Just ask Robert Brouillette, managing partner of Montreal's 70-lawyer Brouillette Charpentier Fortin. He earns between $800,000 and $950,000 a year. He's the top earner, but his colleagues aren't far behind, with salaries of $500,000 to $700,000-plus typical at the partner level. Top performer incomes hugging either side of seven digits at certain mid-market firms are the norm, not the exception, be they in Toronto and Montreal or Calgary and Vancouver.
"Our practice rewards people handsomely," Sangra, Moller's Harjit Sangra says modestly. It's no secret that Sangra, Moller's associates are said to be "the highest paid in the Vancouver market"-never mind what the partners earn. And in Calgary, says Thackray Burgess's Michael Thackray, "I would be surprised if we make much less than the large Calgary firms or large national firms. And I suspect some of us make a bit more."
But mid-sized firms are dying, right? Size is king and mergers or aggressive greenfield ventures into new markets are the strategy of the future, right? How else do you explain the demise of firms like MacKimmie Matthews, Douglas Symes & Brissenden and Morris/Rose/ Ledgett, or the national, regional and local mergers that are consolidating the Canadian legal landscape into fewer and larger firms?
"Lawyers have been brainwashed into thinking that mid-sized firms can't survive," says Jeff Cohen, managing partner of Toronto's Torkin Manes Cohen Arbus LLP. ("I don't think Torkin Manes has a future," says one Toronto practitioner with a nouveau national. "He must be jealous," counters Sid Troister, one of the founding partners of Torkin Manes. "Maybe we beat him up on a recent deal.") Cohen concedes, "There's a certain reality to size in the legal business. Size tends to generate more profit, and more profit lets you invest in more technology and more services and more support."
But, that profit has to feed hundreds of partners, not to mention their associates. The perception that the biggest incomes are made at the largest firms is simply the result of those firms having the most bodies, says Gary Luftspring, managing partner of Toronto's Goodman and Carr LLP. You might have one guy pulling in $1.5 million. But there are dozens barely on the right side of $200,000-there is tremendous disparity in income across large partnerships.
For Luftspring, income has nothing to do with size or a firm's position in "the food chain." Healthy profits, as he sees it, are the direct result of focus and strategic direction. Or, as Troister puts it, success is the result of knowing who you are. And, more importantly, what you're not. What firms like Goodman and Carr, Torkin Manes, Thackray Burgess, Brouillette Charpentier Fortin and Sangra, Moller are not is wanna-be Torys, Oslers or McCarthys. What they are is mid-market firms. Period.
A rose by any other name...
But do not confuse mid-market with mid-tier. "Mid-tier implies there's a tier above us in terms of capability, and I don't think that's true," says Cohen. Adds Troister, "It diminishes us and elevates them-[the "tier-one" firms]-to a level that's not true." Mid-market firms house top-quality people who deliver top quality work-just in a different market than the top people at Toronto's Seven Sisters. And the brass ring they strive for is a little different. "We don't chase the top-tier work," says Luftspring. Instead, Goodman and Carr strives to be "a pre-eminent mid-market firm."
Mid-market firms are frequently mid-sized firms, but don't call them that. They don't like it, and it doesn't always fit. For Brouillette, "Size has nothing to do with it. Whoever thinks size is important is making a mistake because they're hiring people not based on their skills, not based on the needs of their clients, but based on achieving what they would call a critical mass."
Size varies profoundly from market to market. The 15 lawyers at Brazeau Seller LLP are on the biggish end of mid-sized in Ottawa, while the 120 lawyers at Goodman and Carr are still mid-sized in Toronto as is the 60-lawyer Torkin Manes. Currently at 340 lawyers as a result of its ongoing slew of mergers, Miller Thomson LLP has clawed its way to the top-10 lists (size-wise), but it remains a mid-market firm-albeit one with a national platform.
Ultimately, mid-market firms are defined by their clients. Mid-market clients, in turn, are defined not so much by their size or revenue-although they do tend to be smaller, on all fronts, than the large public companies, financial institutions, and multinational corporations that are the bread-and-butter of the tier-one firms-but by their approach to business.
Mid-market clients are entrepreneurs, says Michael Kalef, managing partner of Vancouver's Koffman Kalef. The firm's four practice areas-finance, securities, tax and real estate-address the needs of Vancouver's entrepreneurs. You'll see the 20-plus lawyer firm on more than its share of big deals. But, says Kalef, "Even the big deals here are for the most part for entrepreneurial clients." A Vancouver corporate like Jim Pattison "operates on each and every deal as if he had a little development company."
Brouillette Charpentier Fortin also focuses on entrepreneurial clients, to the point of setting limits on the amount of work the firm performs for institutional clients. "We don't want to be in that market," says Brouillette. Large clients have a very different mentality-a "management mentality"-which casts lawyers as mercenaries who do only what they are told. And, adds Brouillette, "They try to protect their ass." Which is okay if that's what you like to do. Brouillette and his partners prefer to work with clients who want their lawyers to be something more.
