International law firms in Israel

Fears of "invasion" by foreign firms to dominate Israeli legal arena unlikely to occur after changes in Israeli Bar rules.

By TREVOR ASSERSON
Tel Aviv new courthouse 311 (photo credit: Courtesy)
Tel Aviv new courthouse 311
(photo credit: Courtesy)
In August 2012 the rules of the Israeli Bar Association were amended to allow foreign law firms to conduct business in Israel. Many wonder whether international law firms based in the United Kingdom and the United States will invade Israel, swallow up the large local firms and come to dominate the local market, as they have dominated so many other jurisdictions. The big accountancy firms invaded Israel some 15 years ago. Why should the big law firms not follow.
There are a number of structural, financial and even political reasons why this invasion, though much feared, is unlikely to occur for at least seven reasons.
First, the appetite for expansion has waned since 2008. But this is a temporary factor. The international transactions which drove law-firm expansion in the past, will return in due course.
Second, law firms are now fixated with “profits per partner” or PEP. Any Israeli merger/takeover will add the PEP of Israeli partners, which will bring down the average across the firm. Since PEP is the glue with which firms attract and then keep their best talent, lowering PEP will need to bring big advantages, which are not to be had in Israel.
The flip side of this coin is that the founding partners at the top of the leading Israeli firms retain excessive shares of the equity of the firms they built. Those founders retain control and will not relinquish it if their equity share is to be eroded – as it surely would be – by the invading giant.
Third, the Israeli market has little to offer. Until the crash in 2008, the large M&A law firms would deem any IPO for less than $1 billion as simply too small to bother with. Israel has few deals of that size in its local market. Money would be better spent by the international firms in Russia or China where there are mega-deals hanging from every oligarch’s belt.
Fourth, the international firms have little value to add. In most of Europe, the Far East, Russia and South America there were virtually no truly international or sophisticated law firms when the big law firm invasion began in the 1990s. Sophisticated international firms were only to be found in the US by dint of the size of America’s economy, and in the UK where firms grew on the back of international companies choosing English law as their law of choice. The giant law firms brought real sophistication to almost every jurisdiction they entered.
Israeli law firms, while tiny compared to these giants, in fact have relatively little to gain from them. Israel’s economy is export-led; all the main Israeli law firms have lawyers trained at the top US and/or UK firms and have departments dedicated to international work.
Fifth, Israeli law firms enjoy referrals from all the major London and US firms. The moment they merge with one of them they lose business from all the others. This would devastate their international business. Unlike accountancy firms, no single law firm has sufficient market share to make it worthwhile for the Israeli firms to give up on the rest of that lucrative market. A tiny niche Israeli firm might make this sacrifice, but such meager bait is unlikely to attract a big fish.
Sixth, there is a political problem. The Middle East promises riches beyond imagining. Having an Israeli office just might make the difference between getting an instruction and missing it. Few firms would risk losing clients in Dubai, Saudi Arabia, etc. for the less lucrative pickings to be had in Israel.
Further, many will view Israel as a “country risk.”
A mid-sized US law firm recently canceled quite advanced negotiations with an Israeli boutique when the latest spat in Gaza occurred. Lawyers are very risk-averse.
Seventh, a growing number of international firms are opening representative offices in Israel, usually staffed by young Jewish lawyers torn between their love of a Western income and Zionism.
Some 10 large UK and US firms now have a marketing shop in Israel, normally a single lawyer.
They will not actually do the legal work in Israel, but they will send it “back home” and hold the hand of the Israeli client.
Finally there is yet a further model, pioneered by our firm, Asserson Law Offices, which has built an international UK and US firm with its center of operations in Tel Aviv. Asserson is the only Israelbased international firm of any size so far, but others are bound to follow. When top quality UK or US legal advice is available locally, the need for international firms to establish branches in Israel diminishes yet further.
Of course one should never say “never.” The international law firms might yet seek to invade the Israeli market. But there are many impediments.
The new Rules of the Israeli Bar Association in relation to foreign law firms unlock the gate, but there will be few firms eager to push their way through.
Trevor Asserson is the founder of Asserson Law Offices, Israel’s largest foreign law firm. Previously, he was global head of litigation at a leading international UK firm and