Partners stand tall among their peers

Peng Xuefeng (left), Dacheng's founding partner and chairman of the world's biggest law firm's global board, with Dentons Global Chairman Joe Andrew during the merger contract signing ceremony on Jan 27 in Beijing. [Photo provided to China Daily]

Dacheng, Dentons merger will help more Chinese law firms go global, says top attorney

Though the entire global legal industry is pondering the odds of success for Dacheng and Dentons after their merger, Peng Xuefeng, founder and president of the Beijing-based Dacheng Law Offices, remains unflattered and says that it was a "now-or-never" opportunity.

Dacheng's alliance with international law firm Dentons has created the world's largest law firm by attorney headcount. The legal giant is also the first global law firm that has a significant presence in the world's two major economic powers - the United States and China.

No sooner had the two firms made the announcement, than it unleashed ripples in legal circles, triggering talk and speculation of whether it would prove to be successful and would lead to a wave of combinations of Chinese law firms and their Western peers.

"We would not have come this far had it happened earlier or later," Peng, the 53-year-old veteran legal eagle, said in an interview with China Daily.

The timing could also have not been more favorable for Dacheng and Dentons as the Chinese legal industry has evolved radically with the country's rapidly growing economy that has never become as internationally integrated as it is today.

Although several Chinese law firms have established an overseas presence with offices, they are feeling increasingly marginalized in the trend of rising outbound investment and mergers and acquisitions made by Chinese companies. Part of the reason why the Chinese law firms often fail to clinch such deals is due to limited resources and lack of international expertise, said industry experts.

Foreign law firms, on the other hand, are facing another dilemma in China. Although the country has become much more open since it adopted market reforms, some international law firms find it even harder to navigate in the vastly complex Chinese market.

Rising operational costs and changing political landscape in recent years have caused some law firms to scale back their investment or even close their China offices.

So when the partners at Dacheng and Dentons met to negotiate a merger, both sides saw an immediate synergy in terms of their strategies - Dacheng needed a partner to become international, while Dentons needed one to become local.

"It (the merger) is a catalyst and a new booster for our development," Peng said.

Dentons' revenue generated from cross-border deals stood at about $100 million in 2014, according to Peng, who believes the figure will substantially expand after the merger.

In the meantime, Dacheng will see a similar boost in business opportunities overseas, which will help further consolidate its client base at home as the merger will help extend its reach to major international markets.

In 2014, Dacheng posted revenue of $400 million, 90 percent of which was generated from the Chinese mainland market, Peng said.

However, Peng admits that the development of the Chinese legal profession has not been in pace with the country's growth and opening-up, although the industry has grown into a profession of more than 20,000 law firms and 250,000 licensed lawyers.

The lack of legal awareness and sophistication of Chinese enterprises in international deals has resulted in major setbacks in their overseas operation such as the canceled Mexico high-speed rail project by China Railway Construction Corp Ltd, Peng said.

"Sometimes we were shocked to see that some multi-billion-dollar deals by Chinese companies were only bound by very simple contracts with many legal loopholes," he said.

"This merger (with Dentons) is about how we can gain experiences by sharing opportunities with Western firms," he said, noting that a fully global law firm with local knowledge as well as international expertise will help Chinese companies avoid unnecessary troubles when going abroad.

Nonetheless, daunting challenges lie ahead for both Dacheng and Dentons, as size does not always guarantee success. The deal to create the world's largest law firm has already prompted many lawyers and experts to question whether bigger is really better, especially for the legal profession.

The new firm will have more than 6,500 lawyers in 120 offices in more than 50 countries and regions. But how the merger can reconcile two drastically different firms and transform them into a compatible and cost-effective mechanism remains to be seen.

Peng said the key to the merger's success is whether the two parties can smoothly bridge their cultural, professional and management differences. The new firm will undergo a three-year transitional period under the Swiss verein structure, a legal arrangement that allows different firms to share clients, branding and other core functions while keeping their financial books and partner compensation structures separate.

While issues including profit sharing and client conflict remain to be sorted out in the next three years, Peng said the two parties are preparing to ultimately become a fully integrated and truly global law firm.

Peng never aimed at something small from the very beginning when he set up Dacheng, which literally means big formation and inclusiveness in Chinese. He and four other partners signed a joint contract to create Dacheng in his apartment in Beijing on June 3, 1989. It was three years later that the firm finally received government approval.

Compared with the merger with Dentons, Peng's decision to leave his stable government job and establish his own law firm was something much bolder at a time when private law firms were almost nonexistent in China.

"It was tough and I was confused because no one could see clearly the direction," he said. But time has proven him right.

In 1992, Deng Xiaoping, the mastermind of China's market reform, delivered a series of speeches during his landmark visit to the southern regions of the country, putting China's economic reform back on track. It was also the same year that China's legal profession began to develop in leaps and bounds.

Peng said internationalization would be the next major test for Chinese law firms, especially if they intend to not only survive but also prosper.

"I would be more than happy to see similar mergers between Chinese firms and Western ones to form global giants". Talking about competition, he said that it is not too much, but too little at the very top among Chinese law firms.

"After all, a lonesome growth of one big firm will not bring the prosperity of the entire industry," he said.