In an increasingly global economy clients have high expectations of their legal and accounting advisers' international capabilities. In order to compete more effectively professional firms must be able to deliver first-class advice in jurisdictions outside of their traditional marketplace.

To meet this client-driven requirement, small and mid-sized, independent law and accounting firms have been joining international associations, alliances and networks of independent professional firms since the 1970s.

The competition among these organisations intense, yet the demand for membership also remains high as firms recognise the strategic importance of combining knowledge of local conditions and practices with international reach and resources.

This article provides information for professional firms considering membership of an international network, alliance or association of firms, and explains the different factors that should be considered.

1) What is the difference between a network and an association?

Until recently the difference between the various types of organiations was somewhat blurred, and indeed, both types of organsiation share common aims and characteristics. However, these are times of change and a new IFAC Ethics Code (and the European Union 8th Directive for countries in the EU) creates a distinection between 'networks' and 'associations' and has been drafted with the aim of creating greater transparency. Organisations cannot present themselves as a closely-knit, internally regulated, global organisation unless there is some substance to those claims.  If an outside observer could be forgiven for thinking that different firms in different jurisdictions are all part of the same organisation, and therefore working to the same standards, because of the impression that those firms create, then that observer should be able to rely on that assumption. 

If organisations are less closely knit, and are not able to provide the reassurance on a global basis that external stakeholders may be looking for, that is not necessarily a problem per se, but it is a different scenario, and one which those external stakeholders should be able to understand.  And therein lies the distinction between a ‘network’ and an ‘association’ that IFAC is making.

In a nutshell, networks are considered to be more cohesive. Network firms will tend to adopt a common brand name, for example, each individual firm, though independent , may adopt a common brand name and called itself "XYZ Italy" or "XYZ Australia". Networks are therefore more globally recognised organisations. Network firms also adopt common methodologies (e.g. for audits) and have greater quality control procedures. Network membership does however place greater responsibilities on the individual member firms in terms of indepedence checking when taking on a new audit client. Firms belonging to networks tend to be involved in multilateral transactions that require coordinated services across multiple jurisdictions.

Associations are 'looser' organisations whose member firms tend to be strong local firms occasionally involved in international work of a bilateral nature. Whilst branding is important, it is secondary to the firm's own brand. Quality control tends to take place during the due diligence process at the selection and recruitment stage, with firms being regulated by their own local bodies. An association charter will typically ensure that member firms adhere to recommended service guidelines. Association members will tend to have less liability exposure than network firms.  

2) Why join an international network or association of independent legal or accounting firms?

Whilst the distinction between networks and associations must be borne in mind, the motivations for joining an international network or association of firms can be summarised as follows:

Retaining firm independence
Joining an international network or association is a route increasingly being taken by firms that are seeking to extend their client service capabilities to new marketplaces, yet retain their independence, rather than be swallowed up in a merger with a larger professional firm. Becoming part of a network or association can be an effective way to achieve both objectives, as well as create economies of scale.  In the Legal Week 2007 Indepepdent Law Firms In Europe Survey, just 14 percent of independent law firms stated that they would be open to a merger with a large U.K. or U.S. firm. The report also states: "Referrals remain the lifeblood of any independent [legal] outfit and an association with an international brand is often a key part of the marketing strategy." Associations and network can fulfill this requirement for fiercely independent firms.

Client retention
As their clients grow and move into new, foreign territories, small and mid-sized firms need fast, easy access to contacts in cities and countries they can rely on, where they can’t necessarily justify the risk (or cost) of opening their own offices.

Rather than lose the client to a larger, more international law or accounting firm, mid-sized firms are able to confidently refer their client to a similar sized network or association member firm in another jurisdiction which is able to offer the same levels of local expertise, personal service and value for money. Many firms find that joining a network or association broadens the firm’s client service capabilities by being able to leverage the services provided by other member firms.

Prior to joining a network or association, many local professional firms find that sourcing reliable, English-speaking law or accounting firm contacts in foreign jurisdictions can be problematical and, indeed, something of a lottery. Being part of a network or association of member firms that have been carefully selected for their service excellence, and that continue to adhere to the organisation's own charter or membership guidelines, minimises this risk and provides clients with reassurance that they will receive similar levels of service from any firm in the group, and that the local firm can continue to serve them as they develop their business in new geographic territories. 

