Mid-size Firms: From Both Sides
Competition has blurred the lines of our legal market. With pressure from boutiques and national full-service firms, mid-size players are regrouping
IF YOU THINK OF A TRADITIONAL mid-size firms as sleepy legal backwaters where lawyers are inoculated — whether by size or regional limitations — from the pressures faced by the large national and international firms, you need to talk to James Casey, the managing partner of Field Law LLP.
Field is not the biggest of the mid-size, but it’s on the larger end, with 66 lawyers in Edmonton, 55 in Calgary and four in Yellowknife. There’s one critical difference between Field and the large national and global firms, says Casey: its hourly rates are about 20 per cent lower, “especially in the Calgary market where hourly rates tend to be higher.” As to why, he says that “part of it is lower overhead — lower lease costs, a lack of national and global management structure to finance, and lower overall costs.”
Part of it is also lower compensation, although he’s not about to say so. The A-type, top-of-the-class law school graduates generally tend to head to the marquee firms that are seen as top-tier. And here’s the irony: Casey is well aware firms that market themselves as top-tier nationals are, in fact, increasingly making plays for what used to be the business of mid-size firms. They are his new competition.
He says his firm is more than up to that challenge. Field has invested in a high-level chief operating officer; a director of professional recruitment and development to modernize law firm HR practices; and a chief marketing officer who was formerly with a national firm. It also has a director of knowledge management and process improvement who is a Certified Lean Six Sigma Black Belt.
That’s right, a mid-size regional firm is using Sigma Six techniques even in the Northwest Territories. “We drank the Kool-Aid on this. We’re evolving along with everybody else, so we did a project where we trained every single person in the firm — lawyers and assistants — in process improvement,” says Casey, who works out of the firm’s Edmonton office.
“We’re facing the same challenges as the larger firms. A very large percentage of our top clients, for example, are on some sort of alternative fee arrangements, so we’re driving structures that are providing more cost certainty and cost predictability for our clients. These are all changes that were brought on by the 2008-2009 crisis and those changes are continuing to reverberate through the legal market and they’re permanent. There’s no doubt about that.
“So while we know our competitors at the national firms and the global firms are dealing with knowledge management and project management for lawyers and process improvement and alternative fee arrangements, so are we. That’s just part of our world, and we’re dealing with it.”
The roots of Field’s predecessor firms date back to 1915, but Casey is acutely aware that sticking with the tried and true won’t keep it going another 100 years. “We’ve trained our lawyers and staff to the mindset that ‘because we’ve always done it this way’ is not only a bad answer, it’s a horrible answer. And it’s an answer that is not sustainable at a time of intense economic pressures and changes in the legal marketplace. For 20 years we have heard about the predicted demise of the mid-size firm. We never believed it then and we certainly don’t believe it now.
“There is a bright future for mid-size firms in the Canadian marketplace, provided we continue to adapt to the changes in the legal marketplace and have a laser-like focus on effective strategy. We don’t have the luxury of ignoring the fundamental changes. We’ve got to be on top of them and we hope, if anything, we might be a little bit more nimble in responding to them.”
LIKE CASEY, LISA BORSOOK, the executive partner of Toronto-based WeirFoulds LLP, is aware that some of the large national firms are rebranding themselves as mid-size in a bid to make themselves more appealing to cost-conscious clients. And she would almost certainly agree with his assessment of the need for “laser-like focus.”
But it stops there. Borsook says her firm, with an office in Oakville, Ont., and about 100 lawyers, has all the same pressures as any other mid-size or large firm — but she believes being successful as a mid-size firm means keeping a lean infrastructure.
Asked if they have a project-management person in-house, for example, she bursts out laughing at the thought: “The infrastructure associated with being a mid-size firm is really different. I have four people in my business-development department — not, as some firms do, 40 people — and that contributes to the price point. All that infrastructure makes a difference.
