The Breakup OF Heenan Blaikie

The scrutiny of Heenan Blaikie LLP's shocking closure in February has been intense and widespread. What hasn't yet been scrutinized with any intensity or specificity, however, is the impact of the sudden availability of over 500 lawyers with varying degrees of seniority to a mature domestic market.

From a supply and demand perspective, the market will absorb what the market will absorb. To the extent that firms over-invest or miscalculate what they need, the fallout may simply hasten their own misfortune. To the extent that the market cannot absorb so many well-paid lawyers, the less fortunate ones will suffer. Or perhaps that is too pessimistic a viewpoint. If the strategies of the “acquiring” firms are sound, perhaps multi-faceted success will emerge from the Heenan demise.

At press time, Lexpert's research indicated that almost 300 of Heenan's contingent were solidly ensconced elsewhere, according to press releases. Most in demand appear to have been lawyers in specialized “service” practices, especially workplace law and privacy law practitioners. M&A and corporate lawyers were also highly sought after, but more selectively, with a decided emphasis on high-profile practitioners.

That is not to say that some 200 lawyers are without jobs. But large national and regional firms, as well as the specialized boutiques, tend to trumpet their acquisitions as best they can in the media; the smaller firms, less so. What this means is that most of the firms that can afford to pay major firm salaries or offer major firm opportunities have made their pitch: their Heenan quota is for the most part full. To the extent that the 200 remaining lawyers have found work, the likelihood is that they are widely dispersed in the regional or mid-market, among law departments in industry, government or elsewhere.

But have the lawyers taken up by the major firms and boutiques altered the dynamics of the upper echelons of the Canadian legal market? Or, at least, what will these additions mean for the firms involved?

It may be that the lessons learned from Heenan Blaikie's demise will prove valuable for Canadian law firms struggling with the rapid evolution of the legal market. Perhaps these lessons will even help another Canadian firm avoid a similar fate. And the lessons may be different among the several cities that had Heenan offices.

“Overall, I don't think that the Heenan situation will have a huge immediate effect on the legal market,” says Don McCarty, Lavery, de Billy L.L.P.'s Montreal-based managing partner. “Certainly firms will be more circumspect about economics and finance, and so perhaps will be the banks that finance them. But otherwise I suspect the market will be subject to the same pressures it has always felt.”

Apparently in Montreal there were “bidding wars” on some of the “stars” from that city's Heenan office. Still, the pressure of overcapacity, or at least a sense of it, seems to be national.

“Toronto and Canada are mature legal markets, and Heenan's absence doesn't add or subtract from the overall measure of competition,” says Kevin Coon, managing partner of Baker & McKenzie LLP's Toronto office. “In fact, even before Heenan disbanded there was already a sense that there were too many lawyers competing for the business available.”

But while Heenan's downfall may not have an immediate impact on the overall dynamics of the market, it does send a message to the profession. “It's not a new message, but it's a more dramatic message for the benefit of anyone that wasn't paying attention,” Coon says. “What the message says is that the future will be very different from the past in terms of client needs and demands, the law firm of the future will be different, and there will be unrelenting pressure on law firms that insist on operating the way they always have.”

In other words, the Heenan diaspora has not altered the overall standings or rankings, at least not for the time being. What it has done is consolidate market positions, augment market strategies, round out capabilities, strengthen weak links, and improve the national and regional synergies in certain practice groups, all by way of positioning the acquiring firms to better service existing clients and take surer aim at target markets.

None of this is fortuitous: every law firm interviewed for this article could point to an aspect of their strategy that the Heenan acquisitions advanced. Indeed, in many cases, law firms had identified the Heenan lawyers they ultimately added as recruits well before Heenan broke up; in many cases, negotiations preceded the announcement that Heenan was winding up.

All of which is not to deny that opportunism was a factor for firms contemplating any developments they were witnessing from Heenan. Whatever their pre-existing strategies, it is virtually certain that neither Fasken Martineau DuMoulin LLP nor BCF LLP had immediate or even medium-term plans to add 30 lawyers in one fell swoop. The same can be said of the 45 lawyers Lavery, de Billy added to its roster of professionals, or of the 46 lawyers who joined Dentons Canada LLP.

