Big Law—the law firms with hundreds of partners that service corporate Canada—is not feeling so big at the moment.
It's not just that the seventh-largest firm in the country, the 500-lawyers-plus Heenan Blaikie, suddenly imploded in February. Many other firms are quietly shedding staff. McCarthy Tétrault, one of the pillars of Bay Street law, is down from a pre-2008 high of nearly 700 lawyers to 560. Some top-tier firms are finding less expensive offices, or sloughing off a floor or two.
A rarely heard word has gained currency in this moment: de-equitization. It describes the formerly unthinkable process of removing a partner from the ranks of those with ownership shares in the firm.
"Up until a year, a year and a half ago, there were critics, but it seemed nothing would ever change," says Hudson's Bay Co.'s general counsel, David Pickwoad, formerly an associate at Stikeman Elliott. "But now, the pace of change in the profession is breathtaking."
And things are tight where they were never tight before. In recent years, between 12% and 15% of law graduates have been unable to find articling posts in Ontario. Meanwhile, "the market for associates, including senior associates, isn't nearly what it once was," says Christopher Sweeney, the CEO of Canada's leading legal recruitment firm, ZSA. "We're mainly concentrating these days on partners making lateral moves and in-house hiring [at corporations]."
Up to a point, the industry is having this existential moment for a simple reason: There's not as much deal-making going on as there used to be. But the slowdown is also exposing archaic practices in a business that is perhaps just a little too steeped in tradition, mystique and notions of prestige. Billing rates as high as $1,000 an hour don't seem sustainable in light of stark facts like the spectacular collapse of Wall Street firm Dewey & LeBeouf. Technology, outsourcing, modern management methods and a spirit of transparency are finally remaking corporate law, just as they have so many other businesses. At the same time, these tectonic forces are creating opportunities for both lawyers and their clients.
All the upheaval makes me glad I didn't stay in law myself. I followed my father into the practice, but left in the late '90s, for the riskier, lower-paid business of journalism. If I'd stayed, I'd be in the thick of the upheaval now—like Rubsun Ho, who was a year behind me at the University of Toronto's law school in the '90s. He's an affable, soft-spoken guy who, after graduating, joined Stikeman. Following that stint, he was hired as in-house counsel at a software company.
And then he became one of the revolutionaries of what is sometimes called New Law: In 2005, Ho and former Osler Hoskin & Harcourt lawyer Joe Milstone founded Cognition.
That sounds like a funny name for a law firm, but it's not unusual: Big Law firms are named after venerated partners; New Law firms are branded with vaguely positive handles.
And where the offices of Big Law firms are all about the mahogany, New Law is more about particleboard.
Indeed, Cognition's loft-style offices, west of Toronto's downtown core, are a little shabby, with dog-eared law texts jumbled on Ikea shelves. An interview with Ho and Milstone is held instead at a small satellite "intake centre" they've set up in Toronto's MaRS Centre.
The old hospital complex where Banting and Best hopefully injected diabetes patients has lately become, in part, an incubator for innovative science- and technology-driven companies. Ho and Milstone's lawyers offer informal counsel (and free doughnuts) once a week to the incubator's denizens, hoping to catch a clean-tech or Internet start-up on its way to success.
Seems pretty entrepreneurial for a law firm, doesn't it? But the fundamentals of New Law go further than a willingness to prospect for business. The principles behind Cognition—and behind the U.S. firm, Axiom, that inspired it—include being tech-savvy, efficiency-conscious, low-overhead and partner-free.
Ho explains that something came to him one day when he was staring out his 53rd-floor window at Stikeman: His work was being billed to clients at $250 an hour, while his take-home worked out to about $40 an hour.
That rang a bell for me. A couple of years ago, I heard a Canadian-born venture capitalist working in Silicon Valley explain why he'd been happy to have a hand in backing Axiom.
"The buy-sell in law is awfully broken," Chris Albinson said. "How many lawyers do you know who enjoy their work lives? Look at the cost structure of law firms: A third of the dollars goes to the senior partners who are doing no work; one third into physical plant—marble conference rooms that add no value; one third goes to the guys and gals doing the work, the associates.
"And all clients hate it.…They want to work with the person most capable of doing the work quickly—and in a flat social web, where all our experience and capability is fully visible, they know who that person is. They think: 'Why do I need this pyramid scam that was invented 150 years ago?'"
Axiom was the brainchild of Mark Harris, who, in the late 1990s, had the same revelatory moment as Ho. After a particularly busy January, he realized he'd almost billed out his annual salary, and so the rest of the year he'd be working to cover Davis Polk & Wardwell's overhead and the partners' draws.
