Lateral thinking

Lateral thinking
Illustration: Steve Munday
It was news that hit Bay Street with a bang. In late February, a group of lawyers from Fraser Milner Casgrain LLP’s mining group crossed over to Bennett Jones LLP, effectively gutting FMC’s mining practice just a month before it was to officially join with SNR Denton and Salans LLP to create a new global law firm with 2,500 lawyers and 79 offices around the world. “That was a big deal,” says Carolyn Berger of legal recruitment firm Marsden International. “It was a great, great thing for Bennett Jones — just unbelievable. I think they’re a great group and it was a good move for them. They wouldn’t have done it if it wasn’t.”

It wasn’t the first departure of its kind from FMC. Rewind to last November, about the same time the firm was formally announcing plans to combine to form what is now Dentons, eight senior members of FMC’s Calgary office announced they were leaving to create a boutique firm, Rose LLP. That group was led by long-time FMC partner Jim Rose. Matt Lindsay, a former FMC managing partner and now a Rose LLP partner, said it was just the right time to go.

Many expected there to be fallout from international law firm mergers, but an entire practice group? And all at once? That, most agree, is a rare event. “I don’t think FMC is saying it hasn’t been a loss — they’ve been pretty verbal it’s been a loss — but they will look to build,” says Berger.

It’s natural in a situation like a merger that existing partners will take stock of whether they see their current existence as something that is sustainable under the new, more global regime. “People want a sense of security, and that their practice can continue to flourish at the firm,” says Carrie Heller, president of legal at executive search firm The Heller Group. “If you’re getting conflicted out or losing your referral base because of an international merger, you’re going to start getting worried. It’s all part of the equation.”

Of those who went to Bennett Jones from FMC, two are senior counsel — John Sabine and Frank Davis — six are partners and all have a primary focus in the mining sector with a secondary focus on capital markets and M&A. They include Michael Melanson, Sander Grieve, Abbas Ali Khan, Linda Misetich Dann, James Clare, and Ali Naushahi. There were also five associates who made the move: Justin Park, Jamie Au, Tiffany Canzano, Lisa Telebar, and Elianeth Alicea. This marks the second tour of duty for Melanson and Sabine at Bennett Jones. The firm’s Toronto managing partner Stephen Bowman says from a strategic point of view, “it was a natural for us to be interested in the opportunity to expand our mining practice significantly in one go.”

Of his move, Sabine told Canadian Lawyer columnist Jim Middlemiss while FMC “didn’t want to be left in the dust” in the global consolidation of law firms, the TSX is a mining capital. “We can operate worldwide as we do without having a global brand in the sense of a branch in every country. What we do is worldwide. We don’t think we need a global brand to do it.” A big turnoff to remaining with Dentons was the expectation that in an international firm, the lawyers will route work to the other offices “as opposed to someone you worked with for a decade. It was a big issue for us.”

For its part, Dentons, which declined to give an interview for this story, said in a statement the moves were not unexpected. “It is not unusual at this time of year for partners and practices to change firms. The possibility of these types of changes was taken into consideration as a part of our rigorous strategic planning process as FMC, Salans, and SNR Denton considered its combination,” said Chris Pinnington, now Canada chief executive officer at Dentons. He went on to say the departures from the Toronto office would have no impact on their ability to provide legal counsel to clients.

Bowman says the days of lawyers staying in one firm forever ended in the early ’90s. “I think movement will be a continuing part of the profession as we face more changes in technology and in the kinds of ways people get legal services and the continuing evolution of the balance between in-house and external counsel.” It’s an “inevitable outcome,” he adds, that law firms will look different and they’ll move to position themselves differently. “It is a consequence of that that people move.”

The growth of Bennett Jones in Toronto has been largely through the lateral movement of senior people from other firms in the Toronto area. Bowman concedes the departure of the 13 lawyers from FMC was by far the largest single group of lawyers to join Bennett Jones at one time from another firm. He says integrating the group into the Bennett Jones culture won’t be a problem. “They have quite a co-ordinated practice in many respects. But for us the process of integrating new lawyers into the firm is something we’re pretty experienced at and something we work hard at getting right.”

While it may be common for lawyers to move around, departures so soon after a merger is announced suggest others may be unhappy too. “That gets attention and suggests there are more than a few partners in that firm that were against that merger,” says lawyer Mitchell Kowalski, author of Avoiding Extinction: Reimagining Legal Services for the 21st Century.

For many involved, it may also come down to the bottom line. The lawyers who left FMC all reportedly had good relationships with U.S. counsel and received considerable referral work from the U.S., which would have been jeopardized by the Dentons merger. “You would think with an international firm where mining is done around the world they would have seen the benefits [to stay], but clearly they didn’t,” says Kowalski. “Does it send a message to the rest of the firm? I think there are probably other people at FMC who are thinking, ‘Maybe we should be looking elsewhere as well.’”

