Getting IT: First Mover Advantage in Information Technology

You don’t need a weather man to know which way the wind blows.” So said Bob Dylan. Or do you? “I spend as much time thinking about Microsoft as I do about my local rivals.” Peter Godsoe, chairman and CEO, Scotiabank. “Just about anything in business can be either a sinkhole or a competitive advantage if you do it really, really bad or if you do it really, really well.” Michael S. Dell, founder, Dell Inc. “IT doesn’t matter.” Nicholas G. Carr, former editor-at-large, Harvard Business Review.

When Nicholas Carr argued that the pervasiveness of information technology (IT) meant the competitive advantage IT once offered business was decreasing, he touched a raw nerve in an industry still shell-shocked from the bursting of the dot-com bubble. Published in the May 2003 issue of Harvard Business Review and provocatively titled “IT Doesn’t Matter”, Carr’s piece provoked a hailstorm of frenzied denials from the captains of The New Economy. The ongoing furor highlights both how pervasive IT has become, and, more importantly, how poorly understood it remains.

IT matters, now more than ever. But with the New Economy maturing, and every Old Economy company endowed with a survival instinct making IT investments, it’s not enough just to have IT. You have to get IT. In order to get IT, one has to understand that the potentiality of technology underscores practically every business decision. In the legal profession, the same precept applies to technology practices. All of Canada’s notable law firms have technology practices. But do they get IT? Do they understand what role a technology practice should play in a twenty-first century business law firm? Do they understand that it is central to their “reason for being”.

Sophisticated clients, like Scotiabank’s Godsoe, get IT. Technology, current and future, affects virtually every decision blue-chip clients like the banks make, and plays into the type of legal services they seek. But while tier-one clients like Godsoe think “as much about Microsoft as I do about my local rivals”, relatively few Canadian law firms have made that leap.

Of the myriad of technology practices that sprung up during the halcyon days of the bubble, most were launched as belated copycats, “because our competitors were promoting their technology groups,” as one Toronto practice leader admits off the record. It is not surprising, then, that relatively few have translated into a true competitive advantage for the firms, while more than one technology practice, to paraphrase Dell founder Michael Dell, has become “a sinkhole” that devours business development dollars and dilutes franchise credibility.

So, who has the sinkholes and who really gets IT in Canada, and why? Even its most combative competitors (reluctantly) concede McCarthy Tétrault LLP got IT first and acknowledge its first mover advantage is still paying dividends. The firm’s technology practice continues to set the bar for serious rivals and wannabes alike, although the former insist the gap has narrowed considerably over the last five years. The success of McCarthys and the mixed bag of success, struggle and outright failure experienced by its rivals has little to do with luck and vision (or lack thereof). Getting IT has to do with power, money and leadership.

King George
“There’s no shortage of I.Q. points here—these are not dumb people,” says Cheryl Slusarchuk, a partner with McCarthys’s technology practice in Vancouver. “It’s not that Canadian law firms missed the boat. They wanted to be there—you couldn’t have missed how important technology was going to be.” But in 2000, when Slusarchuk, who after articling with Davies, Ward in Toronto, earned her tech stripes with the information technology/communications group at Baker & McKenzie in Sydney and Chicago, looked to return to Canada, “There was only McCarthys. There was McCarthys and then, way down, was everyone else.” Deciding which Canadian firm to join was “a no-brainer...I wanted to be with the A-team.”

The foundation for the McCarthys “A-team” was laid in the 1980s. McCarthys got IT “before anybody even knew computer law was a field,” says Barry Sookman. Sookman is one of the marquee names in McCarthys technology practice, and one of the first laterals the firm brought on board when it started to build the group in earnest. “McCarthys was astute enough to hire good lawyers in IT, who had strong reputations nationally,” says Sookman. “It’s a cycle. You get recognized as a leader in a field, you get good work, your lawyers develop better skills and more people come to you because you have more expertise.” Or, as practice leader George Takach likes to say, “Strength builds on strength.”