Answers to technical questions
When the client doesn’t need to be referred, but instead needs an answer to a tax question or a matter related to a foreign country’s legal system, the spirit of co-cooperation that runs through most law and accounting firm networks and associations ensures that a reply is forthcoming, usually without delay and without cost. Although some firms sometimes see this as a burden at first, particularly during busy times, they soon see the upside when one of their own clients needs the answer to a technical question that can only be reliably answered by anther member firm. Few member firms would disagree that this adds tremendous value to the services they can offer their clients.

Practice development
The leading international networks and associations of independent firms have developed beyond all recognition since the 1970s when most were perceived as clubs, rather than the serious, commercially-driven, organisations that most of them have evolved into today. As business has become increasingly global, professional firms view networks and associations as key to developing their international practices and to attracting larger, more profitable clients operating across borders to whom the firm can offer a seamless, global service through their relationships with trusted contacts across the network.

The kudos of exclusivity
Many networks and associations, though certainly not all, offer their member firms exclusivity, meaning that the firm has contractual rights over its own geographic territory for client development and inward referral purposes. Being the exclusive law or accounting firm member in a particular city or country provides the independent law or accounting firm with valuable endorsement and extra marketing clout when pitching for work with larger, more internationally-focused clients, and when trying to position the firm as a more attractive employer. For independent firms in certain countries, attracting the right talent is difficult; being able to demonstrate the firm’s involvement in cross-border transactions, through the firm’s network or association membership, can only strengthen a local firm’s ability to recruit suitable candidates.

International branding
Membership of an international network or association of independent firms gives the member firm the legal right to promote its affiliation in its territory through use of the network or association's international logo. Networks are more closely-knit organisations with members tending to take a common brand name and therefore having a higher profile.

It is in both parties’ interests that the logo is displayed prominently wherever and whenever possible – with each organisation’s brand lending force to the other’s. Use of the brand is encouraged, but not usually required, and would typically be implemented across firm stationary, marketing brochures and the firm’s website, ensuring that all touch points with existing and prospective clients are covered.

Although some member firms prefer not to adopt a network’s umbrella brand so as not to deflect business from existing non-network introducers of work, the growing need for firms to project a more international image means that access to a global brand is viewed as an increasingly important membership benefit.

Open discussion in a non-competitive environment
Networks and associations generally consist of non-competing independent firms and therefore provide their members with the opportunity to openly discuss issues affecting their firm. Whether the topic is staff or practice related, firms are able to lower their guard and learn from each others’ experiences.

3) What criteria are important in selecting an international network of independent firms?

Quality
Most international networks and associations of legal and accounting firms have stringent membership entry criteria and will carry out detailed due diligence on any prospective member firm before extending an invitation to join. Checks on registration with local regulatory bodies, on any outstanding litigation threats to the partners or the firm, and any conflicts of interest with existing member firms, are usually undertaken as a matter of course. Client lists are examined to ensure that the firm has a strong internationally focused commercial client base that matches that of existing member firms, leading to synergies and maximum referral opportunities.

Partner backgrounds are also examined carefully to ensure the firm has the experience to handle complicated cross-border transactions across a wide spectrum of practice areas and industry sectors. Many networks and associations also stress the importance of staff being able to conduct business in English and use technology to ensure responsive client service.

Firms considering membership should however always do their own research and look carefully at the ornganisation's international directory to establish if the calibre of member firms meets their own expectations. Although it is less easy to track, interested firms should also try to find how much churn the network or association is experiencing. The success of a network or association is based to a large degree on long-term relationships, so the more stable an organisations, the more benefits that will result.

Geographic reach
Firms can never be entirely sure where their clients will be doing business next, but those considering membership of an international network or association should look carefully at the firms in those cities where their clients are currently doing business or are likely to do business in the future. Ask yourself ‘Will these firms be able to offer my clients a seamless service?’ and ‘Can I entrust my client to that firm?’ Some legal and accounting networks and associations are more U.S. or Europe based, often depending on their history and founding firms, although this is changing fast, with many merging to gain strength.

A wide range of services
Several networks and associations are evolving into multidisciplinary organisations, granting membership to both legal and accounting firms. Many clients will need the services of both an accountant and a lawyer at some point, so firms need to decide whether they want to join an organisation that can provide a multitude of services ‘under one roof’ or if they prefer to join a network or association that is focused specifically on one profession. Both types have their advantages and disadvantages, but there is a growing convergence between the professions, with firms facing similar challenges in running their practices and serving their clients. 

