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B.C.’s Big Law Firm Shakeup

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Written by Marcie Good.

When Heenan Blaikie dissolved in early February, it was the largest failure of a law firm in Canadian history. But for two Vancouver firms that have risen from its ashes, failure–and learning the hard lessons from it, may be paving the way to a sustainable future

The small meeting room cramped with stacks of cardboard file boxes and an empty bookshelf seems a fitting place for two of the three partners in the new firm Michael, Evrensel and Pawar LLP to discuss their plans for the future. “Eventually we’ll have a nice boardroom,” says Marshall Pawar. “But we don’t need a $100,000 oak table that a client will never see.”

Ryan Patryluk and Marshall Pawar, with entertainment lawyer Arthur Evrensel, founded the firm, which operates as MEP Business Counsel, in mid-March. It is one of two firms that have sprung up from the Vancouver office of former powerhouse Heenan Blaikie LLP, which dissolved on February 5 to the surprise of many. MEP will focus on corporate practice, while Gall Legge Grant & Munroe LLP—with high-profile counsel including former Attorney General Geoff Plant, former Supreme Court of Canada Justice Michel Bastarache and sports giant and Harvard Law grad Brian Burke—will focus on litigation, labour and public law.

The room where I meet Pawar and Patryluk in the new MEP office at 669 Howe St., about a month later, bears the signs of the lightning-speed move. A long To-Do list scrawled on the whiteboard records items such as photocopier, scanner, business cards and letterhead. “That’s about half of what it was a week ago,” says Patryluk.

Pawar’s point about the oak table is part of a larger discussion touched off by Heenan Blaikie’s demise. Founded in 1973, it became one of Canada’s first national law firms with more than 500 lawyers, approximately half of whom were partners. It was the largest failure of a law firm in Canadian history. Much coverage focused on the firm’s challenges in the current economy: demand by clients for lower fees, fewer merger-and-acquisition deals, tougher competition among firms and leadership disputes. These are not unique, with many national firms having recently introduced strategies to deliver better value and stay competitive.

Pawar and Patryluk are both excited by the possibilities they see in running a small firm without the large overhead (and suave furnishings) of a national firm. “A lot of business is done virtually now, or we travel to clients,” says Pawar. “And I think everyone appreciates that. They would rather see the work getting done at a more streamlined rate, rather than paying for bells and whistles that they will never see.”

Ryan Patryluk started as an articling student at the Vancouver office of Heenan Blaikie in 2001, and followed up with three years as an associate. He left for jobs in New York and London, U.K., and then returned to Heenan Blaikie in 2010. While Patryluk was practising corporate law at the New York office of Clifford Chance LLP, Pawar was working on the floor below. The two didn’t meet until Pawar joined Heenan Blaikie in 2011. Together, they grew the corporate practice of the Vancouver office from three lawyers to nine, despite the lean years of the recession. It was a small close-knit group, and when Heenan Blaikie dissolved, the core business law group of nine lawyers chose to stay together.

But in their rapid-fire discussions about branding and marketing their new firm, Pawar and Patryluk dismissed the term “boutique.” Instead, along with offshore suit tailors and custom shoemakers, they landed on the term “bespoke” to describe their legal services. “Someone said to me at the beginning, ‘You guys are going to be a boutique law firm,’ and it made me cringe a bit,” says Pawar. “For me it connotes a firm with a very specific and focused area. I think where our strength lies is that we actually have a very broad corporate practice.” They work on a wide range of corporate and commercial contracts, with clients across industries including mining, tech, construction, public-private partnerships, government, sports and entertainment, at every level from startup to multinational. “I didn’t have one client that left as a result of Heenan Blaikie [going down],” says Pawar. “It’s the same expertise, the same people—we’re just flying under a new banner.”

“But we’re cheaper,” adds Patryluk. “We are all entrepreneurial enough to know that it has to work, but we have no problem structuring things differently, when you see real potential for a new client or maybe giving an existing client a bit of a break.” The three partners decided that all staff (including one paralegal and three support staff) would be eligible for a profit-sharing pool, signalling their resolve to break out from a traditional model.

There are also certain bureaucratic issues that they can now avoid, such as turning down work from a new client because of a conflict of interest. Conflict searches at Heenan Blaikie would often yield a problem, if a firm lawyer in Montreal had once represented a party on the other side of a case the Vancouver office wanted to take on.

Commentary on Heenan Blaikie’s demise has pointed to the dearth of corporate transactions in recent years, a situation that drove up competition for the lucrative contracts. Patryluk explained that MEP lawyers have always done mergers and acquisition work, but not the multibillion-dollar contracts that require teams of 20 lawyers. “Where we do fit in quite nicely is in mid-market M&A, often private transactions as opposed to [those done by] publicly traded companies.” Often MEP lawyers act as B.C. counsel on international deals run by larger firms.

