Legal success comes from turning orthodoxies on their heads

Law firms as professional service providers are not normally noted for their inventiveness. Unlike the Big Four accounting firms or top management consultancies, they tend to organise themselves around the specialisations of their own practice rather than their clients’ needs. In addition, because the law is based on precedent, lawyers are trained to look backwards. This inward, retrospective focus is not conducive to new thinking. Yet this year’s Asia-Pacific Innovative Lawyers report shows many indigenous firms are turning orthodoxies on their heads.

King & Wood Mallesons has taken the radical step in its China offices of organising itself along industry lines rather than by its legal expertise. In a move that shows its reorganisation is more than marketing, KWM will now report profit and loss by industry sector, one of very few law firms to do so globally.

While this has been a trend in the UK for the past 15 years, few law firms have gone so far as to reflect an industry focus in their financial accounting. The initiative was devised by a lawyer, Shao Zili, who had spent five years outside the legal profession.

Mr Shao, previously chairman and chief executive of JPMorgan China and now co-chairman at KWM, says: “In banking I saw that industry focus is the most important thing. You are not a general banker, you are a healthcare or real estate-focused banker, for example. Clients don’t really care about what we do legally, they care about what we know about their industry.”

Another firm that is ahead of the curve is Nishith Desai Associates, an Indian law firm. It adopted its industry focus, or “vertical” approach to sectors, in the mid-1990s, well before many UK firms. With only 75 professionals, NDA tops the FT’s ranking of firms headquartered in the Asia-Pacific region this year. One reason it punches above its weight is because it invests half its annual profits in research and development. Their competitors tend to use their profit pools to pay partners.

More radically for a law firm, NDA’s business model is based on predicting the future and staying ahead of new trends such as cryptocurrencies. When he founded the firm in 1990, Mr Desai realised he could not compete with other Indian law firms that had 100-year-old brands. Instead, he says, he looked at technological, political and social developments that could throw up new legal and tax problems and positioned his firm to advise on them.

The demand for lawyers to look forward and to advise not only across practice areas — such as contract law and dispute resolution — but also across industries is becoming more common in Asia. Even established law firms such as Kim & Chang, one of the largest in South Korea, are stepping out of the traditional legal role.

When the South Korean government announced plans last year to grant the first two internet-only banking licences, Kim & Chang was involved in the bidding process. The government had not issued a banking licence for 23 years, which meant the new banks had to be created out of a tangle of pre-internet regulations.

To complicate the lawyers’ task, Kim & Chang’s client, telecoms company KT Corporation, was the leader of a 21-member consortium, which included Alipay, the Chinese online payment platform, and many non-financial companies. Kim & Chang had to field more than 30 lawyers who could work across different specialisations, foster convergence within the consortium and work with the regulators to create K Bank, the new company.

This convergence of industries and technology to create new types of business propels legal innovation worldwide and underpins many examples showcased in this year’s report. The other important driver of law firm innovation, particularly among the international firms in the region, is competition.

Clients don’t really care about what we do legally, they care about what we know about their industry

As the indigenous law firms modernise and branch out, international firms find they are now competing with them on an equal footing. The Asia-Pacific region is the one area of the world where UK and US-originated firms jostle equally for position. This is reflected in the FT’s rankings of international firms over the past three years. Unlike in the ranking of firms headquartered in Asia Pacific, the firms that occupy the top 10 positions in the international ranking changed a great deal over the period.

This year, Herbert Smith Freehills occupies the top slot, a jump from 17th last year. Neither the UK’s Herbert Smith nor Australia’s Freehills, which merged in 2012, was then known for innovation. But four years on, the merged firm’s performance in this report shows it has grown its Asia-Pacific presence. Its work includes BHP Billiton’s demerger from South32, the largest in Australian corporate history, and CGN’s purchase of Edra Global Energy Berhad for $2.3bn last year, the largest M&A deal in Malaysia.

More revealing is a recent announcement on strategy. Cultivating innovation is listed as one of the five ways in which it wants to become a new type of law firm for 2020. This underscores how finding paths to inventiveness has become a priority for many firms.