Babcock says in his firm’s case, “it is affecting almost every sector of practice.” Take real estate, for example. “Mortgage enforcement used to be a routine thing we did to supplement our conveyancing. Banks have centralized decision-making and the flow of legal work,” he says. Now it’s done by a handful of law firms that have developed specialized mortgage enforcement units that Babcock says are “light on lawyers and heavy on clerks.”

The same applies to commercial mortgage processing. “It was frequently done in the town where the real estate was located.” Now with technology and title insurance, he says, financial institutions believe it can be “done by remote control.”

Commercial lending is another example, where the decision-making and accompanying legal work is taking place in ivory towers on Bay Street and Howe Street, as opposed to Main Street, and it’s the local business community that suffers, he says. “We’re not getting enough complex commercial work. What happens is as the higher end, knowledge-driven work is removed from local law firms, maintaining that expertise becomes less cost effective. Therefore it becomes difficult to offer the service to local clients. You may decide you are not going to do commercial real estate at all . . . it is no longer convenient for your practice.”

However, some financial institutions are better than others, when it comes to local autonomy and law firm selection, says Hannah. For example, B.C. credit unions allow more flexibility, while chartered banks tend to work from a roster of approved lawyers. It’s like that for most banks and insurers, which now have a roster of firms they work with locally.

However, one lawyer, who asked not to be named, says there appears to be an official and an unofficial roster at some banks and says just because a firm’s name is on the list doesn’t mean it will get work. The lawyer believes that some law firms are put on the roster to placate local management and to make the bank look good in the eyes of the local legal community.

Douglas says he understands why companies want to centralize their decision-making or use a limited roster of law firms. It provides for more effective management. If you have four to five people sitting in an office studying a problem, they will develop options that “result in better risk-management than if people make a decision in isolation.”

However, he says, local law firms are vulnerable in that transition as they could find themselves on the wrong end of a decision made thousands of kilometres away.

Even if a firm retains the work, it remains isolated and at risk. “There can be a shift in decision-making that you don’t know about,” notes Douglas. For example, he cites the case of a chartered bank that manages its legal business out of Toronto. Without any fanfare it created a special loans unit, which needed local counsel. His firm scrambled to find out who was in charge of the new unit and pitched that person on their services. It got the business, but he notes it was “entirely possible that the person could have picked up the phone and called somebody new at another firm. Keeping close to customers is important.”

Babcock adds that “once a decision is made to remove work from a local marketplace to get somebody to reverse that decision is psychologically difficult.”

As corporations shift decision-making to a central location it means that law firms must also reach out and establish new relationships, either with general counsel or the company’s primary law firms, which is often one of the national law firms. The result is that the approach to managing the file likely changes. “What we are seeing is that in-house counsel will frequently manage files from head office,” says Babcock. The work being tasked locally “tends not to be the knowledge-based work. “We’re doing the legwork, not the brainwork.”

On a positive note, general counsel who manage their own files are more likely to use a local firm, Babcock says, but there is a “reluctance to assign local counsel they don’t know. If somebody is coming to Thunder Bay or the region to establish operations, it’s hard for us to get a foot in the door.”

National law firms are also having an impact on local markets outside the core urban centres. In Babcock’s case, an ownership change at a major client saw the new management shift its labour and relations work to a national law firm in Toronto. “We lost $200,000 worth of work.” He says the firm was able to replace it with smaller clients, but the work isn’t as sophisticated and they are more price sensitive. “You are no longer as competitive to get the next $200,000 client that comes along.”

Oddly the new economic climate is also impacting the large firms that feed on it. As corporations centralize operations, they are also consolidating within industries in a bid to build scale and be more efficient and grow their businesses. So on one hand Canada’s economic pie is growing, but at the same time the number of clients are shrinking thanks to mergers and acquisitions and that’s impacting law firms big and small, because consolidation means there are fewer clients to go around.

M&A activity has never been higher. According to a September 2006 study by Blake Cassels & Graydon LLP, M&A activity in 2005 hit a historical high, with 457 deals worth US$88 billion. In the first eight months of 2006, there were 293 deals involving US$106 billion, and the investment bankers surveyed expect more in 2007.
That activity is taking its toll on large firms. Douglas notes that “there will be a lot of unhappy lawyers in Toronto if control of Inco is moved outside of Canada.”

Even if you are a law firm in one of the coveted central locations where power is coalescing, it doesn’t mean you get a free ride to instant clients. Jeffrey Selby, a partner in the real estate development practice at Parlee McLaws LLP in Calgary, notes that his city is one of the most competitive legal markets in Canada. Not only are there local firms, but there are also a growing number of national firms, and regional firms from Edmonton, Vancouver, and neighboring Saskatchewan have all moved into the market there. “There’s a tremendous level of competition that other cities and municipalities don’t face.” 

In fact, the national firms face a similar problem in their own market that regional firms face, so take solace that you are not alone. Ed Waitzer, chairman of Stikeman Elliott LLP,  says that “as companies go global, the language of global legal services, or the currency, tends to be primarily U.S. law or U.K. law. As markets become increasingly global, local law tends to become less relevant. Canadian law is being diminished.”

He notes that Canada’s capital markets account for less than two per cent of global value and will shrink to one per cent over time; not because the market here is getting smaller, but because “other markets are growing much more rapidly.” He says there will always be a need for two to three Canadian firms in an international deal involving our companies. The challenge for firms like Waitzer’s is to “make sure we get one of the calls.”