News of the collapse of Heenan Blaikie LLP last week didn’t exactly come as a shock to many in-house counsel who say for the most part large firms still don’t get times have changed when it comes to the large law firm model.
“I think it may be too early to determine what this means, exactly, but I’ve thought for years that there is likely too many lawyers and too many big firms chasing after the same work for all of them to exist,” says Brian Hilbers, chief legal officer and vice president, emergency management, with Bruce Power Law Division.
Bruce Power has long-standing relationships with law firms and Hilbers has done a lot of work on cost management for external counsel. He’s dealt with big firms that continue to demand top dollar even in an increasingly competitive market.
“I spoke to one firm that told me: ‘You really don’t want to pay us less money because then we can’t keep our best people and you want us to be a stable entity to help you.’ Essentially it was painted as: ‘You want to compensate us well because then we will be there for you.’”
Hilbers says that kind of talk doesn’t go over well with him or senior executives at Bruce Power.
“There seems to be one of these happen every seven or eight years. I don’t know whether it’s a sign of things to come but I think it’s an unsustainable model,” says Hilbers.
“There’s still a massive misalignment between what people in my position are trying to do and are being forced to do and the business model of the firms. For me to go to a major firm — $1,000 an hour is no longer unusual — I get sticker shock and it doesn’t take many hours to become a massive amount. You need it to be a ‘bet the company’ highly strategic issue and those don’t come along very often.”
Steven Trumper, general counsel of Build Toronto, says the Heenan closure is unfortunate for all involved.
“Overwhelmingly it’s a tragedy on so many levels — a lot of the partners will find success in moving to another firm, I’m sure, but when you think of a modern law firm there are so many support staff in IT, human resources, and administrative employees,” he says.
However he says what happened at Heenan also illustrates once partners start leaving a firm, there can be a “run on the bank” that can be hard to turn around.
“It demonstrates how delicate an organism a law firm is,” he says. “It is really held together by the bonds of goodwill and confidence that the partners have in each other and when there’s a loss of that confidence those bonds come apart fairly quickly and a momentum develops and once it starts it’s really hard to stop.”
The prevalent view from the in-house bar over the last five to 10 years, says Trumper, is they hire lawyers, not firms, so to the extent they have a strong relationship with a partner and that partner moves elsewhere, his reaction would be to have the work follow the partner.
“I don’t have a particular loyalty to the brand, as it were,” he says. “In that sense while it’s a tragedy [Heenan] it’s fairly neutral from a relationship point of view.”
Hilbers notes the collapse of Heenan Blaikie reminds him of the closure of Goodman and Carr LLP in 2007.
“With Heenan disbanding it’s really just the same number of lawyers going to different spots,” he says. “It hasn’t dealt with the underlying issue, which is people are undercutting each other and there’s not enough work. You’re going to continue to have that.”
Undercutting or “suicide pricing” has emerged as a significant issue, says Steve Szentesi of Steve Szentesi Law Corp. based in Vancouver who specializes in competition and regulatory as well as advertising and marketing law.
Last fall Szentesi was approached by a large U.S.-based consumer product company looking to expand into Canada and needed some advertising and marketing law support. Szentesi says he provided a quote for the work they were looking for together with an east coast firm for the work required in Quebec. However he lost out to Heenan Blaikie when their quote came in at 30 per cent less. Szentesi was shocked.
“I learned they had gone to Heenan who had provided a significantly lower estimate for the project. It left me scratching my head. My practice is a largely virtual one and a very efficient practice,” he says. “I remarked to some colleagues that it’s not all that often you see small practices or boutiques getting undercut by the larger firms. At the time I was puzzled. I wondered then if they did it to win the client for the long term but maybe they just needed to get the work in.”
But Szentesi says the story isn’t just that big firms haven’t been competitive and are now undercutting. He says overall there’s more innovation taking place in how legal services are delivered, which will now perhaps compel larger firms to do the same to compete.
One in-house counsel lawyer in Montreal said the writing has been on the wall for large firms like Heenan Blaikie for more than a decade.
“Like may firms they are paying their lawyers too much and when they don’t have the work to sustain it, it can all go pretty quickly. This is not a pretty story. Other firms know they aren’t immune from it and they need to be very conservative at this point.”