And one of the most important strengths McCarthys built on was the home-grown talent of Takach. Called to the Bar in 1985 and admitted to the partnership in 1991, Takach was given, early in his career, a mandate to build the leading technology practice in Canada. And he did. The firm’s current pool of talent, anchored by Takach and Sookman, includes Adam Vereshack and Peter Grant also in Toronto, Robert Chapman and Anna Tosto in Ottawa, Michel Racicot and Marie Mandeville in Montreal, François Amyot in Quebec, Cheryl Slusarchuk, Ted Koffman and Richard Balfour in Vancouver, and William Smith, Q.C., and Anthony Morris in Calgary. The firm’s overall benchstrength in the area, at 40, is considerable.

But many firms claim to have as many as 60 lawyers practising in the field—an artificial bulking up that clearly illustrates having IT is not enough. You need something more than numbers, and many cognoscenti believe the secret to McCarthys tech magic is, simply, George Takach.

“He really pulled the national group together,” says Slusarchuk. “He’s a smart, unbelievably generous person and an amazing lawyer.” Takach’s leadership, together with the “unbeatable” edge the combination of the tech law expertise shared by Takach and Sookman provides, makes practising tech law at McCarthys “pretty cool”. And, says Slusarchuk, it also illustrates how important it is to have the right person in place when trying to kickstart a new practice area. “McCarthys had George, they hired Barry,” she says. “Other law firms, maybe they did not have the right person when they started to build their technology practices.”

Maybe. But, in 1991, and self-congratulation on the part of McCarthys aside, Takach and Sookman weren’t the only gifted lawyers with a penchant for IT. Virtually all of today’s stars were already around, chomping at the bit to develop technology practices. What did Takach and Sookman have that other talented people didn’t? To Takach, it’s obvious: firm management that, “to its credit,” got IT.

Who Drives the Bus?
It is one of the great ironies of the technology revolution that even as it changed the business of law—as virtually every other sector of the Old Economy, the legal profession was transformed by IT—technology remained a fringe or “emerging” practice area. It was, after all, in response to the brutal realities of the New Economy that Canada’s oldest, most institutional firms moved to remake themselves into business law firms that served business clients and themselves operated as businesses. The process necessarily entailed using new (and not so new) technologies to streamline operations, increase efficiencies and improve client service. Yet, even as they used IT, most lawyers didn’t get it.

“What we got from the firms was ‘I don’t understand what you do, but we think it’s important for us,’” says Alan Gahtan. In 2000, with long-time collaborator and mentor Fraser Mann, Gahtan founded the boutique Mann & Gahtan LLP, affiliated with New York-based technology-cum-business firm Brown Raysman Millstein Felder & Steiner LLP. Before striking out on their own, Gahtan and Mann worked to build technology practices at first Borden Elliott (now Borden Ladner Gervais LLP) and then the Toronto office of Bennett Jones LLP.

“The big firms have a lot to offer,” Gahtan says diplomatically. But when they are managed by people who, even if they think a technology practice is important, don’t understand why it’s important—or how it should be developed—the resulting environment isn’t conducive to building a top-tier practice. “At Brown Raysman, three of the founding partners are technology lawyers, Fraser and I are IT lawyers,” says Gahtan. “The environment is very different.”

When management gets IT, a tech practice can flourish in the most surprising places. Nova Scotia boasts one of Canada’s leading technology practitioners in Rodney Burgar at Patterson Palmer. Burgar got into tech law in 1991, after 20 years as a corporate finance lawyer. “Patterson Palmer was very supportive of getting into this area,” he says, especially because in 1991, corporate finance work was way down. “We got a lot of business development dollars and a lot of support, even though for the first couple of years the jury was out whether this was going to be a lucrative field or not.” The jury’s now in, and the verdict is clear—technology practices are profitable, and can be lucrative even during a downturn. But while Burgar’s partners supported his practice even when the bottom fell out of the corporate sector, not all technology lawyers have been so lucky.

