Canada’s big law firms sturdy

Posted on 1st May, by in Articles. No Comments

Sean Weir, National Managing Partner of Borden Ladner Gervais LLP – Canada’s largest full-service law firm – talked to The Lawyers Weekly recently for Part 2 of its series on how law firms are weathering the recession:

Unlike their United States counterparts that either collapsed—  such as Washington, D.C.-based global firm, Howrey LLP, in March—  or took serious hits to their bottom line, Canada’s big law firms weathered the recent financial crisis and recession relatively well, says Ottawa lawyer Jordan Furlong, a partner with law-firm consultancy, Edge International, who also runs the blog, and is a columnist for The Lawyers Weekly.

“That’s not to say big firms in Canada didn’t suffer and feel some pain during the recession. But at no point did it get to the stage where rumours were circulating that X firm was in danger of falling apart.”

However, Furlong points out that the economic downturn was just the “opening act” of a major development that large Canadian firms will have to “get their heads around in a hurry.”

In the wake of the recession, he explains that there is increasing corporate and institutional client pressure on firms to lower their prices, and more importantly, make their prices more predictable while delivering the same level of service.

“Many general counsel’s outside legal-spend budgets have been cut, sometimes severely, and they simply can’t afford surprises from external counsel. It’s the runaway legal costs that are really killing them,” says Furlong, who believes competitive pricing and predictability have become “a permanent part of the landscape” for large law firms in Canada that “will have to find a way to cope with this.”

Already, cost-conscious legal departments are bypassing major law firms in the U.S. and dealing directly with legal process outsourcers (LPOs), according to Ward Bower, a principal of U.S. legal consulting firm, Altman Weil Inc.

“Law firms are reluctant to go to LPOs because of difficulties in supervision, quality control and potential malpractice liability. But I’ve heard from corporate counsel that think the quality they’re getting from legal process outsourcers is as good if not better than what they were getting when it was done within a law firm—  and they’re saving big money.”

Beyond giants emerging from global mergers, large law firms have to pay heed to the alternative business structure provisions of the U.K.’s  Legal Services Act, which come into effect in October.

Ominously described as the legal profession’s “Big Bang,” the legislation allows non-lawyers or corporate entities (think Walmart) to own and manage law offices. Capital generated from such operations could be used to acquire smaller law firms in Canada, which could then be consolidated into a larger national legal entity across the country and in turn become part of a Swiss Verein with a U.K. partner, says Bower.

However, he does not expect any major mergers involving large Canadian and American firms. “Once one of the big 10 Canadian law firms merged with a U.S. firm, it wouldn’t get any referrals from other U.S. firms, which is the source of a large percentage of their revenues.”

Gowling Lafleur Henderson LLP is “disinclined to want to merge with or become part of a large British or American firm,” says Scott Jolliffe, the firm’s chair and chief executive officer, who declined to say whether Gowlings has been approached with such an offer.

“The real growth these days is not in America or even in Europe. It’s in Asia, South America and Africa,” he explains, noting that Gowlings will be opening an office in Beijing this September. It has also had a London office since 2008, which now has 13 lawyers, along with its Moscow office, which opened in 1991.

In terms of head counts, big Canadian firms were spared having to lay off lawyers to the extent their U.S. counterparts had to undertake to stay afloat.

Unlike large firms south of the border, Canadian firms do not put all their eggs into one basket, says Sean Weir, national managing partner of Borden Ladner Gervais (BLG) LLP. He explains that mortgage-backed securities comprised a huge market for deals in the U.S. and “stopped dead overnight” following the collapse of Lehman Brothers Holdings Inc. in 2008.

Large sections of major U.S. firms that were highly specialized in what was once a very profitable area went from being “fully occupied to having zero work,” leaving many—  if not all—  of the lawyers without jobs.

Since no major Canadian firm is as focused, with as many lawyers invested in a specific practice area, there was no comparable fallout here. South of the border, it was pretty severe.

In 2010, there were nearly 2,900 fewer lawyers at the top 250 U.S. firms, which followed the departure of about 6,600 attorneys in 2009, according to  The National Law Journal’s annual survey of the largest law firms in the U.S. That marked the greatest multiyear decline since the  NLJ began conducting its survey more than 30 years ago.

