When partnerships are a fragile business

It seemed like everyone was there when more than 100 Goodman and Carr LLP partners, lawyers, clients and family members crowded into Toronto's Temple Sinai two weeks ago to attend a funeral service for Wolfe Goodman, one of the firm's founding partners.

But not all of Goodman and Carr's partners were able to make it to the North Toronto synagogue. While most of the firm's lawyers and staff were bidding farewell to part of their past, a team of senior partners was negotiating a potential new future for the troubled partnership.

According to people close to Goodman and Carr, a handful of partners had flown to meet with managers of Chicago-based legal giant Baker & McKenzie LLP to discuss a possible merger with the U.S. firm's Toronto office. Sources said the talks are one of a number Goodman and Carr has held in recent months with a variety of competitors in an effort to reinvent a mid-sized firm that has been rattled by defections.

Goodman and Carr declines to comment on the discussions. But the talks are such a poorly kept secret that a skit prepared by student lawyers for the firm's holiday party at Toronto's Palais Royale last week included a photographic spoof about the firm's name that featured the Baker & McKenzie logo. While it is unclear whether the talks will ultimately lead to a merger, it is clear that the 41-year-old firm is at a crossroads.

Once regarded as one of Bay Street's leading corporate law firms, Goodman and Carr is one of a number of mid-sized players that have seen their core corporate business eroded by much larger firms with the international reach to serve the ever-increasing global ambitions of Canadian companies.

As the deal flow has declined, so too have Goodman and Carr's ranks. In the past two years, the firm has seen its roster of lawyers shrink to 90 from about 140 as top-ranked lawyers such as tax specialist Cosimo Fiorenza and private equity ace Lawrence Chernin moved their practices to other firms.

The challenge of navigating the firm through these difficult waters has been handed to Paul Bleiwas, a 36-year-old tax lawyer who was named managing partner this summer. If Mr. Bleiwas is concerned about the turmoil, he is not letting on.

"We are as busy as we have ever been, financially we are strong, and the mandate is to continue that course and be even stronger." Mr. Bleiwas said in an interview. As for the loss of more than a third of the firm's lawyers, he said: "We would prefer never to lose good people, but it's a fact of life in the big city and in the market that we practise in. It happens and we have to adjust for it."

Adjusting is no easy matter when so many of a firm's lawyers have walked out the door. The huge exodus at Goodman and Carr is a stark illustration of the fragile nature of legal partnerships, particularly for mid-sized firms that don't have the bench strength to quickly replace departed talent.

"Partnerships are very fragile," said Karen MacKay, a former chief operating officer with Goodman and Carr and now a management consultant with Kerma Partners, which advises law firms and other professional partnerships. "Your human capital leaves every night and you hope that they come back and hope you have created an environment that engages them, where they can flourish. The competition is for talent as much as for clients."

Holding on to top talent can be very difficult when lawyers begin to lose faith in their firm.

"A partnership is about people having trust in one another . . . The minute that people start to leave, the more you begin to lose faith that all of your partners are trying to put the firm's interests ahead of their own. When that happens, you can give up pretty quickly," said Chris Reed, a former partner with Morris Rose Ledgett, which disbanded in 2000.

A restructuring and insolvency lawyer, Mr. Reed was tapped in 1999 by the firm's executive committee to help revive Morris Rose after the leasing costs of moving to a bigger office in Toronto's BCE tower started to eat into the 30-year-old firm's profits. At its peak, Morris Rose had 60 lawyers in the varied practices of transportation, condominium and aboriginal law. But when the high costs of a prime Bay Street address eroded paycheques, Mr. Reed said competitors were able to lure away lawyers with more lucrative offers.

"With fewer people, the financial problems became harder because of the fixed overhead costs. The problems just snowballed," he said. Morris Rose was able to meet all of its commitments to its staff and landlord when the firm dissolved the practice in the fall of 2000.

Holden Day Wilson LLP, a mid-sized Toronto law firm, closed its doors in 1996 after the firm's partners were unable to recover from the tragic death of one of its top lawyers. Holden Day appeared to have a promising future in 1990 when two law firms merged to create a practice with 90 lawyers and stable of blue-chip mutual fund clients. But the firm's fortunes took a devastating turn in 1993 when a popular partner, Garry Hoy, playfully took a run at an office window during a reception in a tower at the Toronto-Dominion Centre. In front of dozens of young lawyers, the window gave way and Mr. Hoy fell to his death 24 floors below.

The challenge of coping with the traumatic event proved to be too much for the young firm and within three years nearly 30 lawyers had left. Holden Day closed its doors in 1996 amid controversy about unpaid bills and compensation.

Observers say Goodman and Carr's difficulties began several years ago with the departure of key partner Jeffrey Blidner to an in-house job with client Brookfield Asset Management. His departure left a gaping hole in the firm's real estate practice and, soon after, well-regarded corporate finance specialist Sandra Cowan moved to private equity firm EdgeStone Capital Partners, taking a partner with her.

More recently, former senior partners grew unhappy with the firm's compensation plan, which has allegedly been slow to reflect performance as well as the realities of a rapidly evolving firm.

"The year I left . . . they didn't have a bonus pool to recognize extraordinary effort," said Monty Warsh, who resigned in August to head up a new leasing group at Heenan Blaikie LLP, where he says he enjoys better support for his practice and better compensation.

The progress of Goodman and Carr's merger talks will be watched closely by many of its mid-sized competitors that face an increasingly challenging future. In recent years, major Canadian companies have divided their legal work among a smaller pool of large national firms. At the same time, old-guard law firms have seen their long-standing clients gobbled up by foreign acquirers, which direct less legal work to local firms.

The pace of change has caught many off guard. "It caught me a little bit by surprise how quickly the world has closed in on mid-sized firms," said one Goodman and Carr partner who recently left the firm.