“That experience of a firm which fully backed our IT practice, I would suggest, is not necessarily typical, particularly in Toronto,” says Burgar. From his position as national president of the Canadian IT Law Association, Burgar hears a lot of tales of woe. “I hear from colleagues, anecdotally, that they have been treated as poor cousins.” Proof of that can be seen particularly in those big firms where since its launch, the technology group has barely maintained its status or shrunk. “As soon as there is a downturn, the firm withdraws its support. I would argue that during a downturn is when you need to get out there and make yourself visible in the sector...but some of those firms are perhaps more competitive internally, and so it’s harder to sustain a technology group.”

More competitive internally? Now what could that mean? “Power in most big firms lies with the corporate groups,” explains Amy-Lynne Williams, one of the founders of intellectual property (IP)/IT boutique Deeth Williams Wall LLP. “Absolutely,” agrees a technology partner at a major full-service firm, who spoke off the record. “It all boils down to who owns the business side of the client relationship. Invariably that’s the corporate people and they drive the bus when it comes to any transaction of importance. You work with corporate. Sometimes they’ll let you steer, but there’s never any doubt as to who’s driving. I suggest that at the more successful (technology) practices, the tech lawyers do more than just steer from time to time.”

The official line from both the contenders and the tech wannabes at the major firms is “all for one, and one for all.” As Shahir Guindi, a technology lawyer now with the Montreal office of Osler, Hoskin & Harcourt LLP, expresses it, “All our interests are aligned. We don’t have that type of stress. Maybe that’s a symptom of a bigger question relating to compensation formulas at various firms.” Well, that’s the way it should be. But it isn’t. Practice groups compete for business development dollars, ownership of client relationships, and general profile and position within any firm. This competition creates tension. It’s inevitable.

“It’s a natural tension, because the workloads overlap,” says Cheryl Slusarchuk. “It’s a natural state to have tension between technology and corporate, or business lawyers.” Firms that recognize the tension—or at least the potential for tension—put in place internal processes to manage it. That’s one of the things McCarthys did during its recent adoption of a corporate organizational model. Firms that fail to manage this tension are often in denial regarding its existence, and firms in denial generally have an assortment of problems, including issues with firm leadership and management. As Duncan Card, who leads the technology practice at Ogilvy Renault in Toronto, puts it, “If conflict does happen, it’s poor law firm management.”

According to Michael Mensik, one of the founders of the IT/C practice at Baker & McKenzie in Chicago, the beginning of many technology practices was “a merging of IP and commercial law, with a basic understanding of tax.” More ingredients have been added to the pot in the nearly two decades of the group’s existence at Baker & McKenzie, and stepping on the toes of colleagues in more established practice areas was unavoidable. Explains Mensik, “If you conceive of traditional practice areas as vertical towers, what you were doing with IT is overlaying a horizontal layer. And it was legitimate for a partner in IP to say, what are you doing advising on copyright?” Or a corporate partner to say, whoa, why are you driving this transaction?

At Baker & McKenzie the IT lawyers recognized the tension between the old and the new as “natural”, and manageable. “It was a matter of collaborating with them and drawing a line—advising clients to a line and not crossing the line.” Most of the initial friction was between IP and IT, but it was between technology and corporate work that the more challenging border had to be drawn. “It didn’t take that long to sort out,” says Mensik, who is pretty clear as to who drives the bus. “We will handle the purchase of technology. We will not handle the purchase of technology companies—we’ll throw that to our M&A lawyers, who will bring us in to look at the technological issues. We become part of the team, but the team is driven by the M&A lawyers.”

It’s a division of labour no Canadian law firm has succeeded in fully implementing, and it’s unlikely to happen in the future, given the younger age and more mixed nature of Canadian technology practices. While the earliest IT groups spun off IP practices, virtually all leading technology lawyers today are, as Duncan Card describes himself and his competitors, “business lawyers first”. Like Harry Ludwig, who leads the technology enterprises group at Macleod Dixon LLP in Calgary, they “own” the client relationship. “I have very good connections with clients, and I attracted a lot of business to the firm,” says Ludwig, a former vice-president of business and legal affairs at Stentor. “I’m the relationship partner, by definition, with those clients.”

