Business of Law Firms:
Dentons and Dacheng formally split​

By Jake Rickman​

What do you need to know this week?

The Lawyer announced on Tuesday that international law firm Dentons is formally splitting from its Mainland Chinese business division. Known as Dacheng (大成), Dentons and Dacheng merged eight years ago to create the world’s largest law firm by headcount.

The reason for the split allegedly relates to new regulations in China governing data privacy and cybersecurity.

Moving ahead, the two firms will still operate under a referral arrangement, which is how most firms with presences in Mainland China do business. This describes a contract where each firm will refer clients to the other firm when suitable.

Why is this important for your interviews?

If you apply to Dentons or any of its rivals (think DLA Piper and Norton Rose Fulbright), this is absolutely a development to study and stay on top of. This has massive implications for Dentons’ worldwide operations and its future growth.

Dentons (and most of the firms considered its rivals) operates worldwide as a Swiss Verein. This is a form of global partnership model where a series of legally and financially independent entities usually organised by national jurisdiction operate under a single brand (“Dentons”). Profits are not pooled worldwide. Instead, only partners within each of the entities share their profits with one another.

All entities agree to operate according to an international brand agreement, which gives the client the impression of a single firm. This agreement also governs matters like expense sharing, IT system sharing, and other operational considerations.

The Swiss Verein has proven to be a great model to scale a legal brand internationally because it effectively navigates jurisdictional problems inherent to operating a legal business in many different countries. Unlike most other business sectors, the nature of the law is defined by which country you are practising in. Different countries have different legal systems, which are all independently governed. Certain jurisdictions like China strictly regulate which firms can practise in their countries.

The Swiss Verein model gives each entity more independence, which often makes it easier to operate in less liberalised markets.

For Dentons to have secured a merger with a Mainland Chinese firm meant that it had what few other firms could achieve, which gave it a distinct competitive advantage in the international legal market.

How is this topic relevant to law firms?

It is important to understand the business case for why law firms operate in China, as well as the risks in doing so.

No doubt, law firms have long been attracted to the world’s second-largest economy — one slated to overtake the US in due course.

But this development also demonstrates the complexity of operating internationally, especially in certain jurisdictions like China. While Dentons was one of the largest international firms to operate in China through a mainland entity sharing its brand, it is by no means the only one. Is this a sign of things to come for other firms and their ambitions on the Mainland?