Managing partners at other firms in the country took careful note of the pre-Dentons departures. “If I was at FMC I think I would be a little disappointed because it would certainly represent a dent in those practices at FMC,” says Andrew Fleming, managing partner at the Toronto office of Norton Rose Canada. “It’s not something that happens every day, but if you look over the past year, you can see certain circumstances where practices moved from one firm to the other because they felt the platform at the second firm was better for them. People want to be where they get the best work, so they move.”

Fleming is familiar with the impact a merger can have on a firm and its lawyers as a partner with Ogilvy Renault before it merged with Norton Rose in 2010. “We’ve done a few mergers in the last 10 or 20 years and there is always a tendency to have some fallout either because somebody’s practice is going to get pushed aside or somebody is worried about conflicts — that’s usually a biggie,” he says.

Valerie Mann, managing partner at western regional firm Lawson Lundell LLP, called it “a great step” for Bennett Jones. “It’s a good coup for them because it’s a big group of people who presumably will bring an active practice with them.”

Inevitably, departures at one firm trigger recruiting to fill the gaps and that means potentially raiding other camps. “It’s quite a blow to that group and how they’re going to survive that will be interesting because now they will have to do the same thing,” says Stephen Shamie, managing partner of Ontario-based employment law firm Hicks Morley Hamilton Stewart Storie LLP. “I think you’re going to see a lot more movement now than we ever have before in the legal community. I think everything is wide open and fair game.” Shamie says he is aware other firms approach his partners all the time. He has also been on the other side of the fence — recently Hicks Morley welcomed five labour and employment lawyers from Heenan Blaikie LLP. In December, Hicks Morley announced three of Heenan’s labour and employment stars — Henry Dinsdale, Jeffrey Goodman, and Michael Smyth — had joined their firm. Two associates soon followed — Jodi Gallagher Healy and Maureen Quinlan — who had worked with the partners at Heenan.

In the case of the Heenan moves, at least one was partially rooted in a more personal history. Dinsdale and Shamie have known each other since law school. “We’re friends as well as neighbours,” says Shamie. “We have a lot of the same beliefs and client service ideals in terms of how we want to serve our clients and it was just a great fit.” But for Dinsdale it was also a strategic move after realizing he no longer felt the big firm environment was right for him. “There were aspects of the internationalization of the firm that didn’t fit with how I saw the future unfolding,” says Dinsdale. “I think the best way to characterize it is I was looking forward to try and identify what I thought the best platform would be for my practice over the next 15 years or so. I don’t make these kinds of moves often. I was at Heenan for 21 years and knew if I wasn’t going to be making a move soon — I’m 50 — it becomes increasingly difficult to do so, so it was a time in life to reflect on where I was and how that firm was developing and what was the best platform for me going forward.”

Unlike some of the top-tier firms that suffered financially over the last five years, Shamie says Hicks Morley has had its best years since 2008, partially due to the need for companies to restructure and the resulting terminations requiring legal services his firm provides.

Shamie says he fields calls from a lot of partners looking to make a change these days.  “There have been some major changes in the global setting with a number of the full-service firms,” says Shamie. “We see that as an opportunity for a boutique firm like ours where we are a true specialty firm.”
Deciding to leave

Kowalski says lawyers typically decide to leave their firm for one of two reasons: money or concerns about law firm governance issues. In the case of Dentons, conflict and issues around referral work came to the surface immediately, says Christopher Sweeney, CEO of legal recruiter ZSA. “It was a big loss, there’s no getting around that. I can’t say I was stunned to hear it but I think the scale of it surprised me. It’s rare that there are such large deals like that.”

To date, there haven’t been any substantial departures as a result of the recent Norton Rose merger with U.S.-based Fulbright Jaworski LLP, but there are some who say it’s a definite possibility as questions are raised about what work will now dry up and how practice areas will be affected. If partner pay envelopes get lean, they may start looking. “There have been ones and twos leaving Norton Rose but no big hit yet,” says Sweeney. “There is certainly talk something is going to break.”

Still, other observers see it all as being no different than previous instances where lawyers left because of conflicts in their existing firms such the four partners from McCarthy Tétrault LLP who exited in 1992 to form Lenczner Slaght Royce Smith Griffin LLP. “They left because of the conflicts in the litigation group,” says Karen Mackay, president of Phoenix Legal. “A number of people also left Goodman and Carr LLP in 2007 to go to Fraser Milner. They didn’t go as a group but there was a number of conversations. I think the street loves to draw conclusions that if people leave one firm it must be bad and if they go to another one it must be good. I think it’s just different.”

