K&L Gates global chairman Peter Kalis insists his firm is one of a handful of truly global firms, given its strong US presence.
Photo: Louise Kennerley
Peter Kalis sounds like a street preacher. The global chairman and managing partner of US law firm K&L Gates, which last year merged with Australia’s Middletons, is certainly on a crusade. He gave the US – and Australian – industry an unprecedented level of financial disclosure in February when he published the firm’s financial results.
The results – which showed that the eighth-largest firm in the US, by staffing numbers, posted an increase in net revenue per full equity partner of 1 per cent to $US899,960 last year from $US890,367 in 2011 – were unprecedented in the US and in Australia, where no disclosure is required. Legal firms in Britain report publicly available results to Companies House, a government agency.
But despite the move, Kalis rejects – seemingly with high-minded contempt – any attempt to liken the corporate law business to a more conventional industry.
“It’s a quasi-public profession,” he thunders down the phone during an interview.
“So to put us on a par with a privately held manufacturer just misses the boat. I don’t mind saying it: law is a higher calling.”
To put us on a par with a privately held manufacturer just misses the boat. I don’t mind saying it: Law is a higher calling.
In an era when the global law industry is consolidating at a great rate – since 2010, six firms in Australia alone have undergone tie-ups or outright mergers – it remains to be seen whether Kalis will be a lone voice for transparency crying out in the wilderness of an industry increasingly subject to commercial pressures, or whether he’ll draw other converts to his gospel of openness.
That higher calling certainly seems to have fallen on deaf ears in some quarters. Kalis reels off some of the US firms that have failed over the past decade, including Brobeck, Phleger & Harrison (in 2003), Coudert Brothers (2006), Thelen (2008), Heller Ehrman (2008) and Howrey (2011).
Some failed after expanding too quickly, and others, such as Dewey & LeBoeuf last year, which reportedly made pay guarantees to up to $6 million a year for select partners, rode on their industry’s opacity. “They overstated their annual revenues by $160 million,” Kalis says. “That’s not a rounding error.”
As he distances his own firm from the behaviour and sad failure of Dewey & LeBoeuf, a firm whose history dated back to 1909, Kalis sounds like the modern-day equivalent of the colonising European.
The law profession, as he describes it, is setting out into uncharted territories, imbued with, it almost sounds, a new Protestant ethic and spirit of capitalism. The law, and firms practising it, are not about mere service provision.
“It’s a profession with an extraordinary history, but not only a history, it plays a critical role in the 21st century,” Kalis continues. “Especially lawyers in countries like Australia, the US, the UK – we are missionaries for the rule of law in a century where some emerging economies have no tradition of the rule of law. So I’m afraid I disagree with you, my friend. I don’t think we are just another private company.”
We are missionaries for the rule of law in a century where some emerging economies have no tradition of the rule of law.
The firm started its move into Asia with the opening of a Hong Kong office in 1996 and has since expanded to Tokyo, Taipei, Singapore, Beijing, Shanghai and Seoul.
The integration with Middletons – a firm with 300 lawyers, including 70 partners – in Australia late last year was financial, rather than an association of offices under the Swiss Verein structure, which sees firms put up the same branding but retain separate profit centres.
Transparency takes time
Kalis believes the increasing globalisation of his industry will foster transparency, but he doesn’t think it will come quickly.
“I think [globalisation will increase transparency] but I really have to reach for the reasons why,” he says.
“I think it’s probably because if you are a UK-based firm or a Chinese-based firm, or a US-based firm or an Australian-based firm, and you wished to bring in stakeholders and partners from different parts of the world who really don’t know you that well, but they are connecting with you, there’s probably a greater impetus towards financial transparency, because people want to have faith in the organisations they’re joining.”
There hasn’t, it seems, been a stampede of firms to do the same thing as K&L Gates. Kalis doesn’t say how the managing partners of his US peer firms responded to the disclosure. “They haven’t conveyed any views to me,” he says.
He argues it wouldn’t be a great leap for others to make, however. Law firms in Australia, Britain and the US have capable and sophisticated managers. They have staff who make securities-type disclosures for clients, and could easily do so for themselves, he says.
“I just think it’s not so much a skill-set deficit, as that without transparency sometimes human nature defers decisions that should be made in real time and we’ve learnt that that can be to the detriment of everyone who relies on the stability of a law firm,” he says.
The proselytising Kalis doesn’t try to claim a first-mover market advantage for his firm’s embrace of financial transparency. “I don’t think we’re likely to be punished in the marketplace for aligning ourselves with values like transparency, conservative financial management, institutional stability and a demonstration of business savvy in terms of the narrative we employed accompanying our financials,” he says.
“I doubt that we’ll be punished in the marketplace for being aligned with those kinds of values. Now whether we’ll benefit, time will tell. I’d rather be a first mover than a non-mover and right now if you stack up all the US law firms, you’ve got one first mover and 199 non-movers.”
For all his lofty talk of higher callings, Kalis is adept at taking the fight to people who question the need for firms like his to grow.
Mid-tier Australian firm Mills Oakley chief executive John Nerurker, for example, rejects the notion of an “undifferentiated middle” tier of firms which Nick Nichola, K&L Gates managing partner for Australia has warned against. Nerurker has sounded his own warning against undifferentiated global firms.
Kalis, not surprisingly, rejects the idea. To be a global player necessitates also operating in the US, which alone accounts for 60 per cent of the market for legal services, he says. There aren’t many of those, Kalis says.
“I would offer to you that there are very few global law firms and therefore it’s oxymoronic to talk about an undifferentiated global law firm,” Kalis responds.
“The UK firms aren’t global. They’re international. They’re smart people, they’re talented lawyers. I grant all of that. But they’re certainly not global.
“You can’t ignore 60 per cent of the market and be global. Who’s our competition? We don’t have a heck of a lot.”
In the battle for global law work, the preacher is coming out swinging.