Strategy, however, is a macro endeavour — an overview of what a firm intends the future to look like. Opportunity requires an assessment of the extent to which events or situations, however unexpected, fit into strategy. In the case of the law firms that absorbed a substantial number of Heenan expats, the assessments had to be made with a considerable sense of urgency. That varied with the extent to which each of these firms had already explored the cracks in the Heenan foundation that undoubtedly put many Heenan lawyers on the open market well before the windup was formally announced.

As it turns out, the lead time was probably longer in Toronto, where about two dozen Heenan departures in the last couple of years had fuelled rumours of the dissolution of at least the Toronto office. Plus, many of the Heenan lawyers who weren't ready to depart were to different extents formulating Plan Bs in their minds — and discreetly discussing them with firm leaders.

By contrast, the Montreal office seemed the most likely firm office to survive as a viable entity on its own.

Among the firms that added Heenan lawyers in significant numbers, Baker & McKenzie was among the best prepared for the opportunity. The firm had, after all, been in expansion mode for some time.

“The additions from Heenan were planned in the sense that a number of years ago we had identified what we needed to do in this market to line up our office with B&M's global and regional strategy,” Coon says. Indeed, the announcement that 13 Heenan lawyers were joining the firm was the culmination of a year's work. “There were no negotiations before Heenan disbanded,” Coon told Lexpert. “But we had identified the individuals we wanted some time previous and we had done our due diligence.”

What the firm lacked in Toronto was corporate and securities depth that fit in with the global strategy of continuing to grow the firm's transactional practice — and that's exactly what Coon got.

Kevin Rooney and Sonia Yung led the new group at B&M, which was taken on to augment the firm's corporate and securities, tax, and banking and finance practices. Other partners joining included Peter Clark, Ilia Danef, Charlie MacCready and Corey MacKinnon. The additions boosted the Toronto office headcount by about 20 per cent to more than 75 lawyers.

“We didn't just add service lawyers,” Coon says. “The new lawyers have a roster of loyal clients to whom they have been trusted advisors for many years, and their addition will assist the Toronto office in expanding the scope and depth of client offerings in the context of B&M's global network.”

Because the organizational structure at B&M is quite formalized, the lateral moves required agreement from several layers of hierarchy. “Any time we add partners, we need approval from our global executive and policy committee, from our regional council and from our Canadian partnership,” Coon explains. “A lot of firms operate on a command and control model, but we have a bit more structure, and we think that it serves us better than having one person or a few people at the top of the organization making decisions that could put us at risk down the road.”

Layers notwithstanding, it is to the firm's credit that approval came quickly, something to which Coon's prescience and persistence in scoping out the Heenan lawyers in advance undoubtedly contributed. “We never looked at it from the perspective of numbers, but about building our capability in key market segments from a client perspective,” Coon says. “Central to our strategy is the fact that the B&M global network gives us an entrée to global companies all over the world, including Canadian multinationals, 65 of whom are on the Fortune 500 list.”

Adding the Heenan lawyers, then, served the firm's inbound, outbound and domestic strategies. “I don't know that any one aspect played heavier than the other,” Coon says. Still, he cautions observers not to expect that B&M's Canadian presence will ever number in the hundreds. “We don't need that many lawyers to service our current and potential client base because we have many people in other offices who can help us here in Toronto,” he says. “It's all about revenue and profit and servicing clients in leveraged ways other than merely adding lawyers.”

Amon major Canadian firms, Heenan Blaikie appeared to be only one of two, along with Norton Rose Fulbright LLP, to have regarded workplace law, into which labour and employment law has evolved (see “Labour & Employment's Second Coming”) as a core practice. But what is true is that many of the other majors now see workplace law as a source of or conduit to new, profitable mandates by which they can expand and strengthen their relationship with corporate clients, old and new. Labour and employment law is also a handy and steady source of income in an era marked by a steady lull in transactional work. As it turns out, the sudden availability of a host of lawyers from one of the country's most prestigious labour practices fits neatly with the resurgence of workplace law at major firms.