Patryluk suggests that the broad focus area of Heenan’s Vancouver office, a necessary function of working in a smaller market, was one of the reasons that the group was able to stay together. The Toronto office, by comparison, had specialty groups such as securities, banking, infrastructure and energy. Those groups joined other large international firms such as Dentons or Baker & McKenzie, rather than striking out on their own.

Craig Munroe is one of six partners in GLGM Law, the other firm formed from the rubble of Heenan’s Vancouver office. With counsel including former B.C. Attorney General Geoff Plant, former chair of the B.C. Labour Relations Board Don Munroe (Craig’s father) and Heenan Blaikie founder Roy Heenan, there is still star power, but Craig Munroe says the smaller size of 20 practicing lawyers is exactly right.

The two groups—GLGM and MEP—considered staying together post-Heenan, but decided instead to maintain close ties from separate offices. Munroe sees the problems that ended Heenan Blaikie as stemming from the difficulty of making decisions in such a large partnership. “The economic downturn several years ago did several things,” explains Munroe. “One, it reduced the flow of work particularly to the corporate practice. Also, big institutional and corporate clients have become more proactive and cost-sensitive, and questioning, probably quite rightly, whether some services are as necessary on a given file. So that double pressure means that firms have to be in a position to rethink their business model.”

A smaller practice, he says, is able to offer more flexibility in billing practices. This means not simply cutting rates, but more effectively matching billing to value provided. “Now we can be creative and respond differently on different files. That’s difficult for a big national firm to do because it requires a certain degree of control to make sure the right decisions are being made.”

The large firms that continue to thrive recently have undergone rapid change. “The legal industry has been stuck in feudal times,” says Matthew Peters, a Vancouver-based partner at McCarthy Tetrault LLP, which has five offices across Canada, as well as one in London, U.K. The Vancouver office was founded in 1960, and now has about 100 practicing lawyers.

Peters, who is part of the senior leadership team and responsible for pricing, says the legal profession is now looking at its services the way Henry Ford looked at the assembly of an automobile. “Traditionally, the way big and small firms have been operating, it’s sort of like how a cobbler in feudal times would operate, one pair of shoes at a time,” he says. “In the last five years we’ve re-thought the whole way we deliver services. I think it’s like applying Industrial Revolution techniques to the law firm.”

The term that’s being used is “disaggregation,” which means rethinking who performs each part of a project so that the lowest-cost resources can be used (including contract lawyers, paralegals, in-house, offshore lawyers, associates or partners), in all cases without sacrificing quality. McCarthy Tetrault has a full-time director of service delivery, who helps lawyers in the firm draw upon alternative resources.

The firm uses a legal process outsourcer called Exigent in South Africa with more than 300 qualified and experienced lawyers. On certain projects, Exigent lawyers would be involved in document preparation (such as drafting forms of leases) where much of the process is done based upon precedents. McCarthy has a process to review the work done to ensure that it meets quality standards. On large M&A transactions, Exigent can provide due diligence at about 20 per cent of the cost of doing it in Canada, because the hourly salary rates are so much less and the firm has low overhead costs. If the due diligence part of a $250,000 contract is worth about $100,000, Peters explains, that outsourcing would reduce the total cost to $170,000.

On large files, McCarthy Tetrault also uses the services of a Toronto-based firm called Cognition LLP, which has streamlined the model of a small firm even further. Cognition has a team of highly experienced lawyers but no office space, and its website explains, “We don’t have a mahogany-panelled boardroom. An army of receptionists. Or portraits of our founders hanging on the walls.” What they do have is rates “up to 70 per cent less than the cost of comparable resources in a traditional ‘bricks and mortar’ law firm.” Examples of the work that Cognition lawyers perform for McCarthy include document review (such as due diligence) in M&A transactions, lease review work, simple contract drafting and basic research work.

“So it’s not like, big vs. small firms. There’s a place for all these different kinds of firms,” says Peters. Clients come to McCarthy Tetrault and other big firms for large projects and complicated problems.

Their role is similar, then, to a general contractor on a construction project—choosing subcontractors and assigning and monitoring work.

“The reason most clients want us to play the role of ‘aggregator’ of the different resources is quality control and risk,” says Peters. “Having a single organization to point to is a lot safer and easier than the client itself trying to perform quality control on a project. They want us to put all the pieces together to get the work done.”

MICHAEL, EVRENSEL & PAWAR LLP