“People who come here are trained from infancy — the moment we get them — to understand what it means to be at a firm like this. It means they need to understand that we expect them all to be working lawyers, and that we expect them not to rely on institutional clients. We expect them to be entrepreneurial and get to know each of their client’s businesses and get to know their clients. There’s a package of qualities we look for that’s probably a bit different.”
Truth be told, that’s probably not all that different from the kind of lawyer that a large full-service national or international firm would be looking to land. One of the ways, however, that WeirFoulds differentiates itself is, it concentrates on three core practice areas: real estate, litigation and mid-market corporate work.
“We really only do those three things. There are, of course, certain other services we offer because our clients in those three principal areas have demanded it. So we do offer wills and estates, without a doubt, and that’s booming. We do offer tax. We do offer employment advice, although I’d pop that into litigation because it’s usually got a contentious component.”
Mid-size firms like WeirFoulds get some reasonably large files, she says. For example, it recently acted for the Liquor Control Board of Ontario on the sale of lands on the Toronto waterfront. “We did the transaction. Then we were rendered our bill, and we heard consistently that our bill was incredibly reasonable. That we did the work — and it was a large transaction — over a three-year period, with four lawyers instead of 44, makes a big difference.”
Asked whether her firm does much alternative fee work, Borsook says: “In principle, whenever we respond particularly to an RFP, we always give them alternative fee proposals. Always. People may tell you differently, but the alternative fee most clients seem to be able to get their head around is a discount off of your hourly rate.”
And hourly rates are a sweet spot for mid-size firms like hers, she says. “Our rates are nothing like at the nationals or internationals. But I always think rates are red herrings regardless. What matters is how you manage a file. If I manage a litigation file using two lawyers instead of 14, then I can charge the two lawyers out at whatever rate is appropriate in the circumstances.”
Unlike some mid-market firms that eschew prime real estate to keep costs down, WeirFoulds is headquartered in the heart of Bay Street’s steel and glass towers. Borsook says she negotiated a very favourable lease in 2009 when markets were hurting from the financial crisis and built “a very economical office.”
What does that mean? “We don’t have a foyer the size of a football field. We don’t have internal staircases, which are a fortune. Even our bathrooms are somewhat institutional.”
GARY LUFTSPRING, WHO WAS MANAGING PARTNER of the former Goodman & Carr LLP, was a champion of the mid-size firm way before it was fashionable to be seen as mid-size, at a time when “mid-size” had a connotation of lesser, second-tier, a place where lawyers who couldn’t cut it at large firms went to practice.
The perception is changing, he acknowledges, but Luftspring is not. He’s still a champion of the mid-size firm, only now as managing partner of Ricketts, Harris LLP in Toronto. The smart firms will do well, he says, “but I think there’ll be challenges for those that don’t have a clear focus. A lot of mid-size firms have fed off of — and I don’t like the description — commodity-type work, very basic work for certain clients who would never look at the bigger firms. But I think there are going to be alternatives in the near future and I think there is price pressure on that work.
“A lot of that work’s just going to disappear — it’s going to be taken in-house, it’s going to be outsourced. The accounting firms will do that work in due course.”
Mid-size firms that are focused and have good lawyers “can pick off work from the big firms because they’re under tremendous pressure and they have infrastructures that will not permit them to do some kinds of work. Big firms are going to have a challenge doing $50,000 files. Mid-size firms can feast on those, right? You do some fairly sophisticated M&A and other work where there’s only a few million in a change in assets. I think mid-size firms can do very nicely on those, thank you very much, and the big firms can’t touch them.
“That work, which requires sophistication, which requires good training, just can’t be done by the big firms — a lot of them won’t even take on a new client unless they can be assured of generating a certain minimum amount of fees from that client.”
Ricketts is on the opposite end of the scale from Field Law and WeirFoulds. It has only about 20 lawyers — but it has some large clients. One of its most important is Panattoni Development Co., a gigantic industrial developer and builder that uses Ricketts “right across the country with local counsel, as needed.”