And these days, Ludwig’s client contact is likely to be the CEO or president of the company, not the IT manager—another significant change reflecting the importance of technology in the strategic decision-making of clients. IT decisions are no longer made in the silo of the technology department. They are overseen by the key decision makers in the company. And the technology lawyer’s connection to those decision makers goes a long way towards the weight he or she carries within the firm.

At Torys LLP, the technology group has its own means of ensuring management gets IT—it’s part of firm management. Group leader Barry Reiter has been on the firm’s management committee for almost five years, helping keep the technology group clearly on the firm’s agenda. “In any organization, if there is a group that is somehow not plugged into the attention of management, that group tends to be isolated, and to think it is not heard or taken seriously,” says Reiter. “One of the easiest and most obvious ways is if someone from that group is involved in management.”

Reiter’s involvement with firm management ensures the tech practice isn’t overlooked in the firm’s strategic and business development planning. And, he says, his role in management gives the group added prestige. “Even in the most egalitarian and democratic firms, there is a prestige to having people from your group involved in management. It reflects well on the group, inside and outside.” It sends a message to clients, too, that the firm’s technology lawyers aren’t lightweights (or “the weirdos in the basement,” as one corporate lawyer at a major Toronto firm routinely described his IT partners), but part of the power structure of the firm.

Torys is the one Canadian technology practice that can credibly claim it has narrowed the gap between itself and McCarthys. Its performance in the annual Lexpert survey process and general market profile have increased dramatically in the last two years. Being closely aligned with the management of the firm has certainly helped, but the most important factor may well be that Reiter and colleagues, such as Gabor Takach and Wendy Gross, are all business lawyers. And today, both Corporate Canada and the recovering and maturing technology sector need business lawyers with technology expertise.

The advent of the business technology lawyer has gone a long way towards helping firm management get IT, because they get business. Today, as it struggles to get IT, firm management generally deals with people who were corporate lawyers first, and they are equally fluent in “corporatespeak” as they are in the jargon of the technology sector. Yesterday, they had to deal with IP lawyers—smart lawyers, all of them, but operating on a different mental plane than your average corporate partner.

Identity Crisis
When Ludwig took over leadership of the tech practice at Macleod Dixon four and a half years ago, he changed its name. “We’re the technology enterprises group now,” he explains. “It used to be, we’re the IP group. And when it was the IP group, it was, ‘We’re so different, we have our own floor.’” One of Ludwig’s goals as practice leader is to integrate the technology practice with the firm’s other key business lines, and IP is not one of them. The firm farms out pure IP work to IP boutique Smart & Biggar and focuses on “the bigger picture”.

The distinction between IP and IT is very clear for Ludwig. It’s less so for firms that had thriving IP practices when IT came along—key Calgary competitor Bennett Jones, whose technology practice, led by IP/IT lawyer Martin Kratz, includes a pure IP component is a prime example. The fact that McCarthys didn’t have a strong IP practice when it sent Takach and Sookman into the tech wilderness may well be another factor that contributed to its success—it didn’t have a chance to confuse the two.

The scope of the technology practice at McCarthys grew with the industry and the evolving needs of mainstream clients. “We started out selling and buying mainframes and now we do outsourcings,” says Sookman. Similarly, tech-specific IP and litigation capabilities grew out of a core technology practice. The profession’s experience, in Canada and south of the border, suggests that’s the right way to do it.

“During the bubble, when technology was hot, a number of more traditional law firms in the U.S. attempted to develop technology practices by hiring IP lawyers and figuring they would spin off business to the corporate or business group,” says George Davitt, a partner with the business practice group at Boston high-tech powerhouse Testa, Hurwitz & Thibeault LLP. “It didn’t work out that way. While protection of intellectual property is certainly one facet, and an important facet of serving technology clients, it’s not the whole enchilada. It’s often something the client assumes will be taken care of. It’s the business relationship that’s important. So it’s difficult to start with IP and build the business side. You have to have the client on the business side. The client has to come to the firm for the business relationship.” Today, Testa has both IT and IP capability, but the IT came first. “We built our IP group because we were serving technology clients on the business side and farming out a lot of IP work.”