Harris set up a meeting with a tech entrepreneur he knew, Alec Guettel. "It's an embarrassing cliché," Guettel says, "but Mark sketched it all out—what became Axiom—on a napkin."
They would hire lawyers who had graduated from the best schools and trained at elite firms, and then get them to work out of client offices for the duration of a project—for as long as the businesses retaining them wanted. The client wouldn't have to bear the expense of a new staffer, but could bulk up when necessary. And the "embedded" lawyer would see how the world looked from the client's point of view, and therefore serve up more tailored advice.
For voluminous, repetitive work, meanwhile, Axiom is adept at delivering speedily, and at a fraction of the cost that a law firm would generally bill by the hour to have young associates do the work. The new firm would, for instance, send corporate due diligence and document review to groups of lawyers working in India and routine contract drafting to a high-volume shop in Houston.
But why would a top lawyer want to give up all the perks and parent-impressing prestige of Big Law for what skeptics have called a glorified temp agency? "It's not for everyone, but we give attorneys more flexibility in their careers," Guettel says. "We knew a lot of incredibly talented, incredibly unhappy attorneys working incredibly hard. For them, partnership is not the brass ring that it once was. And…we saw a lot of clients who felt it wasn't an efficient system and getting top-tier legal advice was too expensive."
Founded in 2000, Axiom limped through its first few years, but soon enough, big tech, seeing a firm speaking its language, came calling; it was followed by other, more traditional businesses—Google, Yahoo and Cisco were joined by Thomson Reuters, Avon and Citigroup. Today even the most complacent senior lawyers at major firms are taking notice of the numbers Axiom is racking up: annual revenues that have grown to a reported $150 million (U.S.), 1,000 employees and 12 modestly appointed offices in America and the U.K.
As yet, Axiom's Canadian equivalent doesn't pose a substantial threat to the top firms on Bay Street. But, unlike them, it's growing. As at Axiom, Cognition places lawyers at client businesses—and the firm has grown to 32 roving lawyers, almost all, like the founders, ex-"downtowners." The clients are growing from small or mid-size concerns to the likes of Volkswagen Canada, Torstar Corp. and the operator of the Rexall drugstore chain.
Cognition is about to hire another six attorneys and anticipates taking on another half-dozen by the end of the year. Ho and Milstone haven't needed to work too hard to find qualified candidates—with minimal advertising, they had 260 applications come their way last year.
Milstone plans to open a small Calgary office, and perhaps then expand to Vancouver and Montreal. Though he and Ho won't disclose the hard figures, they say Cognition's revenues have grown in the past five years at a compound annual rate of more than 25%, placing the firm on Profit magazine's list of Canada's fastest-growing companies.
Kevin West is not the sort of lawyer who would likely ever have gone the boutique route in generations past. After graduating from Dalhousie, he clerked at the Supreme Court, landed plum jobs at the New York and Sydney offices of Sullivan & Cromwell, and then became a partner at what is arguably Toronto's pre-eminent business firm, Davies Ward Phillips & Vineberg. In 2010, he left downtown for a basic office at Yonge and St. Clair, calling his new start-up SkyLaw.
His approach is to cherry-pick top lawyers from different firms to consult on various aspects of a deal. "I want the right person to answer a tax problem—not just whoever is in the firm I've retained's tax department. The idea is that through my network, I'll be able to find out who that [right person] is."
West's first partner at SkyLaw didn't stay long, perferring to work at a Big Law firm in London. The parting was amicable, West says. The new, entrepreneurial approach to the the business isn't the right one for every talented young lawyer. For now, West has on board an experienced law clerk, an articling student, and a former senior counsel at a Bay Street firm, who decided not to retire after leaving downtown but to keep doing work for some key clients, using SkyLaw as a base of operations. On the day we meet, West is delighted to have just cut cheques for some serious bonuses for his small staff.
The founder of another new-school firm, Peter Carayiannis, is a former corporate associate at what is now the nation's second-largest firm, the 700-lawyers-plus Gowling Lafleur Henderson. Founded in 2012, his firm, Conduit Law, fits into a single room whose one swanky touch, apart from the exposed brick, is a cabinet housing state-of-the-art IT equipment. The desks, except for Carayiannis's, are devoid of personal effects, since his 12 lawyers work there only occasionally—"hotelling" at any desk that's available on a given day.
Carayiannis rejects law's long-time cornerstone: the billable hour. "We bill based on the value the client receives—the amount of work it takes to get there is relevant, but we want to take less time, often using tech, outsourcing, or by matching a lawyer with relevant skills to the problem at hand."
When we speak, Carayiannis has just returned from a gathering of the New Law tribe in Manhattan, called ReInvent Law NYC. The packed one-day conference heard a keynote address from the movement's leading thinker, British academic Richard Susskind.