Another client, which Luftspring declined to name, “but which will generate hundreds of thousands of dollars” in fees, is a refugee from a top-tier Canadian firm that has nearly 400 lawyers in international offices, who left a top management position at a large corporation. “Once he wasn’t in control of his big corporation because he had exited, they forgot about the fact that he had millions and millions of dollars in personal money and was going to continue to invest in little businesses. And nobody there cared.”
Clients go to firms like Luftspring’s, he says, because they get sophisticated lawyers at lower rates. Luftspring, who litigates for insurance companies on D&O claims — “the Hollingers, the Sino-Forests, that kind of thing” — says he charges out at $500 to $700 an hour, where most of the litigators on the other side of the same cases charge out at $850 to $1,000 an hour. Generally, across the board, he says the firm is able to charge 25 or 30 per cent less.
He says Ricketts doesn’t do many alternative fee arrangements, “but for me, for example, I have budgets and I have to stick to them. If I’m going to go over, I need to get approval first.” What he does more of, he says, is success fees.
Asked about the future of mid-size firms, he feels it’s bright as long as they focus on three or four key practice areas, and don’t try to do everything. “Be nimble, get creative. In Canada, there are very few files that you need more than a couple of lawyers on, and to the extent you do, we don’t have that. We don’t compete for that kind of work. But there aren’t that many of them. On the majority of matters, one or two will do.
“And when you’re talking about the future of mid-size firms, we can offer a better life to associates. We still do training, we still can be a lot closer, a lot more hands-on with younger associates. Their compensation expectations are going to have to change, but if they do, they’re going to have a way better life.”
MOST MANAGING PARTNERS OF MID-SIZE law firms feel that the large national firms, which were once happy to walk away from small and mid-size clients, are having a change of heart as works gets harder to come by. The large firms have not only gotten “leaner and meaner and better on pricing,” as one managing partner put it, they’ve even become much more interested in small clients — provided they’re start-ups. No one wants to turn away the next Shopify or Kobo.
So the large firms are taking some of the business that would have gone to a firm like Pallett Valo LLP, a 35-lawyer firm located in Mississauga, a Toronto suburb about 30 minutes west of downtown, says Bobby Sachdeva, Pallett Valo’s managing partner. But, at the other end of the spectrum, so are some of the three-and four-person shops. “You have a lot of bigger law firms de-equitizing very knowledgeable senior partners, probably a combination of 40-somethings wanting more power and mandatory retirement ages,” he says.
“Whatever it is, you have a lot of lawyers who are living longer continuing to practice — be it part-time or full-time, out of small shops. There are some small firms that are bringing in guys in their 60s because they’re bright guys. They know what they’re doing, they’re not looking to make the same money they did at the big firms, they’re happy to stay busy and make some money.”
Mid-size firms like Sachdeva’s are finding that some of their long-time clients, older entrepreneurs who have been well-served for years, are increasingly going to the tiny firms when the time comes to sell. “If you’re selling your business for $3 million or $4 million, the normal 65-year-old entrepreneur type doesn’t care if we’re going to do the best job in the west end,” he says. “He’s going to look and say, ‘Okay, you guys are going to do it for $50,000? I’ve got a guy that will do it for $20,000.’ So, in a sense, we’re being forced to upscale in terms of the clients we’re chasing.”
He says the same thing happened in the residential real estate market 15 years ago, “which is why we got out. We were doing 50 deals a month and we couldn’t make money. The real estate market changed. You had guys doing it for $500, $600 out of their basement apartments. We couldn’t compete with that.
“Even downtown, you’ve got a bunch of three- or four-man shops whose overheads are awfully low, so you get a 60- or 65-year-old lawyer, and as long as your file’s not overly paper-intensive, they’ll do it.”
The upshot, says Sachdeva, is that mid-size firms like his are being forced to identify areas that fall between the cracks for both larger and smaller competitors. “The pressure from the small firms has forced mid-size firms in the big cities to simply leave certain markets. If you look at a lot of downtown firms, a lot of them aren’t in the commercial real estate market anymore or they won’t do condos. They’re out of estate-planning work; unless it’s really big, they can’t compete with the boutiques and the smaller shops on price.”