Fasken Martineau undoubtedly had all this in mind when the firm took on 13 labour and employment lawyers in Toronto, nine in Montreal and four in Ottawa. Fasken also added four corporate commercial practitioners from Heenan's Montreal office.

“We certainly didn't write a map that said we were going to take on 30 lawyers all at once, but we did want to make sure we were looking at opportunities,” says Martin Denyes of Toronto, Fasken's managing partner for Ontario.

“Labour and employment is a business we know and understand and want to be in, and in which we already had significant players, so you can look at the hiring as opportunism that was consistent with our business plan.”

In Toronto, Brian Burkett (reunited with his old firm after a lengthy absence), Douglas Gilbert, John Craig, Mathias Link and Sarah Graves joined as partners, augmenting a local workplace law team that has been growing in strength and depth for a number of years. Claire Vachon and Sébastien Lorquet are the new Ottawa partners, and with two associates give Fasken a labour and employment presence in a market in which it had none. “These teams were a perfect fit for us,” Denyes says.

Still, most of the newcomers joined as non-equity partners, perhaps evidencing the caution regarding equity partners that has taken hold in law firms around the world. “Non-equity additions don't require partnership approval, but our partners knew we were engaged,” Denyes says.

Borden Ladner Gervais LLP also got in the game, particularly in Montreal, where it took on 12 labour and employment lawyers (the firm also added six practitioners in various practice areas in its offices across the country).

The upshot is that, with Heenan gone, both Fasken and BLG may have a leg up on their national competitors in the battle to join Norton Rose among the leading players in Quebec's workplace law market.

As it turns out, the competition for Heenan lawyers was particularly acute in Quebec generally, especially among regional firms, which snapped up 85 of the 124 Heenan lawyers in the province whose movements Lexpert has been able to identify.

The two biggest players were Lavery, which alone took no less than 45 lawyers, growing its pre-existing 165-lawyer contingent by almost 30 per cent. BCF, a regional firm focusing primarily on mid-market business law, added 30 lawyers, upping its total by about 25 per cent.

Both firms wanted to boost their regional presence. Only 16 of the 75 lawyers taken by these firms were Montreal-based, with BCF taking six and Lavery recruiting 10. The other 59 were spread among Quebec City, where BCF added 24 lawyers, almost two-thirds of Heenan's former roster of 37 lawyers in the province's capital; and Sherbrooke (24) and Trois-Rivières (11), where Lavery absorbed the entirety of Heenan's operations.

Like Fasken, BCF's moves were both strategic and opportunistic. “We needed a strong practitioner in the banking area and more depth in a few other areas as well as a construction litigator and some business law partners in Quebec City,” says André Morrissette, the firm's chair.

That was the strategic part for the young firm, founded less than 20 years ago. “Adding more experience has almost always been a good thing for us,” Morrissette says.

Opportunity knocked, however regrettably. “We had known for a while that things were not going well at Heenan and we had been having discussions with three or four partners whom we were trying to attract,” Morrissette says. “They became the channel of communication that opened up the possibility of recruiting a larger group.”

The 24 lawyers from Heenan, including Canadian Olympic Committee chair Marcel Aubut, who became BCF's vice-chair, effectively doubled Quebec City's 26 lawyers. “We were too small to fully compete in the Quebec City market,” Morrissette explains. “And while the group we added were a lot to take on at once, the rapid growth has created a more synergistic team.”

In the final count, about one-third of the new group were M&A business lawyers, one-third were primarily litigators and construction law specialists, and the final group was a mix of labour, sports law and banking specialists. The additions gave BCF, already one of the largest M&A practice groups in the province, even more depth in that area. It also built on the existing team to emerge with one of the largest tax practices in Quebec.

Despite the strain on the economy and the legal market, Morrissette dismisses the risk in building BCF's transactional practice so exponentially. “Our M&A group, the largest group in the firm, had a record year in 2013,” he says. “We not only kept the group very busy but even added new talent. The state of the M&A legal market is not something we fear at all.”