Susskind's essential message, contained in books such as The End of Lawyers?, is that project-management principles, of the Six Sigma variety, ought to be injected into the legal sphere. Firms should break projects into parts, then match the work with whoever can do it most efficiently—whether they be lawyers or not, in-house or not.
Compared with the U.S., the Canadian legal outsourcing industry is still in a rudimentary state, but not as rudimentary as when Shelby Austin left Davies to start ATD Legal Services in 2010. "I was just a dutiful young female partner—I always did everything by the book," she says. "But then I went home over the December holidays one year, thought about it, came back in January and…quit." Her company contracts about 200 attorneys to review and organize documents in big litigation files, and to conduct due diligence. Many of these freelancers are young; Austin is benefitting from the tough job market for freshly minted lawyers.
Not that she had it easy herself starting out. "To land work, I met with anyone and everyone early on—the firm's janitor, someone's cousin's sister," Austin jokes. She is cagey about her private company's revenues, but will say they were between $2 and $5 million in 2012, and have grown "significantly" since then. In January, ATD was acquired by Deloitte—"my posh buyer" she calls the professional-services giant.
Rob Centa, one of Toronto's top young litigators, working out of the boutique firm Paliare Roland Rosenberg Rothstein, has made extensive use of Austin's services. "It's great to have someone, a trained lawyer, at a relatively low cost, going through the reams and reams of documents—sorting out relevant documents from the e-mails that just say, 'Are you going home for Mother's Day this weekend?'" Centa says. "We want our junior lawyers to have the experience of doing that, at least once, so they know what it's like and can manage that process appropriately. But it's not always a good use of their time, and our clients don't want to pay their rates for that. It's good that Shelby's here [in Canada], because you can meet with the reviewing lawyer and have this comfort—you can spot-check 100 documents in the less-relevant pile, make sure nothing was missed."
Austin herself is "bullish on the India story. Maybe local lawyers aren't ready for that yet, but I can see a time when they might be."
When that time comes, it will likely be in-house counsel that makes the call. Indeed, one of the shifts under way in corporate law is a movement in power from outside counsel to inside.
When David Allgood left Osler to join RBC in 1998, it wasn't common for someone who'd achieved the brass ring of partnership, as he had, to go in-house. "It used to be like they said of teaching, those who could, did. …Those who could succeed downtown did and stayed down there," he says. But after he made the switch, "soon all the banks had taken on former partners."
The prestige and size of the in-house bar have both grown, according to observers, and RBC's 240-lawyer complement is larger than most Canadian firms. Allgood, who is the bank's general counsel, and Emily Jelich, who is associate general counsel, have striven to make the department efficient, applying Six Sigma-style principles to work that ranges from regulatory compliance to drafting standard financial instruments to real estate.
With the help of consultants, they dutifully analyzed their work, broke it into chunks and figured out who could best do it; they looked at the risks in their practice and what was a manageable level for each activity.
Employees now train in the project-management system, receiving recognition in the form of martial-arts-style belts. "We've found savings of more than $7 million, and $20 million in avoided costs," Jelich says. As in so many legal departments, they have been, and remain, under considerable pressure to reduce their own budgets and the amount they spend on outside counsel. (Corporate counsel have, post-downturn, become increasingly proactive—even activist—about how, and for how much, their external counsel will work.)
Having been through their own up-with-efficiency processes, Allgood and Jelich have looked to the firms they do business with to follow their lead. They want more certainty in their bills; they're not, as a rule, happy with just the billable-hour system. "We're waiting for a firm to mine its own data and price to us on a value basis—it's very early days on that," Jelich says. "Lawyers provide a service; they aren't special."
At Hudson's Bay Co., general counsel Pickwoad is also pushing his outside counsel to give him more certainty in billing. In an increasingly common practice, he drafts detailed requests for proposals, getting outside lawyers to indicate how they'd handle a job and what it might cost. Having worked outside law—at Deloitte, and at a steel company when he was young—he, like Jelich, doesn't buy into a model that treats lawyers as exceptional cases. "For many years, in a way, the onus has been on the client to manage the lawyers, to manage the cost. In my view, that should be something they should increasingly do themselves."
It's not as if Big Law has been twiddling its thumbs while all this change—economic, cultural, technological—swirls around it. The most obvious attempt at 21st-century renewal is a series of cross-border mergers. Most striking among them is Norton Rose Fulbright, formed when the old Montreal firm Ogilvy Renault threw in its lot with an even older City of London firm, and others, to create a 3,800-lawyer international practice.
