connections to the state.
2. Types of Companies: The authors recognize that the Cravath Model in China’s State owned enterprises are more prominent as compared to private enterprises vis-à-vis the situation in the other economies.
3. Inside Counsel Revolution: The inside counsel revolution has reached China the last on account of the importance of the State Owned Enterprises in the Chinese economy as compared to the other economies.
4. The Legal Profession Regulation: In China, the market and profession are regulated by the State whereas in Brazil and India the bar plays the essential role in producing the current shape of the corporate legal market. The Chinese state on one hand has allowed foreign firms to the maximum extent, the Bar Councils of the other two nations have attempted to protect its indigenous professionals more vigorously.
5. The Foreign Lawyer’s: The situation in Brazil imposes some important limitations on this subject. In Brazil, foreign firms can open office and serve as ‘consultants on foreign law’ yet they do not have the permission to appear in Brazilian Court or advice companies of Brazilian Laws. In India only Nationals are allowed to practice law in India. In China foreign lawyers are only allowed to “provide information on the impact of the Chinese Legal Environment” which has been used by business lawyers as a loophole.
6. Legal Education: China has been more aggressive towards the push for global standards of education as compared to its counter-parts recognizing the exponential need in the corporate legal market. Whereas in India and Brazil the push for such transformation has come from private institutions, contrastingly China has seen such transformation in its public universities making it easier for Chinese students to undertake foreign education.
III. The features of the Cravath Model of Law Firms:The Cravath Model of Law firms is named after the leading American Law Firm called Cravath, Swaine and Moore who are the originators of the Cravath Model. The features of this model include:
Firms started providing a full range of legal services to big corporate clients which was in stark contrast to the situation of loosely based law firms or sole proprietorships that prevailed in the past.
Lawyers hired from top law schools as opposed to laterally from other law firms.
Development of these freshly graduated lawyers would be done through the Apprenticeship Program.
The best of the candidates would be selected through the Apprenticeship program to be promoted as permanent members of the firm or partners, whereas the rest would be asked to find other employment.
The Partners would be mostly equal partners in profits and losses with a say in the decision making of the firm.
On elevation to partnership the payment structure would be highly dependent on the Grade of Seniority.
During the 1960s, the Cravath Model gained prominence in the American organization structure and later spread across Europe and the U.K. as well. The success of the Cravath Model can be attributed to the growing legal field and changing nature of clients as well as the labour market.
The areas of law exploded in this time period inevitably leading to clients not being able to handle legal issues themselves with the limited resources that they possessed as was done by them previously. The Cravath system provided a solution to this need by giving all the services required by these corporate clients under one firm.
In terms of the Labour Market, the period saw an exponential increase in the number of fresh law graduates with potential however lacking experience and training. Prior to the Cravath Model these lawyers worked for meager wages and usually unsupervised apprenticeship with experienced lawyers. The Cravath system allowed these young talents to earn a respectable salary, attain training, get promoted based on merit and therefore the majority of law graduates wanted in on this structure and such law firms. For, the law firms it was an advantageous position as this labour was paid for by the client. This interaction as stated above created a new corporate hemisphere.
IV. Evolution into the New Cravath Model in the emerging economies in the last three decades. The New Cravath Model made its entry as a new model in the 1980s. The New Cravath Model had some subtle differences in comparison to the Cravath Model such as:
(1) The method of compensation was assured.
(2) Lateral Hiring was undertaken.
(3) Decision Making became more bureaucratic
(4) Full service practice with core areas of expertise.
The Evolution in the emerging economies in the last three decades into New Cravath Model can directly be attributed to the forces of globalization, change in the nature of the clients, the dynamic labour market, internationalization of the legal education sector and the regulation of the legal sector in each country respectively.
Supply-Demand Mismatch
The traditional Cravath Model worked tolerably in the emerging economies to recruit law students in order to provide sufficient labour to these new upcoming legal institutions however over time the failed to satisfy the constantly rising demand for corporate legal services. The expansion of the ‘corporate hemisphere’ in the emerging economies coupled with the a lack of well-trained corporate lawyers led to a supply demand mismatch and therefore companies had to pay high prices for these corporate legal services resulting in the need and pressure to find more stable solutions. It was under these circumstances and pressures faced by the Businesses and the corporate structure that the emerging economies shifted towards the New Cravath System which had already made its place in the U.S.
Post the 2000s these emerging economies saw a huge rise in the number, size and sophistication of law firms. In India 30% of the country’s top 40 law firms were established between 2000 and 2015. In Brazil 119 corporate law firms were established between 2001 and 2015 and in China new firms such as Yingke grew in stature with more than 2,000 lawyers and 20 domestic offices whereas the already established firms such as Jun He, Allbright and King & Wood dramatically grew.
Also, along with the law firms a sharp rise in the in-house legal departments with greater budgets can also be noted during this period in order to recalibrate the supply-demand lag.
Peel-Off Lawyers
Another phenomenon that has led to the New Cravath System is the rise of second generation ambitious lawyers who have previously worked with the big law firms but were however not happy at these big firms. This may be attributed to the nature of work they were doing, lack of egalitarianism or just wanting to go off on their own. Therefore, many established “second generation lawyers” established their own firms. These are called “Peel off Lawyers” who in their second generation firms brought in good practices, egalitarianism and meritocracy.
Global Education
With the rise of the global education and lawyers from the emerging economies investing in foreign LLM Degrees even though they come at a high economic cost has also contributed to the emergence of the New Cravath System. This trend can be seen in the emerging economies since the beginning of the new millennium. Foreign Education and global courses are on the rise mainly due to the teachings according to the New Cravath Model create new opportunities, greater appreciation of skills and credentials.
Global Interaction and Transplantation of Legal Norms
The rising interaction between the lawyers of different jurisdictions on account of the global forces, foreign investment and multinational corporations despite the restrictions of foreign lawyers in the emerging economies has led to a positive exchange of ideas, systems and practices. Even when Lawyers from these emerging economies work in foreign law firms they imbibe the law firm management model and bring it back in flesh and blood to their respective countries.
Furthermore, the global interaction of law students across the spectrum by virtue of exchange programs, J.D. Courses has also facilitated the growth of the New Cravath System.
[1] David B. Wilkins Et. al., Globalization, Lawyers, and Emerging Economies: The Rise, Transformation, and Significance of the New Corporate Legal Ecosystem in India, Brazil, and China, 61 (2) Harvard Intl. L.J. 281, (2020)
Author Bio: The author is a practising Advocate based at New Delhi (NCR), Author can be reached at advgauravpuri@gmail.com.