Corporate Canada’s international dealing leaves law firms behind

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The largest takeovers Corporate Canada has seen are playing out now with minimal input from Canadian lawyers. It's a trend that's sending a chill through the biggest law firms, as lawyers struggle with a challenge that threatens their existence: How to stay relevant to clients with international ambitions.

With Canadian utilities becoming dominant North American players in a series of multibillion-dollar acquisitions of U.S. rivals. Yet flagship domestic companies, such as Enbridge, TransCanada, AltaGas, Emera, Fortis and Algonquin, all looked to major U.S. law firms for the bulk of the legal work, rather than the domestic lawyers who traditionally provided advice. It's telling that on these six major takeovers, not one U.S. target company felt the need to hire a Canadian law firm, although several of the American utilities did seek advice from Canadian investment banks.

Competing with U.S. firms is nothing new to Canadian lawyers. What's changing is the increasing amount of legal work that corporate clients hand out for deals that take place outside Canada. Long before the utilities looked to the United States for expansion, Canada's banks, insurers, pension plans, auto parts makers and retailers all crossed the border. The law firms stayed home.

Now Canadian partnerships are being forced to revisit their international strategies. The leading firms have typically opted for one of three options: Go extreme by joining a global partnership; be aggressive by expanding internationally alongside clients; or, the most common strategy, strike informal alliances with U.S. and international firms. No one approach cures all ills.

Corporate clients have not rushed to embrace global law firms. Canada's Ogilvy Renault turned heads in 2011 by merging with Britain's Norton Rose, a firm that now boasts 3,500 lawyers in 50 cities. The union has not moved Norton Rose into the top ranks of Canadian deal makers. Despite numerous suitors, no other major Canadian firm has opted to join a global partnership.

Expanding outside Canada, alongside clients, only works if the quality of the lawyers is consistent from one office to the next. Fasken Martineau, for example, has built a top-tier global mining team by absorbing well-regarded boutique firms in South Africa and London. That approach falls apart when it comes to M&A, finance and insolvency – the bread-and-butter business of a corporate law firm.

There are half a dozen firms in Toronto, Montreal, Calgary and Vancouver that can credibly claim to be home to the country's top corporate legal talent. Yet not one of these firms can hope to land the best M&A or bankruptcy lawyers in Manhattan.

What does the future hold? One path forward is to be content with remaining a regional powerhouse. The role model is Toronto-based Goodmans, which shed national aspirations in the 1990s by walking away from an alliance with a Montreal firm, instead focusing on doing high-end work for entrepreneurs, a client base that is constantly refreshed.

The other potential outcome is far less attractive: A future with fewer high-end Canadian corporate law firms. With increasing competition for work, the profession faces dislocation from technology, and the rising role of in-house corporate lawyers. Large firms have folded in recent years and if Corporate Canada keeps sending work to U.S. lawyers, further rationalization is inevitable.