Meanwhile Carayiannis's former firm, Gowling, recently hired (from McCarthy Tétrault) a legal project management specialist to help recalibrate its practice. A partner in the firm's Hamilton office, Mark Tamminga, has developed a computer-aided system to process work relating to mortgages, allowing Gowling to get a huge volume of work done efficiently. And the firm where my father was a partner, Borden Ladner Gervais, has adopted something they call Adroit, seemingly inspired (again) by the Six Sigma system.
Osler recently employed a computer program developed in part by a young Canadian lawyer to aid in due diligence on a $900-million (U.S.) deal that closed in January—Chemtrade Logistics's acquisition of General Chemical Holding Co. Built over three years, Noah Waisberg's DiligenceEngine searches contracts for relevant clauses and puts its findings into summary charts. The tool is used (after training) by lawyers. It's not outsourcing per se, but it can dramatically reduce the time an associate spends on due diligence.
At Osler, partner Terry Burgoyne and chief knowledge officer Mara Nickerson talk animatedly about disaggregation (the buzzword for dividing up a big project), about budgeting, about scope-setting meetings with clients, about the sophisticated software they've found to track progress on each file and about how they're using the data to manage the next similar one more efficiently.
They talk too about the process of persuading sometimes technophobic lawyers to change tack. There is an energy and enthusiasm in the room—which makes me think back to a comment by Shelby Austin.
Although she admires Axiom's founders, I was surprised to find she's not a disciple of Susskind's. "As far as the big firms are concerned, Susskind's got it wrong," Austin said. "They have some of the smartest people in the country working in them. I know—I was there, inside. It's crazy for anyone to count them out, to think they aren't going to be among those able to adjust to whatever changes there are in the marketplace."
THE LIFE OF BIG LAW
A slow start, a rush to bulk up—and then mishaps and splintering
D'Alton McCarthy, Britton Bath Osler and Edward Blake begin practising law in Upper Canada, incubating firms that would become large and prestigious in the Toronto market. McCarthy went on to serve as an influential (if intolerant) MP, Osler to prosecute Louis Riel and Blake to serve as Ontario's premier.
The firm McCarthys seeks to open a Calgary office, over the Alberta Law Society's objections to the Upper Canadian interloper.
The Supreme Court allows McCarthys to set up shop in Alberta—and a high-stakes game of musical chairs results. Most major Toronto, Calgary, Montreal and Vancouver firms merge their way into national powerhouses with ever-morphing names.
Five barristers exit McCarthys, led by Alan Lenczner, to set up an elite commercial litigation boutique.
Toronto firm Holden Day Wilson (55 lawyers) closes a couple of years after a senior associate bursts through the TD Centre conference-room glass and falls 24 storeys to his death.
Osler Hoskin Harcourt partner David Allgood goes in-house at RBC. It was then rare for a downtown-firm partner to go client-side, but it soon becomes common as the prestige of the in-house bar grows.
Tory Tory DesLauriers & Binnington, a Toronto partnership founded in 1941, becomes the first major Canadian firm to merge with an American one: New York's Haythe & Curley, forming the 300-lawyer Tory Haythe. (After accusations of sexual harassment surface against Tom Haythe, the firm rebranded as Torys.)
Former New York firm associate Mark Harris and serial tech entrepreneur Alec Guettel found Axiom, a legal services organization predicated on low overhead, project-to-project lawyers and no partners.
Rubsun Ho (ex of Stikeman Elliott) and Joe Milstone (ex of Osler) found Cognition, an early Canadian exponent of the Axiom approach.
Goodman and Carr (140 lawyers at its peak) closes, after bleeding partners and the failure of merger talks with global behemoth Baker & McKenzie.
Osler invites Richard Susskind, the savage English critic of Big Law, to address its partners.
Partner Shelby Austin leaves premier Toronto firm Davies Ward Phillips & Vineberg to found ATD Legal Services, which employs specialist lawyers to do document review; Deloitte later purchases her company.
Ogilvy Renault, a firm with roots in 19th-century Montreal, merges with a storied City of London firm (founded in 1794) to become part of what is now the 3,800-lawyer, 54-office Norton Rose Fulbright.
Canadian firm Fraser Milner Casgrain merges with second-tier English and American firms to form colossus Dentons (2,600 lawyers). Meanwhile, the pre-Confederation firms soldier on as some of the country's oldest businesses: McCarthy Tétrault (560 lawyers), Blake Cassels & Graydon (555) and Osler Hoskin & Harcourt (403).
Canada's seventh-largest firm, Heenan Blaikie (about 500 lawyers), suddenly collapses—and then the world's biggest firm, DLA Piper (4,200 lawyers), exits talks to found a Canadian office with some of Heenan's former lawyers. A suddenly displaced lawyer remarks to The Globe and Mail: "The freight train that is headed towards Big Law slammed into our firm."