“If you look at large Canadian firms, the rate of growth has slowed and most are marginally smaller than they were three years ago. But it’s not like they’ve blown off five per cent of their team,” says Weir. “That indicates to me that the fall off of work in Canada hasn’t been nearly as drastic as it was in the United States.

“Canadian firms are probably more balanced, so if they lose all work in one sector they have work in other sectors to keep them busy.”

Still, hiring at large Canadian firms—  particularly of articling students and associates—  was “definitely reduced” starting in mid-2008 when the U.S. economic crisis began to worsen, explains John Ohnjec, director of the Ottawa division of Robert Half Legal.

“Some national firms needed to cut back and get as lean as can be, which we wouldn’t have seen in prior years. There was not enough work to trickle down, so some people were left out in the cold.”

About six months ago, the previous hiring freeze began to melt. However, large firms are being “very cautious” in choosing talent, very often looking for lawyers with specific skill sets as opposed to choosing generalists, says Ohnjec, a former insurance-defence litigator. “For instance, if there’s a need for a lawyer with a specific securities background, they won’t hire someone who has only done some securities work.

“For the most part, big firms aren’t just looking for bodies. They’re looking for bodies that can churn out the work and be able to go out and find the work.”

Large Canadian firms have also not followed the example of some major New York firms that paid star law graduates a full one-year salary just to retain them while the economy improves.

A handful of firms here, though, had undertaken “guaranteed hirebacks” from about 2004 to 2008, says Weir, who adds that BLG did not use that approach.

“Some firms were saying to law grads that if you come and article with us, we’ll guarantee to hire you as a first-year lawyer.”

He says that a few major Canadian firms are also rumoured to use deferrals, in which a first-year associate is asked to start in, say, January instead of September and receive a lower rate of pay during that “sabbatical” period.

Success for firms has been based on a combination of geography and industry that drives their growth.

The insatiable global appetite for natural resources has made Calgary “a much more important legal centre than it ever has been before and big national firms have to be there in a big way,” says Bower. “They need to have an energy practice or they will miss out in an area of great growth potential.”

Most of the Seven Sisters have a Calgary office and big firms have been poaching lawyers from each other. The level of competition in Cowtown is illustrated by recent reported shuffles: Bennett Jones LLP acquired two veteran lawyers from McCarthy Tétrault LLP, which in turn acquired five lawyers from now-closed Calgary tax boutique, Venn Law, which was  opened a year ago by four former Calgary lawyers from Blake Cassels & Graydon LLP.

Blakes, meanwhile, beefed up its Vancouver office, acquiring partners from Bull, Housser & Tupper LLP, BLG and McCarthys, and “went from being middle of the pack to top of the pack,” according to Warren Smith, managing director for the British Columbia office of national legal recruitment firm, The Counsel Network.

As with Calgary, Vancouver is benefitting from growing global interest in natural resources, along with its own strengths in mining and an anticipated revival of the lumber sector, thanks to a rise in housing starts in the U.S. expected next year, says Bill Maclagan, managing partner of Blakes’ Vancouver office.

He believes other major firms, including BLG and McCarthys, will continue to have a “strong, strategic interest” in Vancouver, buoyed by last year’s Winter Olympics and the International Bar Association’s annual conference that attracted thousands of lawyers from around the world.

“The city is the Pacific gateway to the country, and to growing markets in Asia,” says Maclagan, a tax lawyer. “In recent years, Canada is seen internationally as having a very stable financial system and economy that is able to withstand the downturn in the financial markets and the manufacturing industry,” says Gowlings’ Jolliffe.

“Canada’s future looks good in part because of increased demand for resources, goods and services in Asia, South America and Africa.”

He expects the next boom for large Canadian law firms will come through the globalization of the practice.

“Many   foreign  companies are looking to Canada to increase their business, especially in resources, such as oil and gas and mining, and more Canadian companies are looking beyond Canada’s borders for their growth.”

Jolliffe says that Gowlings is focusing on expanding its “marquee” practices in IP, energy, infrastructure and mining to compete in a global environment.

“Those are areas where we can distinguish ourselves globally, ”he explains.

“To try and be all things to all people in today’s market is just foolish.”

This article originally appeared in the July 8, 2011 issue of The Lawyers Weekly.

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