At least some Canadian firms are finally getting it. Relatively fresh from a strategic planning process exploring how Oslers gets IT, practice leader Richard Coleman and rising star Michael Fekete (Canadian counsel to Microsoft) see the firm’s technology practice comprising four core areas: IT, in which category they include outsourcings, Internet and e-commerce; technology sector-focused corporate finance; M&A work; and IP. “But not all IP, only as it relates to technology,” stresses Fekete. It’s an important caveat, which demonstrates a mature understanding of the very different dynamics that drive IT and IP practices.

IP and IT are, of course, complimentary streams of practice. As the strong performance of IP/IT boutique Deeth Williams Wall shows, it is possible to successfully marry them. You just have to recognize each is a different beast.

Grasping that essential distinction is the secret to the success of the Ogilvy Renault technology practice, on home turf in Montreal and in Toronto. One of Canada’s leading IP firms, Ogilvy Renault has been keeping McCarthys on its toes ever since it entered the Toronto market. (“Ogilvy Renault keeps me awake at night,” says George Takach, but then, a lot of things do. Staying on top is an ongoing process.)

Ogilvy has made a number of recent (2002 and 2003) high profile lateral hires in the technology field, including taking current practice leader Duncan Card away from Davies Ward Phillips & Vineberg LLP (Blakes filched Richard Corley from Davies to head up its revamped tech practice at about the same time). “Technology is a natural business complement to IP and business practices,” says Card. “But at Ogilvy, it’s part of the business line, not a subset of IP. IP and IT overlap, of course, but they are very different. Successful firms recognize that essential distinction.”

The Stakes
Technology makes up 7 per cent of Canada’s gross domestic product (GDP). At the height of the bubble, it topped 10 per cent of the GDP in the U.S. Depending on how it is defined, the sector employs between 3 and 5 per cent of Canadians and accounts for 30 to 50 per cent of capital spending. And that’s during a downturn. Despite the bursting of the dot-com bubble, despite the much lamented hi-tech “hollowing out” of Ottawa, and despite the fact tech IPOs are thin on the ground and venture capitalists remain shy of early-stage companies, IT matters. And Canadian law firms are finally getting it, because, as Card pointedly asks, “At 7 per cent of the GDP, can you afford not to?”

You can’t. Echoing Peter Godsoe of Scotiabank, Christopher Grasset, a technology partner at Toronto-based Goodman and Carr LLP, notes: “A conservative partner recently said to me, ‘Every CEO I’ve spoken to in the last while has focused on IT. Technology is going mainstream.” Whether it’s a Goodman and Carr start-up client or a multinational served by McCarthys, there is no business today untouched by IT.

Translation: “Technology is currently and will continue to be profitable for the firms,” says Shahir Guindi at Oslers. “It’s not going to be possible to be a top firm without a strong technology practice. You’re missing out on a lot of opportunities if you don’t do it and you’re not being forward-looking. You’re not thinking about where the next big M&A and financing transactions are coming from in the future. You’re severely limiting your work pipeline.”

“Any tier-one firm who fails in its technology experiment takes a real chance of seeing its core business erode,” agrees Fekete. Tech clients at Oslers include Microsoft, but it’s work from Corporate Canada that’s the bread and butter of its technology group.

The story’s the same for virtually every Canadian law firm. “Our goal, when the group started in 1993, was to get technology clients and stick with them to success,” says Barry Reiter. “But our practice has grown dramatically because mainstream clients at Torys need those skills.” It’s the mainstream Corporate Canada clientele that keeps technology practices solvent during a downturn. In the U.S., Palo Alto-based technology powerhouse Wilson Sonsini Goodrich & Rosati handled 135 tech sector IPOs in 1995. As of this August, it had done two—and that was two more than most other firms. But most of its lawyers were still busy practising technology law, as were the business lawyers at Torys and McCarthys.

Corporate Canada’s reliance on IT—and need for business technology lawyers—means the high-end corporate technology work is increasingly the preserve of major full-service firms, notwithstanding the obvious success of top-ranked boutiques such as Deeth Williams Wall in Toronto or LaBarge Weinstein LLP in Ottawa. Christopher Grasset had left Goodman and Carr just before the Internet revolution to form a boutique because he felt big firms didn’t get IT. Now he’s back with his old firm, because both technology clients and mainstream clients using IT need a platform of legal services broader than a boutique can offer.

