Globalization, Lawyers, and Emerging Economies: The Rise, Transformation, and Significance of the New Corporate Legal Ecosystem in India, Brazil, and China

Our forthcoming Article in the Harvard International Law Journal (Spring/Summer 2020) addresses an important but understudied topic of relevance to academics from a wide range of disciplines who study globalization, and to practicing lawyers and other professionals who operate in a global environment in which the rising powers of the Global South are increasingly important: To what extent have US models diffused to create a distinct ‘micro-level’ corporate legal ecosystem in important emerging economies such as India, Brazil, and China, and what does this process reveal about the evolving relationship among the ‘macro-level’ forces of the state, the market, and the legal profession both within these rising powers and globally. 

The Article investigates these issues on the basis of an unprecedented set of empirical studies conducted by the Harvard Law School Center on the Legal Profession’s Project on Globalization, Lawyers, and Emerging Economies (GLEE). GLEE is a multinational, multidisciplinary, and multi-institutional collaboration of scholars committed to conducting original empirical research on how globalization is reshaping the legal services market in important emerging economies around the world, and the impact of these changes on economic, political, and social developments within these countries and globally. To date, the GLEE project has produced books on India and Brazil, and a forthcoming book on China, and is beginning work on related projects in Africa and Southeast Asia. 

In the Article, we present evidence from our national studies of India, Brazil, and China documenting that US models have indeed been highly influential in creating a new ‘micro-level’ corporate legal ecosystem comprised of ‘law firms’, corporate ‘clients’, and a ‘legal education’ system under increasing pressure to produce lawyers capable of operating in this new environment in each of these three emerging economies. However, in none of the three countries has this process been as straightforward, complete, or uniform as a simple diffusion story would suggest. 

To understand this complex dynamic, we first begin by documenting the ‘global shift’ that occurred in India, Brazil, and China in the late 1980s and early 1990s, as each of these countries moved from a relatively closed economic model to one that is more or less open to the global economy. To effectuate this shift, all three countries privatized many important state-owned enterprises, dramatically increased foreign investment, and passed or revised numerous laws regulating both foreign and domestic companies, and the relationship between the domestic corporate sector and the global economy. These developments, in turn, fuelled the demand for lawyers capable of practicing in these new corporate areas, and supplied a model—US corporate law firms—for how this new form of legal practice might be structured.

Given its importance as a template, we therefore explore the evolution of the American model of corporate legal practice. This evolution begins in what we call the ‘Law Firm-Led’ period of the early to mid-twentieth century, in which large, full-service corporate law firms patterned on the ‘Cravath System’ dominated the US corporate legal ecosystem. These firms thrived, we argue, because the Cravath System was well aligned with both the dynamics of the ‘client’ market, in which companies had little or no internal legal expertise to respond to the increasing array of legal regulation that these organizations faced, and the ‘legal education’ market, which was producing a growing number of law school graduates who were eager for the training and experience that Cravath System firms offered. As a result, Cravath System law firms were the dominant ‘gear’ driving the operation of the US legal ecosystem. Figure 1 presents a stylized model of this interaction.

Figure 1: Law Firm-Led micro-level gearing 

Beginning in the 1980s, however, the alignment that produced the Law-Firm led period began to unravel as companies internalized legal expertise by hiring increasingly sophisticated general counsels (GCs), who in turn helped to destabilize the legal education market by creating a ‘war for talent’ for both recent law school graduates and lawyers moving laterally between law firms, and from law firms to in-house legal departments. By the 1990s, this unraveling had created a new ‘Client-Led’ period in which GCs are the dominant players, and in which many law firms, while maintaining the patina of the Cravath System, have abandoned or modified many of that system’s key practices in order to more effectively compete for clients and talent. Figure 2 presents a stylized model of this new Client-Led period.

Figure 2: Client-Led micro-level gearing
 
It was this confusing, contradictory, and fluid pastiche that lawyers in India, Brazil, and China confronted when they sought to build a new corporate legal ecosystem in their own countries in the years following the global shift.

Using data from our three national studies, we then document how lawyers in all three jurisdictions have both incorporated and adapted these US templates to create a distinct corporate legal ecosystem in each country. For example, during the 1990s, a significant number of new (or newly retooled) corporate law firms expressly modeled on the Cravath System emerged in all three countries. Figure 3 documents this development in India.

Figure 3: Top 40 Indian law firms by founding year

However, while these emerging economy law firms incorporated many of the outward trappings of the Cravath System, internally their structure and practices reveal a more complex and hybridized mixture of global and local elements. In India, for example, virtually all of the most important corporate law firms that rose to prominence in the initial period following the global shift have deep family and communal ties that underscore the continued importance of India’s embedded social structure, even as the liberalization of the Indian economy introduced more formalized mechanisms of governance and exchange. 