There are critics like Kowalski who say the law firm model is broken but Mackay maintains the model is just changing. However, others like Sweeney insist the top-tier firms are hurting financially and that is causing uneasiness among the lawyers, prompting the phones to ring a lot more at legal recruiters. “There are many law firms out there not doing that well — they are either just making target or missing target. The workflow continues to be very choppy,” he says.

Rate pressures in the bigger firms also prompt some lawyers to look elsewhere if they find themselves part of a bigger, global firm. With a smaller firm they can find more flexibility on rates, says Lawrence Mullman of international legal recruiter Major Lindsey & Africa. “Otherwise, with a bigger firm they may lose clients over time because real estate and labour [and] employment clients are just never going to pay the rates of the new, bigger firm.”

Adding to all of these factors is a relentlessly sluggish economy, combined with continued pressure on the firms to bow to the demands of a client base with more options for legal services and in-house counsel clients with shrinking budgets. It’s enough to make lawyers antsy about their future. “In my estimation we’re in year five of the legal recession. There’s so many varying signals out there — you have the Dow Jones breaking record territory but at the same time nobody is doing any deals,” says Sweeney. He says the canary in the coal mine is the two-to-five year corporate commercial associate — meaning when there’s demand for such a creature the economy is humming. “There is no demand for that and there hasn’t been for years,” he says. “It’s a really tough time out there. It’s tougher than I’ve ever seen it except for the period around the Lehman Brothers collapse.”

With equity positions as a percentage of law firm partnerships on the decline it’s causing some to consider their long-term place in the law firm ecosystem. “The problem with so many of the big firms is if you’re at year eight and being told partner is not going to happen here and you want to cross the street to another big firm, you tend to have no practice of your own or not much of a practice — it’s mainly institutional clients,” says Sweeney. An eight-year associate making $275,000 is not seen as a terribly attractive recruit because they can’t typically bring business with them, he notes. “The options for someone like that are to go in-house but that too is a competitive market. More people want to go in-house than there are positions.”

Harsher critics say the defection of FMC’s mining group to Bennett Jones is symptomatic of a much bigger problem. “It’s just more shuffling of the deck chairs on the Titanic,” says Joe Milstone of Cognition LLP, a firm that provides lawyers to other firms and companies on an as-needed basis. “I think a lot of the mergers and big corporate changes in firms are window dressing to cover the inherent problems in the structures themselves.”

Milstone compares the chatter that followed the departure of the lawyers at FMC to those who read People magazine and gossip about who is doing what. “It’s a big yawn — what’s the news here?” He flips the equation and questions what value comes out of these kinds of moves for the clients. “Are they charging any less or delivering a service in any better way? If I’m a client and someone is at FMC one day and Bennett Jones the next, how does it impact me as opposed to cutting a better deal?”

Milstone says he regularly gets calls from law firm partners looking for a way out. “We get senior partners who have run departments and feel they are being marginalized in this much tougher ‘what have you done for me lately’ society in the firms. I feel for a lot of these people — it’s often not a happy story and they feel they have put a lot of years and time in and had promises made but feel like yesterday’s news.” Feeling valued is a big issue these days says Carrie Heller. “Generally, when we place partners, it is really about being valued, which is at the top of the list and yes, money comes into play, but valuing the practice area is high on the list.”

Big lateral moves like those at FMC/Dentons and from Heenan to Hicks Morley expose the fragility of the partnership model, says Kowalski. “Partners are only loyal to themselves; they’re not loyal to the firm.” That, he says, makes it difficult for a firm to instigate any real long-term strategy. “I think to a certain extent the law firm partnership model is nearing the end of its natural life cycle. When you see large groups splitting off simply because they’re getting paid more perhaps or they have governance issues with the firm, that’s not a stable structure and that ripples through your firm where others say, ‘Well, they’re leaving maybe we should be too.’”

The client factor

There is also the client to consider in the aftermath of lateral moves. The choice of law firm is of course the client’s, not the lawyer’s, to make and it’s always a bit of a gamble for the firm taking on the new partner with a promising book of business. Nothing is ever guaranteed, says Shamie, it always comes down to the client’s choice. “Hopefully partners are confident their clients will come over but you never know until you have them come in as clients of the firm,” he says.

At the time he announced his departure, Dinsdale was still a partner at Heenan Blaikie and still held fiduciary obligations to the firm. He says he wanted to make sure any discussions that occurred were consistent with those fiduciary obligations. “Certainly there were absolutely no conversations with clients prior to speaking to the managing partner,” he says. “To do that would have been contrary to my obligations and ensuring that any conversations that took place after that were known to be occurring by the managing partner of the firm and the conversations themselves have to be very professional.”