A good cultural fit
Networks and associations attract firms for many different reasons, and therefore any firm considering joining such an international organisation should ensure that the existing membership shares its own aspirations and goals. Do the existing member firms serve a similar profile of client to your own firm? Do the firms espouse a similar approach to providing client service? If your firm prides itself on providing partner-led service, then you are unlikely to want your client to be referred to a member firm that is unlikely to provide input from its experienced partners.  Networks and associations may not, in some people's views, have as strong a culture as the international law or accounting firms, but the stringent checks carried out on firms, along with a visit to the offices by a network or association representative, usually ensure that a firm adheres to the approach to client service required.

Relevant services
Networks and associations vary in their range of services – firms should join the organisations that provides the core services they need at an affordable cost. There is no point paying for ‘bells and whistles’ that the firm is unlikely to use. A network or association that can offer a limited number of high quality services will invariably provide a better deal than one that spreads itself too thinly across too many service areas. For example, some international accounting networks offer international audit manuals – if this is what your firm requires, find a network that offers this service, but be prepared to pay a higher membership fee and be subject to greater regulatory administration.

A good meeting programme
The value of personal, face to face contact should never be underestimated.  Meeting contacts in the flesh at the range of meetings organised by most networks and associations ensures valuable networking opportunities. Lawyers and accountants are much more confident about referring their client to a professional that they have met, like, and know will look after their client in the manner they have become accustomed to. Look carefully at past meetings to find out what they offer and how well attended they are. Some networks and associations now offer meetings at the local, regional and international levels, as well as across practice lines. Special interest group meetings are often held during events and provide opportunities to get involved in focused networking with professionals working on similar client engagements. Personal marketing and networking can be extremely effective; without it you may remain just a name in a directory.

Exclusivity
As mentioned previously, the majority of networks and associations offer their member firms an exclusive geographic territory. This should be high on the list of priorities of any firm selecting such an organisation, as such an arrangement ensures maximum referral opportunities and minimal conflicts of interest.

Firms should also look carefully at ‘exclusivity requirements’. Does the organisation require you to exclusively use the firms in the network or association when referring your clients? If you already have strong existing relationships with firms in a number of countries, it may be best to avoid this requirement.

A strong brand
Association with a strong, reputable, global network or association brand is an invaluable marketing resource for local, independent law and accounting firms. Consideration should be given to whether the organisation re-invests profits in its brand for the benefit of its member firms, and to the types of marketing activity the organisation is involved in. Ask yourself if the marketing initiatives are likely to benefit your firm and try to find out if there are there ample opportunities to dual brand and share in the success of the network or association's brand. 

4) How much will it cost to join?
The majority of networks and associations charge an annual fee based on the number of partners or the size of the firm and the number of offices to be listed. Some also levy a one-off joining fee and discount membership to firms in lesser developed countries.

5) What other costs are involved?
The best way to ensure a good return on membership is to really get involved and be active. The tried and tested way to increase the profile of the firm is to attend meetings, and this does cost additional money. Most networks and associations encourage their members firms to attend at least one meeting per year, with delegate costs varying depending on the type of meeting, the duration and the location.

Some organisations will also levy a low rate of commission on the referrals that take place between member firms. 

6) What can a firm realistically expect to achieve?
Membership of an international network or association of independent professional firms should always be viewed as a long-term investment. Firms that leave after the first year often had unrealistic expectations at the outset and did not dedicate the time to making the relationship work. As with membership of any organisations, the benefits will be commensurate with the energy and commitment that is invested in getting involved.

Firm-wide buy-in to the network or association concept is also crucial to success; if staff and partners are not aware of membership or do not understand the value, then membership is more likely to be less of a success.

Firms that have clients involved in business transactions outside of their jurisdiction (or comfort zone) should realistically expect to be able meet the expectations of those clients needing to be seamlessly referred to another firm with the required expertise.  This should be achievable even for those firms that do not get actively involved in membership. It is well known that client acquisition is many times more expensive than generating new business from existing clients, and it is therefore difficult to put a price on keeping existing clients satisfied.

However, if a firm is prepared to promote its association heavily it can expect to attract new, more internationally-focused clients in its marketplace as a result. And those firms that regularly attend meetings and get involved in network and association initiatives should expect to see fee-generating inward referrals from other member firms who understand the capabilities and strengths of the firm. It is not uncommon for active firms to recoup their investment in membership many times over.

Firms should however be under no illusion – joining an international network or association is a big decision of strategic importance to the firm. It is not a quick fix and firms must be prepared to invest for the long term. It will take time to establish the firm in the network and to build the relationships that will be key to the continued profitability of the firm in the future.

Need more information
Please contact Giles Brake at the MSI Secretariat.