5 ASIAN LEGAL BUSINESS – AUGUST 2024 WWW.LEGALBUSINESSONLINE.COM BRI EFS we also work with a select panel of external law firms to achieve better rates and services. EDWARD TUNG, head of legal and compliance, ORI Capital We work closely with the executive team to clearly define the company’s strategic priorities and key legal needs. As a fund manager, it’s clear to us that our primary business objective is to maximise financial gain from our investments. Secondly, we focus on optimising the engagement of external counsel. This includes carefully selecting law firms based on their industry expertise and cost structure. We focus on biotech-related transactions. Given the niche nature of our work, a great deal of our legal focus is on areas that firstly maximise financial gain, like optimising transactional structures, and secondly minimise financial loss, such as conducting thorough due diligence and customising transactional milestones. Both of these aspects require a deep understanding of our specific business objectives and are mostly handled in-house, minimising the need for external legal costs. Additionally, we leverage technology and process improvements to drive cost savings without compromising the quality of legal support. This includes automating simple tasks to enhance resource allocation. With all these approaches, we ensure that the legal budget is allocated to support key business objectives. Squeezed by geopolitical tensions and economic downturns, international law firms, particularly those from the U.S., have begun shrinking their operations in Greater China with some speed. In the latest examples of the collective retreat of American firms, Philadelphia-headquartered Dechert is weighing shutting down its Hong Kong and Beijing offices, following in the footsteps of U.S. Big Law peers including Morrison & Foerster, Sidley Austin, and Weil, Gotshal & Manges. Those not looking at an outright exit are still thinning their Greater China presence as operationality allows. The slump in dealmaking and IPOs prolonged by China’s structural economic malaise has dealt a blow to foreign firms’ profitability in the world’s second-largest economy and its common-law enclave of Hong Kong. Some in Big Law might have felt it could rely on counter-cyclicity and stay afloat by falling back on restructuring matters. How sustainable that strategy is, however, is up for debate. “Western creditors of Chinese borrowers at risk for insolvency are going to want Western law firms as advisors. To that extent the countercyclical strategy is still viable,” says Peter Zeughauser, a legal analyst at consultancy Zeughauser Group. “But Western firms won’t play as lucrative a role in bankruptcies filed in China. PRC law firms will undoubtedly play a more lucrative role,” he adds. The string of office closures and downsizing has prompted foreign law firms, especially those of U.S. origin, to contemplate their path forward in the Greater China region. While operating in mainland China naturally came within political and economic limitations, some foreign practices have found the murky red lines even harder to navigate. In May, Chicago-headquartered Mayer Brown announced that it was severing its 15-year partnership with its fully integrated Hong Kong arm and local legacy firm JSM. The announcement came fewer than a year after Mayer Brown commemorated its 160th anniversary globally in Hong Kong. At a cocktail reception marking the occasion, Justice Secretary Paul Lam used his speech to stress a solicitor’s duty not to terminate his retainer with his client except for “good reason” – a thinly veiled swipe at Mayer Brown dropping its long-time client, the University of Hong Kong, over the case of a political statue related to the Tiananmen crackdown. All of it has a feeling of an end of an era. Analysts believe that now U.S. law firms seeking to maintain influence in Chinese legal matters should consider partnering with PRC firms. This can be done through preferential policies, such as those offered in the Shanghai Free Trade Zone. Without such partnerships, U.S. firms may struggle to establish robust practices in the PRC. Alternatively, to remain commercially viable in China, U.S. firms could maintain small representative offices or discreet branches that don’t practice Chinese law. These offices would focus on serving multinational clients who need on-the-ground legal support in China. Additionally, they could advise Chinese clients seeking legal assistance for their U.S.-based needs. This approach would allow U.S. firms to maintain a presence in China while also adapting to changes. “Commercial viability in the rest of Asia is going to be country-specific, depending on how well a U.S. firm’s client base, sector, and practice area expertise correlates with sector strength country to country, keeping in mind that representative and smaller offices may work well in the Asian countries with larger economies,” says Zeughauser. NO EASY ANSWERS: U.S. FIRMS FACE GREATER CHINA RECKONING
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