Morrissette and managing partner Mario Charpentier initiated the negotiations. “We kept our executive committee in the loop,” Morrissette says. “When we had commitments from a large group of Heenan lawyers, we contacted our senior partners in Quebec City, who from that point on remained very much in the loop.”

Two special board meetings in three days approved the arrangements, with a partners' meeting ratifying them within the next 48 hours. “Doing things fast is what a regional firm is all about,” Morrissette says. “Today's market is about being the fastest, not the biggest.”

Still, Langlois Kronström Desjardins LLP, a regional firm of some 100 lawyers with offices in Montreal and Quebec City, took a more cautious approach, adding eight lawyers to its four most significant practice areas of litigation, workplace law, insurance law and occupational health and safety. “Heenan's unfortunate demise helped accelerate our recruitment process pursuant to growth objectives we had established several months earlier,” says Gerry Apostolatos, a senior partner in the firm's Montreal office. “The decision to hire eight new lawyers was certainly not taken overnight; rather it amounted to the execution of a strategic plan at an opportune time.”

As it turned out, Heenan's fate also had a huge impact on Lavery, Quebec's largest regional firm. “It was definitely part of our business plan to increase our business law and transactional practice, as well as our labour and employment law practice, which is a growing area to which many firms are gravitating,” McCarty says.

So Lavery moved quickly when Heenan dissolved, adding some nine specialists in workplace law and health law to the Montreal office. “We already had a sizeable labour group and thought we could do more with it,” McCarty says. “As well, health law is very big in Quebec and we were very present in that sector through a core group of five or six partners. So the additions gave us depth in both areas.”

Almost immediately after adding the Montreal group, Lavery recognized there was another opportunity in the offing — one that would go a long way to bolster the firm's claim to being Quebec's premier regional firm. “It didn't take us long to realize that Montreal is not the only place to grow employment and corporate practices,” McCarty says. “Both Sherbrooke and Trois-Rivières had captive markets of large companies who wanted to do business, and Heenan had very profitable offices in both places.”

Indeed, about half the Sherbrooke group were business lawyers, about one-quarter practised in labour and employment, and the remainder were litigators. Trois-Rivières's 11-lawyer office was a similar mix, with half the lawyers practising labour law and the remainder equally divided between business law and litigation.

Lavery immediately embarked on an integration of the new lawyers with the practice groups that exist in the firm's other offices. “It's not that Sherbrooke and Trois-Rivières depended on other Heenan offices for their business, because they were quite profitable as standalones,” McCarty says. “What they needed when Heenan dissolved was to be associated with another firm that had a credible brand, because that's what enabled them to attract the types of clients they have been able to attract.”

The new offices also solved another problem for Lavery. “We can now reach into markets that were previously more difficult for us to pierce because our local presence lets us work at lower rates than the ones charged in Montreal,” McCarty says.

Not long afterward, Lavery scored again when former provincial premier Pierre-Marc Johnson, an expert in international trade negotiations, environmental law and health, joined the firm from Heenan. “Pierre-Marc Johnson not only further solidifies our position as Quebec's number-one regional firm but also bolsters our commitment to attract work from outside the province,” McCarty says.

“Lavery's haul of 45 Heenan lawyers is all the more remarkable given that the only firm that took on more Heenan lawyers was national firm Dentons, with 46 additions, although they joined a much larger existing group of more than 500 lawyers.

For its part, Dentons focused on Toronto, where the firm added 31 lawyers to its existing 165-lawyer contingent, and Montreal, where 12 lawyers joined the 90 already there. Dentons also added former prime minister Jean Chrétien in Ottawa and two lawyers in Calgary.

The additions in Toronto featured six entertainment law lawyers led by Norman Bacal, a long time co-managing partner at Heenan. The alignment filled a large hole in Dentons' national entertainment law practice, which boasted considerable depth in Montreal and Vancouver. “There is a significant local, national and international dimension to the addition of such a strong entertainment law group in Toronto,” says Chris Pinnington, CEO of Dentons Canada.