"When you deal with an entrepreneur, it may be less glorious in the sense of prestige because you don't deal with files involving billions of dollars, you deal with smaller matters, but you feel that you can make a difference with these people," Brouillette explains. "The law aspect is important, but it's much more than that. You really counsel in the sense that is much broader than purely legal counsel. So you have a chance to help someone."
I want to hold your hand
And help them you must. The needs of your average mid-market, entrepreneurial client are vastly different from those of a large institutional client doing yet another initial public offering (IPO) or structuring up yet another plant, agreement or financing. But that doesn't make them simpler, or easier to satisfy. Explains Koffman Kalef's Douglas Side, "They're doing something they haven't done before.... Their understanding may not be as great." The mid-market client expects his lawyer to translate and explain, as well as perform.
He's also looking for "a more significant personal relationship with the servicing lawyer than high-end people at the big firms are able to deliver," says Robert Teskey, Q.C., managing partner of Field Atkinson Perraton LLP, an 85-lawyer firm with offices in Calgary, Edmonton and Yellowknife. Field Atkinson regularly picks up clients who've fallen between the cracks at the big firms. "They feel like they're caught in the gears of a big machine."
"The last thing the client wants is to feel like a number," concurs Peter Seller, one of the founders of Ottawa's Brazeau Seller. Set up in 1989 before the large national law firms acquired a major presence in Ottawa, Brazeau Seller has always focused on servicing the family-run business, which has turned into "a lucrative market" for the firm. "Service is key in this market," stresses Seller. When it comes to service, mid-market firms arguably outperform their heftier competitors on all fronts.
According to a 2002 survey by Boston's BTI Consulting Group, 75 per cent of (Fortune 1000) companies are dissatisfied with their primary law firms to the point where they will not recommend them. Many are actively looking for new service providers and BTI predicts mid-market firms will pick up more market share as a result. At issue is not technical competence, but quality of service delivery. Large firms tend not to go "above and beyond baseline or minimum requirements." Ouch.
It's not that big firms consciously under-service their clients. It's just that they have so many clients, the majority of them-especially the smaller ones-get lost in the downward shuffle. Says Seller, "Every law firm wants to offer excellent service, but the reality is that there is a hierarchy. Those clients who represent the highest revenue get the best service. There's no magic about it." Smaller clients may get top service from a national law firm, says Seller, "but not necessarily from the top lawyer. In our firm, the partners who are dealing with the files are the same partners who sign the cheques at the bank and who have their names on the lease."
A close connection to a firm's senior partners is what David Horne, a client of Calgary's Thackray Burgess, misses most when he deals with the big firms. "I've done a lot of work with Macleod Dixon. You usually start out with a senior partner, and work your way down to the third or fourth partner," before you arrive at the lawyer who will actually handle your file. Horne worked closely with Thackray Burgess while he was the manager of new business at Altana Exploration Ltd. He's now with the giant energy company EnCana-but odds are good Thackray Burgess will be handling acquisitions and divestitures for EnCana once the oil patch picks up.
Randy West, the manager of acquisitions and divestitures at Penn West Petroleum Ltd., is another Thackray Burgess client. "Thackray Burgess has a lawyer dedicated to our account. We keep him so busy, I'm on the phone with him two to three times a day on slow days, and a dozen or more when we're busy." According to Goodman and Carr's Luftspring, that's precisely what the mid-market client wants: "Joe is my lawyer and I want to see him on my file."
Him, and as few other lawyers as possible. Observes Teskey, "The mid-market client is typically much more fee-sensitive and much more sensitive to how his lawyers spend money."
Small is beautiful-especially respecting money.
Toronto entrepreneur Norman Paul uses Torkin Manes for virtually all his legal needs. He used to use a couple of Toronto's "giant" tier-one firms. "I won't use them again," he says. "The difference when you deal with a firm like Torkin Manes is that you deal with one senior guy-not five juniors. I've used the big firms before, and when five juniors show up at a meeting-I'm paying to train them. I resent that."
A common complaint is that the majors "over-lawyer" their files. "We find ourselves in a transaction where there are one or two lawyers from our office and eight or ten lawyers from the other firm at the table," says Kalef. Firms like Koffman Kalef and Torkin Manes don't have the capacity to wolfpack, even if they wanted to. Which they don't, because, says Kalef, "Our clients would choke if they had to cover that many lawyers representing them. It's not that they're cheap-they've just worked themselves into a cost-efficient structure"-and they expect their lawyers to do the same. Or, as Brouillette puts it, "Entrepreneurial clients tend not to overspend-it's their money. Big companies, it's no one's money, it's the company's."
Clients know this. "The client looks at how you run the file and how you run your office," says Teskey. "If they come into offices they feel are overly palatial, they feel they're paying for that. They know there's no such thing as a free lunch." That's exactly how Norman Paul sees it: "Some people think that if you go to a giant firm with a huge office and a fancy staircase, you get something more. You don't." What you do get is, effectively, a bill for a chunk of the overhead.
It's not about money. Really.