That the profession recognizes this is obvious—the last IT boutique spin-off was Mann & Gahtan in 2000, and it immediately entered into an association with the much larger—and cross-border—platform of New York-based Brown Raysman. “No one lawyer can supply the entire range of services needed to serve a technology company,” says George Davitt at Testa, Hurwitz.

The Contenders
The competitive Toronto market technology practice is dominated by the major business law firms. And, as the most recent (summer 2003) Lexpert survey results illustrate (see bull’s-eye charts), the front-runner is McCarthys, with Torys hot on its heels, followed by Ogilvy Renault and Blakes. Throughout the interviews conducted for this article, one thing was clear: success is predicated on the ability to combine corporate acumen and the array of services associated with a strong commercial practice (i.e., corporate tax, securities, etc.), with first-class technology practitioners.

This successful combination can be achieved either by way of business lawyers with expertise in technology, i.e., Takach at McCarthys, Reiter at Torys and Card at Ogilvy, or clear understandings as to who “owns” the business side of the client relationship, as described by Ludwig at Macleod Dixon or Davitt at Testa, Hurwitz. In the latter situation there will invariably be, as Cheryl Slusachuck at McCarthys notes, “A natural tension between technology and corporate, or business, lawyers.” The question then becomes, as Duncan Card points out, whether this “tension” is properly managed in order that the end result is creative, not destructive.


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What is unclear is whether a top-tier technology practice can be built without the technology lawyers “owning”, in whole or part, the business side of the client relationship. Obviously it can be done in IP, as Bereskin & Parr and Smart & Biggar demonstrate.

However, in technology, the cognoscenti are skeptical. Put another way, is it sufficient that the technology lawyers are “on the bus” as part of “the team” as opposed to “driving the bus”? The short answer (retort?) from the cognoscenti is “would this impress Peter Godsoe of Scotiabank, who spends as much time thinking about Microsoft as he does worrying about his local competitors?” If so, our (mostly) skeptical tech lawyers note, then they’d better be pretty smart corporate lawyers, ones who understand the use of technology as an instrument that not only provides competitive advantage, but also the means for destroying and creating markets.

As insiders concede, much of the Toronto market is in flux as to which law firms have the leading technology practices. The fact that Ogilvy Renault could come out of nowhere to achieve such a strong position is indicative of a market still in a formative stage, which, given the pervasiveness and importance of technology, is astounding. The ranking of firms, remarkably, still hinges to a considerable degree on the established reputation of one or two senior practitioners.

The only thing that is clear is that McCarthys remains the one to beat. “McCarthy Tétrault is in the lead, but we’re going to be quickly approaching them. Four to five years ago, we had a technology practice, but we were not nearly close to their base,” acknowledges a practice group leader at a competitor, strictly off the record of course. Another competitor grudgingly agrees. “McCarthys has been ahead of the curve for a long time. It hasn’t slipped, but others are catching up.”

McCarthys is a hard act to follow. Nevertheless, the one to watch to narrow the gap is Torys, followed by Ogilvy Renault (perhaps George Takach isn’t the only one who should spend his nights worrying about Duncan Card & Co.) and Blakes. It is unlikely that Oslers or Stikes (under the recent leadership of Richard Brait, former general counsel, High Performance Optical Component Solutions, Nortel Networks) are willing to accept a technology practice that’s anything but first-class. “We view technology as one of the pillars of the firm in the future,” says Fekete at Oslers. “We’ve made great strides to say, if not there yet, we’re getting there.” There is no alternative. To the business law firm of the twenty-first century, a technology practice is becoming as crucial—and potentially as profitable—as a top-ranked corporate tax practice.

With even the Luddites getting IT, the field is very much in play, as Takach is too keenly aware. After having been on top for such a long time, McCarthys is unwilling to entertain a change of position. But with the rest of the competition finally getting IT, staying on top is going to get tougher. Still, it’s been a good ride.