There are also important local variations with respect to the other two gears of the corporate legal ecosystems that have developed in India, Brazil, and China. For example, while all three countries have struggled to create a legal education system that is capable of meeting the growing demand for well-trained corporate lawyers, the situation is particularly acute in Brazil where there has been very little change in legal education, forcing Brazilian lawyers to use a number of ‘workarounds’ to get the training they need to work in Brazil’s corporate legal sector. Similarly, we find important differences in the size, quality, and operation of in-house legal departments in the three jurisdictions, with Brazilian GCs exhibiting more of the characteristics that led to the dominance of the ‘client’ gear in the US than their counterparts in India and China. Thus, with respect to all three gears, the micro-level corporate legal ecosystems that have developed in India, Brazil, and China differ significantly both from each other and from US models. 

These differences are particularly striking with respect to China. Compared to India and Brazil, China:

1. has produced significantly larger corporate law firms, with significantly more variation from the Cravath System;
2. has far fewer regulatory restrictions on domestic firms;
3. is more open to allowing foreign firms to enter the Chinese legal market—and to allowing Chinese lawyers to work for foreign law firms, and, while not formally practicing Chinese law, to ‘opine on the Chinese legal environment’;
4. is actively promoting the upgrading of the in-house counsel function for SOEs; and
5. has done significantly more to internationalize domestic legal education, while taking steps to make it easier for Chinese students to study abroad.

These unique features of each of the micro-level corporate legal ecosystems that have developed in all three countries — and in particular, the differences between the Chinese ecosystem and those that have developed in India and Brazil—are due in part to differences at the macro-level between the relative strength of the state, the market, and the bar. Figure 4 depicts this relationship. 

Figure 4: Interaction between the macro and micro gears

In the US, although the ‘Bar’ has always played an influential role, the micro-level corporate legal ecosystem has been primarily shaped by market forces. Figure 5 depicts this reality.

Figure 5: US Market-Driven Macro Ecosystem (circa 2019)
 

The relationships among these macro-level forces differs significantly in India, Brazil, and China. All three countries have pursued a form of ‘state-led’ development that differentiates them from the ‘market-led' macro-level environment that continues to shape the development of the corporate legal ecosystem in the US. 

But the role of the ‘state’ gear in China is far more pronounced than it is in India and Brazil, where the ‘bar’ gear continues to exert significant countervailing force. In India and Brazil, the state’s primary role has been to protect domestic law firms from foreign competition, and to preserve traditional understandings of lawyer professionalism. The situation in China, however, is radically different. In China, the state is firmly in control of both the market and the profession. In the 1990s, it was the state, not the private sector, that pushed for the creation of Cravath System law firms in China. In the intervening years, the Chinese government has consistently eased restrictions on law firm growth and facilitated knowledge transfer by allowing foreign firms to enter the market, and permitting Chinese lawyers to work in these offices. Moreover, in pursuing these initiatives, the Chinese government has not had to contend with the kind of resistance from the organized bar that has stymied reform efforts in India and Brazil. In China, the All China Lawyers Association, China’s centralized bar organization, is a part of the Ministry of Justice. Figure 6 graphically depicts this state-driven model and its effect on the development of China’s micro-level corporate legal ecosystem.

Figure 6: China’s State-Driven Model (circa 2019)

In many ways, the Chinese approach to macro-level gearing appears to be working to produce a globally competitive corporate legal ecosystem. By all accounts, Chinese law firms have become much more sophisticated at doing high-level corporate legal work, in part because of their ability to hire Chinese lawyers who have been trained in global firms, and because the government continues to favor these national champions for legal work both for state-owned enterprises and in administrative actions before government officials. Yet, the more powerful the state-gear has become in driving the corporate legal ecosystem, the more pressure is being generated from international bar organizations, human rights activists, and academic critics to make both foreign and domestic corporate lawyers operating in China more accountable to international professional norms.

In watching these developments, however, it is important to realize that China is no longer the only country using the state-gear to drive developments in the corporate legal market. Beginning with the passage of the Legal Services Act in 2007, the UK government has exercised increasing control over the market for legal services, including authorizing ‘multidisciplinary practice’ and new ‘alternative business structures’, which are already beginning to alter the micro-level corporate ecosystem in that country and beyond. Several other countries in Europe and Asia have followed suit, most notably Singapore, which has recently made it a government priority to make that city-state the primary hub for legal innovation around the world. Although it is far too early to tell how this growing importance of the state-gear will affect the shape of the global corporate legal services market in this new age of disruption, we submit that the framework and data presented in our Article provide a useful lens through which to understand these important developments.

David B. Wilkins is the Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession and the Center for Lawyers and the Professional Services Industry at Harvard Law School and guest contributor to the Oxford Business Law Blog.

David M. Trubek is the Voss-Bascom Professor of Law and Dean of International Studies Emeritus at the University of Wisconsin-Madison and a Senior Research Fellow at the Harvard Law School and guest contributor to the Oxford Business Law Blog.

Bryon Fong is the research director of the Center on the Legal Profession at Harvard Law School and guest contributor to the Oxford Business Law Blog.