At Heenan, Dinsdale and the managing partner developed a joint letter outlining the options for clients. They could stay with Heenan Blaikie, in which case Dinsdale would help facilitate another lawyer to head up their work, or they could move with him, in which case they would have to complete a direction. The client could also choose to take their work to a third firm.

What Dinsdale describes is a very textbook, civil approach, but one not always followed, says Berger of Marsden International. “I think there are firms who have not acted gentlemanly about departures, which is not a wise way to go. FMC has managed it well in terms of how they’ve spoken on the street about it — I’m not aware of any negative play,” she says.

Becoming part of the team

Integration of the transplanted lawyers to the new firm is also important. In early February, five lawyers from EnerLAW in Calgary moved to Lawson Lundell’s energy practice. “The advantage of bringing in a group like this is their whole practice just moved down the street to us, plugged in, and away they went with little disruption,” says managing partner Mann, adding steps were also taken to integrate the team into Lawson Lundell’s regulatory practice. “That’s probably the best way to integrate a group — get them to work with others with their respective clients and see each other in that context.”

Dinsdale is philosophical about what others see as big shifts in the legal landscape. “Those interested in working at a big firm will do that and if it takes seven or eight years to be partner that’s just what they’re going to do,” he says. “When partnership track was five years — which was 20 years ago — it may be that people didn’t have enough time to think about alternative career paths.” Mann says there has definitely been a change in the attractiveness of what it means to be a partner. “I think years ago it meant something — it was a carrot to reach. I don’t know that people still view it in quite the same way as the brass ring they will work away at even if it takes them a few extra years to do it.”

What it does mean though is both law firms and lawyers will likely be strategic about their futures in the years ahead. “Managing partners need to keep an eye on their flock,” says Mackay. “It’s kind of like the first divorce — it takes a long time to accept this isn’t working for me anymore, but once you’ve done it, you know you’re going to survive.”

Looking to make a move?
Do a self-valuation.

f you’re a lawyer looking for a new opportunity, recruiters advise associates and even partners to sharpen your business development skills and build up your book of business. “For associates the bar has definitely moved,” says Karen Mackay, president of Phoenix Legal. “It is more complicated and difficult to become an equity partner than it has been in previous generations, no question.”

To become desirable, you are going to have to become more entrepreneurial. “If we tell anything to an associate it’s to be aware of their own practice and distinguish themselves from the pack; be more reliant on themselves,” says Carolyn Berger, a recruiter with Marsden International.

Individuals who have a book of business to bring or a strong record in professional development are more appealing to suitors. “I think the moves we do see are still focused on those particular types of individuals,” says John Ohnjec, division director of Robert Half Legal.

For partners, the big demand right now is for those with a substantial and established base. In Toronto that means you’re at a tier-one firm, 10 years out, with a minimum $1.2-million to $1.5-million practice. “A $600,000 practice is fine, but it’s not going to get you a ticket to the dance at one of the big firms unless it’s in an area like health law that the firm is trying to build out or some other strategic purpose,” says Christopher Sweeney of ZSA Legal Recruitment.

If your desire to move is purely about dollars, the question is, what do you bring to the table? “A lot of people are not there — it’s not easy to build a $1.5-million practice. Some say, ‘Well it’s no problem building up a book of $1 million’ but those people are just gifted at marketing and selling themselves, and most lawyers are not,” says Sweeney.

Those numbers primarily apply to the biggest firms, says Carrie Heller of The Heller Group. “If you are a junior partner at $600,000 and still building people will still be interested in you. Mid-size firms will be happy with a book of over $500,000,” she says.

Money may be the usual incentive to move, but Berger’s advice is to be practical about what you’re looking for. In some cases, money might not and should not be the first consideration — it might be about growing a practice in a way the current firm can’t offer.

In any case, the question from the hiring law firm to prospective partners will be: Do you have the business and how much? “They wouldn’t be leaving unless they knew they had the business,” says Lawrence Mullman of Major Lindsey & Africa. The best approach, he says, is to under promise and over deliver. “Don’t say the best case, say the moderate case and then everyone loves you.”

And due diligence goes both ways, says Mullman. With last year’s collapse of Dewey & Leboeuf LLP, it’s becoming more common in the U.S. for lawyers to be the ones trying to do their due diligence on a firm’s financial stability. “Ask, ‘Is the firm going to be able to pay me down the road?’ Most firms are financially sound but a lot aren’t nearly as financially rich as they appear to be on the [profits per partner] Am Law reports,” says Mullman.

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