The next big flameout?

Jim Middlemiss
What’s up at 40-year-old Heenan Blaikie, the law firm known for hiring former Liberal prime ministers Jean Chrétien and Pierre Trudeau? It has been shedding lawyers at an alarming rate.

It started in July 2012, when a handful of partners left. A LinkedIn analysis shows at least 20 partners and many associates have since departed, and the pace quickened in the latter half of 2013. The firm still has 525 lawyers in nine Canadian cities and Paris, France.

The biggest recipients of the Heenan talent migration are Hicks Morley Hamilton Stewart Storie, McCarthy Tétrault, and Davis, which landed groups of former Heenan lawyers. However, it’s often a single lawyer or partner who quietly exited. It involves most practice groups and offices; Vancouver’s Dean Crawford left in July to join Coutts Pulver. A year ago, partners Henry Dinsdale, Jeffrey Goodman, and Michael Smyth and two associates dealt a blow to the labour practice and departed to rival Hicks Morley. In October, the labour ranks were hit again when Jonathan Dye joined Filion Wakely Thorup Angeletti.

The spring saw the departure of big-name litigators like William Peppall, who moved to Lerners, Gavin MacKenzie, who joined Davis, along with construction lawyers Howard Krupat and Jeff Citron. They were joined in October by IP litigators Andy Radhakant, Julian Worsley, and Neil Fineberg. Coupled with the untimely death of commercial litigator David Roebuck from cancer, Heenan’s senior litigation ranks are thinned.

In corporate, Calgary lawyer Brian Bidyk and Toronto’s Noam Goodman joined Davis. Henry Bertossi of Toronto and Bruno Caron of Montreal both joined Miller Thomson. Much of Heenan’s Quebec-based transportation group de-camped for McCarthy Tétrault in late October when partner David F. Blair and three associates left.

So what’s up? One story has it there were many unhappy partners when the firm issued its compensation numbers early last spring, with the usual fighting over the spoils. The firm was also late in paying its holdback, the amount of money it keeps from partners to cover budget shortfalls from the prior year. Normally that is paid in June, but wasn’t paid until later in the year.

Talk to managers at large law firms and — off the record— they say Heenan is struggling. They would know, since many of them have either recruited from Heenan or are getting calls about moves. However, at least one legal recruiter believes the bleeding has stopped and Heenan has turned the corner.

Kip Daechsel, co-managing partner of the firm, acknowledged in a statement that “2013 has been the most challenging year in many decades for our profession. I can assure you that our firm is on a very solid financial footing. We met budget last year [2012] and, depending on the results of the last quarter of this year [2013], historically our strongest quarter, we are optimistic that we will meet this year’s targets (which have been adjusted to reflect departures and additions).

“Managing our finances conservatively has always been part of our firm culture. In keeping with that philosophy, we have been exceptionally prudent this year [2013] in order to finance a move of one of our offices and the significant renovations of another. . . .

Again, out of financial prudence, the final distribution of the last tranche of the 2012 compensation for some of our partners has been deferred by a few months.” Daechsel said Heenan is responding to economic challenges with a three-pronged plan, which led to the departures. It includes “right-sizing, expansion, and a long-term strategic review.”

He said in the past 10 months, the firm has added 20 new lawyers to its ranks, seven of whom are partners or counsel. That includes Ralph Lean, a connected Conservative and adviser to business and governments. Daechsel added Heenan is “currently pursuing other high-profile additions to our Toronto and Ottawa offices.”

He added, “The focus in each case is to expand our offering while maintaining our reputation for innovative and pragmatic problem solving combined with flexible pricing solutions.”

His explanation reflects what happened at McCarthys a decade ago, when Canada’s then-biggest law firm adopted its corporate model and shed practice groups and lawyers, so maybe there is no cause for concern. However, multiple departures always raise red flags and start tongues wagging.

In fairness to Heenan, it isn’t the only Canadian law firm suffering. Most firms are feeling the pinch, as business deals slow and the economy sputters. Look at Canada’s M&A activity. It was down in 2013 from 2012, which itself wasn’t a great year. The lack of transactions, in-house departments doing more work in-house, cut backs on external legal spend, and the increase in the number of non-traditional legal outsourcing options are hurting the industry.

It’s been almost seven years since Canada saw a major firm blow-up with Goodman & Carr. I am not suggesting Heenan will suffer the same fate, but contrast Canada’s experience with that of the U.S., where Dreier, Howrey, Thelen, and Dewey LeBoeuf all recently had spectacular flameouts. In the U.K., a number of law firms recently sought creditor protection following legal reforms there.

It begs the question, when is Canada due for another law firm blow-up and who will it be? Stay tuned. If the economy continues to limp along and M&A markets remain flat, 2014 will be an interesting year for many law firms.

Follow Jim Middlemiss on Twitter @JimMiddlemiss.

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