The Toronto office also added four financial services specialists, two infrastructure experts, two international trade and procurement practitioners, two insolvency lawyers, three tax lawyers and 12 corporate lawyers.

Mike Kaplan, managing partner of Dentons' Toronto office, says that adding the Heenan group was part of a planned expansion. “We still believe we're undersized as a national and international firm in the Toronto market,” he says. “When we heard rumours that Heenan was breaking up, we thought we could take the opportunity to bring in a big group in one fell swoop.”

In Montreal, the strategic plan focused on acquiring talent in the areas of real estate, banking and infrastructure. “We have been growing steadily with key strategic hires for the past three years, and the Heenan lawyers are part of that plan,” says Claude Morency, the managing partner of Dentons' Montreal office.

As it turns out, integrating numerous members of a prominent defunct firm is not new to legacy firm Fraser Milner Casgrain LLP, the Canadian piece of the international troika that merged to form Dentons. When Toronto-based Goodman and Carr LLP closed its doors in 2007, a core group of 17 lawyers from the 90-member firm joined FMC.

“The success of that integration is evident from the fact that many former Goodman and Carr lawyers have significant leadership positions at the local, national and global levels of our firm,” Pinnington says. “We expect a similar experience with the former Heenan lawyers, who have demonstrated many of the same qualities that attracted us to the Goodman and Carr group.”

Like Dentons, other national firms focused on filling holes and building depth and expertise. Gowling Lafleur Henderson LLP, for example, took on eight lawyers in Toronto, eight in Ottawa and two in Montreal. The Toronto additions included vaunted rainmaker Ralph Lean, a nuclear energy team to augment the firm's already considerable expertise in this area, and three commercial litigators led by Sandra Barton. In Ottawa, Pierre Champagne brought with him an eight-member bilingual commercial litigation team. Guy Tremblay and Lucie Guimond, workplace law specialists, joined the Montreal office.

“It all amounted to a little bit of strategy and a little bit of opportunity,” says Scott Jolliffe, Chair and CEO of Gowlings. “The nuclear energy lawyers fed a strategic growth area, the commercial counsel in Ottawa suited a sector in which we had been growing and their bilingualism gave us a great opportunity in both the Ontario and Quebec markets, and the labour and employment additions in Montreal rounded out the existing team nicely.”

Again, caution dictated that the former Heenan lawyers all joined as income partners. “Adding lawyers is a big investment for any firm, and busy and productive as these people may be, it still takes them a few months to get up to speed in a new environment,” Jolliffe says. “Adding them as income partners is part of a staged process that allows new laterals to get their feet squarely on the ground, following which they usually become equity partners in one or two years.”

For its part, Osler, Hoskin & Harcourt LLP had Adam Kardash's privacy practice at Heenan squarely within its sights. “We already had a strong privacy practice, but it was operating under the radar and we realized we needed to expand our service offering,” says Michael Fekete in the firm's Toronto office. “We admired what Adam had built in a highly strategic practice area and adding him and his team was a natural move that fit within the strategic direction we had established several years ago.”

Apart from the six-member privacy team, of whom five will practise in Toronto and one in Calgary, Osler's Montreal office took on Eric Levy, Manon Thivierge and Antonella Penta as partners. All are veterans, Levy in M&A and securities, Thivierge in tax, and Penta in M&A, venture capital, joint ventures and start-ups.

“Not unlike other top firms, we have a continuing strategic objective of acquiring great lawyers, especially in the corporate and tax areas,” says Shahir Guindi, the firm's managing partner in Montreal. “Eric, Manon and Antonella have all been accretive from a business and talent perspective and have very quickly exceeded both our and their own expectations.”

Still, it's much too early to tell whether or not the same can be said about the expectations of all the firms that have tested the Heenan waters. But as the disappearance of Heenan Blaikie itself shows, a great deal of force remains in the old Danish proverb that suggests that it is difficult to make predictions — especially about the future.

And, one might add, especially about lawyers and the legal market.

Julius Melnitzer is a freelance legal-affairs writer in Toronto.