Pallett Valo has responded to market forces by concentrating on construction law, insolvency and commercial real estate deals of a certain size. “You have to know your marketplace, and then we’re better on price. We’re not gunning for high-end deals that the big boys live off of. There’s a sweet spot for us that we try to stay within. If we get the other work we’re happy, but that’s not where we’re spending our marketing dollars and time.
“I don’t need 20 people to do a normal receivership. I’m happy with a big client and getting a portion of their work, as opposed to trying to get everything. For example, one of our larger clients is a large Canadian dairy. The litigation files require two, three lawyers tops. We do 80 per cent of their litigation, but when they go out to do a $300-million financing, that’s not going to be us.”
THOMAS KEAST, MANAGING PARTNER of Watson Goepel LLP in Vancouver, says mid-size firms must embrace their “mid-sizeness” and believe in their talent to succeed. “We like to think we’re courageous, that we can do just about anything — and that’s what we try to do. We try to hire good people in the first place and then retain them, which can be a battle with the big-size firms.
“For a while, we went through a battle where we felt like the farm team for the big firms. People would come here, get some good experience then fly off to a better offer. That will always be a challenge.”
Watson Goepel, with “nine and maybe soon-to-be 10” partners out of 35 lawyers, practises insurance law, family law and litigation. “In terms of differentiating ourselves from other firms, we really do have some strengths, and they come from the individual practices that have developed. It’s not so much that we compete with other mid-size firms as it is we just compete for business by trying to be the best at the things we do well.”
To keep its people and build its expertise, the partnership is very loyal to its people, he says. “We have a woman who was with us — great person, great lawyer — she went in-house and now has a child, and she may be coming back. That’ll be on probably a three-day week and probably half of that from home. It works for us because she’s very good and a very good person.”
The firm also works to provide a better lifestyle, including a truly collegial environment where partners are pleased if a sixth-year associate dockets 1,300 or 1,400 hours. “We don’t have anybody putting in 2,400 hours a year as a partner and banging their head against the wall and possibly losing their marriage or whatever outside interests they may have had.
“Everybody implicitly understands this isn’t a place where you’re going to be expected to ruin your life because of the clients or the fellow partners,” he says. “That’s just not expected.”
DON MCCARTY, MANAGING PARTNER at Lavery Lawyers in Montréal, says the biggest challenge for the larger mid-size firms like his is branding (although he’d probably never use that word) and differentiation. “It’s just to get the message out that we’re big enough, we have all the capabilities of any national or international firm in terms of size and abilities and departments, etc. — and that we’re able to deliver those services for a price that’s sometimes more interesting to the client. It’s not that easy to do. It gets lost in a sea of clutter. The messages from legal firms are all over the place.”
Another challenge the firm faces — and it’s a common one for mid-size firms that are local or regional — “is to get people to realize that we’re actually capable in many circumstances of doing work outside of Q uébec. We were in the Supreme Court recently on a case we pleaded in BC. We did a transaction in Northern Ireland recently for a major client. So we don’t actually need an office in every city in the world to be able to do some work there.”
Asked who Lavery, which has 210 lawyers in four Q uébec offices, sees as its main competitors, McCarty says “the Dentons, the Faskens, the Blakes of the world. The other mid-size firms are our competitors and the accounting firms are also starting to become more significant.”
But boutiques are also nipping at Lavery’s heels, he adds, especially in commercial litigation, and small firms have been taking the occasional bite. “I’d say the challenges for mid-size firms are not dissimilar to the challenges faced by the legal industry overall, but the additional challenge we have is differentiating ourselves at both ends of the spectrum — from the mega-firms and the smaller firms that are more specialized. Our challenge is differentiating ourselves from both groups.”
Sandra Rubin is a Toronto-based writer and strategic consultant.