Size, an important factor for law firms, even in Greece

One of the main issues discussed at a recent conference titled “The Future of Law and Lawyers,” organized by the European Public Law Organization in Athens, was the exceptionally small size of Greek legal firms. Economic, historical and cultural factors have prevented Greek law firms from growing in size like their European peers and enjoying the significant benefits of economies of scale.

But even taking into account the small size of the Greek economy, it seems that Greek law companies do have potential for growth.

According to John Dryllerakis, president of the Hellenic Association of Law Firms and a keynote speaker at the conference, “the difference in size between Greek and European firms is immense, even taking into account the difference in the size of the countries and their financial power.”

Indeed, the few large Greek law companies employ around only 50 people. Their German equivalents have some 500 employees while big British law firms employ around 5,000.

Roots

“We cannot even compare the legal markets of Greece and the UK as they rely on very different economies,” states Yannis Manuelides, a partner at Allen & Overy, one of Britain’s biggest law firms. Greece, with a population of 11.3 million, offers a much smaller market for lawyers than the UK and other big European countries.

However, the size of the market cannot in itself explain the discrepancy in the size of the companies. “Many small legal cases could easily be handled by many small legal businesses. Large law firms are needed to deal with the complex financial cases of large companies which require the cooperation of many lawyers with different specializations,” Dryllerakis says. This explains why the Netherlands, a country with a population similar to Greece’s, has firms that employ 300 staff.

The size of a country’s law companies also depends on its history. Their growth in Britain was facilitated by their location in one of the world’s major financial centers and their use of the international commercial language. In addition, the British Empire enabled the Anglo-American tradition of common law to spread to important commercial centers in the postwar period and become the common currency of international trade.

“In most countries the work of lawyers is not a tradable activity but parasitic on the rest of the economy,” Manuelides says. “But English legal work of the big English firms is a major tradable export business for the UK.”

Until the 1980s, continental firms remained small. The influence of coordinated capitalism and of the civil law tradition – a purely analytic construct poorly equipped to adjust rapidly to the economic pressures of the business world – were strong. Judges could not transform the doctrine to facilitate economic development and lawyers were faced with several restrictions.

“Although they never reached the size of their British peers, in the past few years a number of continental European law firms that did not have the British tradition grew rapidly as well because of their internationalization,” comments Stathis Potamitis, a partner at Potamitis Vekris, one of the largest law firms in Greece. Spanish firms, for example, expanded to the country’s old colonies in Latin America and this resulted in the creation of companies such as Garrigues with over 2,000 employees.

Greece did not have colonies, important economic transactions or political power in Europe. Greek firms grew slowly and only six or seven reached what could be called medium size elsewhere. But the growth of law firms in Greece was not hindered by economic and historical reasons alone.

Mentality

“The non-democratic character of Greek law companies affects their size because one lawyer can usually have control over four or five others. If he wants to expand more than that he will need to agree to share his responsibilities and his profits to a larger extent,” explains Potamitis.

In Greece there is no tradition of law firms. In fact Greek lawyers were not allowed to form legal firms until 1989. Since then many have been created on paper because of the tax incentives but very few of them are real partnerships. With the exception of very few firms, all the others are one-man shows.

“The multitude of laws and their occasional ambiguity, the relative slow adjudication of disputes, the complex administration and the absence of binding precedents contributes to a legal culture which favors smaller practices. Legal complexity requires ‘brilliant and authoritative interpreters of the law’ and administrative inefficiency favors ‘effective intermediaries.’ Both of these types of practitioners can operate more effectively in smaller practices centered around themselves,” says Manuelides.

Another aspect which may be hindering the growth of law firms is a regulatory one. Whereas in the UK there are national law firms that can and do practice in all three UK jurisdictions – England & Wales, Scotland and Northern Ireland – in Greece a lawyer registered with the bar association of city A may not practice in city B.

Partnerships in Greece also face a number of difficulties that make them seem less attractive than they do in other European countries. “Tax evasion among Greek lawyers is common. If the exact profits of the firm are not recorded for purposes of tax evasion, a lawyer cannot be sure if his partners are honest. If there is no transparency and trust among the partners, a firm cannot function. Moreover, because law firm owners want to limit fixed costs as much as possible, they usually tie the compensation of associates to the revenues they actually produce. This, however, means that there is intense competition within the firm for assignments as this impacts the associates’ pockets directly. This makes it hard to develop team spirit and turn law practices into real and cohesive teams. But perhaps the main reason real partnerships in Greece are so rare is that Greek lawyers like to retain their sense of direct and full ownership of a practice even if it means less profits,” says Potamitis.

Size matters

Larger companies could benefit everyone. In theory, economies of scale ensure lower costs for the firm and the clients. The services of the firm are more complete and efficient because lawyers of all different specializations cooperate. The client does not have the power to take advantage of the firm by not paying for the services he uses. Tax evasion is harder. Perhaps the greatest benefit of large firms is their ability to invest in their future.

“Big British companies treat all their lawyers as potential partners. They invest heavily in the training of new lawyers while their size and reputation allows them to choose the best trainees. This is just one of the benefits they have because of size,” notes Manuelides.

But the size of Greek firms cannot come close to the firms in other European countries because the small Greek market does not need such big ones. “A supermarket might have larger economies of scale, but a village only needs a minimarket,” Dryllerakis points out.

Moreover, if the size of Greek firms increases too much, they might be faced with a situation in which the same firm is required to support both sides of a case.

Does that mean that Greek lawyers, who mostly work either independently or in very small cooperations, should not take advantage of economies of scale?

“Of course they should. The main barriers to the growth of Greek law firms currently are cultural, not economic. Law firms should expand not only by hiring new people but by creating partnerships with each other, through consolidation. This does not require a larger market because the number of services will not change, only the way in which they are organized. Stricter control of tax evasion and a more efficient juridical system would be very important for the growth of Greek law firms. But the main thing that needs to change is the lawyers’ expectation that success in this business means owning your own practice,” concludes Potamitis.