Keeping the overhead down is how mid-market partners make more while working less. Torkin Manes is happy if everyone strives for 1600 billable hours per year. Brouillette Charpentier Fortin provides its partners with handsome incomes with targets of 1500 hours for partners and 1650 hours for associates. Koffman Kalef's at 1600 hours as well, but makes allowance for certain practice areas, such as tax, "where there's not even close to that much work." Brazeau Seller doesn't bother to set specific billable hour targets-the senior partners just keep their fingers on the pulse of overall firm and individual associate performance.
"There are no partners making a million in our firm, but we believe as a group, we are very well paid," says Seller. "We're part of a privileged class." The trade-off, for the lawyers at Brazeau Seller as at Torkin Manes, is time for a personal life. Says Troister, "If a buddy of mine at a large firm makes $100,000 a year more than I do, but has to put in one hundred, two hundred more hours to do it, he's welcome to it." Troister and his partners prefer to foster a culture in which lawyers routinely go home to have dinner with their families. In the current market, this can be an anomaly.
"There seems to be a perception that the only people who are good lawyers work 20 hours a day. We believe you can be a good lawyer by working reasonable hours for a mid-market firm," says Teskey. Field Atkinson has some of the lowest targets around-1300 and 1500 billable hours for partners and associates, respectively. "We make no apologies for that," says Teskey. "We're probably making a little less than the people in larger firms. But not significantly so." That's because the partners see keeping the overhead down as a key part of the managing partner's duties. And Teskey delivers. "National firms have huge infrastructure costs and huge travel costs. They have significantly more costly offices and internal systems. We have to find the balance between keeping costs down and achieving efficiencies."
Less work, fair compensation and "a great culture" (is there a law firm out there that doesn't claim to have a great and unique culture that makes all other sacrifices worth while?) make the mid-market lawyer happy. In theory. But if mid-market firms are such great places to work-and profitable, to boot-why does everyone think they're dying? And why do they keep on breaking up?
Breaking up is hard to do...but it's easier than living with you.
For every mid-market success story, there's a mid-sized implosion and three or four lingering deaths, not to mention dozens of depressing stories of firms eking out a subsistence existence on the fringes of the profession. In Canada, virtually every major market has recently lost at least one mid-sized firm. Calgary bid adieu to the 80-year-old MacKimmie Matthews in 1999. Vancouver's venerable Douglas Symes & Brissenden and Toronto's 30-year-old Morris/Rose/Ledgett are just two of the mid-sized players who went "the way of the dodo" in 2000. What are they doing wrong?
A whole slew of things, according to the lawyers at their thriving competitors. Troister is succinct: "The firms that succeed know who they are and they know who their clients are. Those who don't succeed want to be McCarthy Tétrault." Being McCarthy Tétrault LLP is expensive, especially if you do it on a Torkin Manes or a Morris/Rose/Ledgett budget. Says Troister, "My only sense from the firms that have imploded is that they have been living beyond their means, without understanding their client base."
Succeeding as a mid-market firm, says Luftspring, involves accepting, "there are areas we can't practise in. We're not going to be picked by the TD Bank in its merger with BMO.... The biggest IPOs in the country are going to go to half a dozen firms." Goodman and Carr isn't on these clients' radar, and it won't be-it doesn't have the bodies. "Make no mistake about it-there is an infrastructure you have to build," says Luftspring, if you want to play with the big boys on the big files. "I don't have 20 corporate lawyers sitting around waiting for the next big transaction. The biggest firms need those bodies to mobilize on 24-hours notice."
If you build it, they won't necessarily come. "I am not going to speculate this firm's future on building that infrastructure," says Luftspring. If they don't come, you're gonna go. Says Teskey, "In this business, you can only be unprofitable for a very short time."
Field Atkinson and Goodman and Carr each follow a very specific business strategy. They service the mid-market, and they select their practitioners and practice areas accordingly. Like the smaller Brazeau Seller and Koffman Kalef, they don't try to be all things to all people. The leaders of these firms are carving out a market that's vastly different from that inhabited by Bennett Jones LLP in Calgary, Torys LLP in Toronto, Lawson Lundell in Vancouver, and the big nationals. To follow such a strategy successfully, "you have to get your lawyers on side," says Luftspring. And convincing your partners that mid-market doesn't mean middle-of-the-road-that not chasing the top-tier is an acceptable, workable strategy-isn't easy.
Gearing down into the mid-market wasn't an option for MacKimmie Matthews. "We were mid-market size, with an up-market clientele," says John Houghton, one of the executive committee members who oversaw the dissolution of MacKimmie's partnership. Most partners wanted "to maintain absolutely top-tier clients." Luftspring observes that in many ways, it's easier for firms to gear up than down-psychologically as well as practically. It takes a different structure and a different kind of lawyer.
And all of these lawyers have to buy into the mid-market model. Wholly. For a firm to thrive, its practitioners must pull in one direction-there's no room for three strategic plans in a 60-lawyer firm. For many mid-sized firms, achieving such unity is impossible. Houghton believes most "mid-market firms are largely becoming clusters of individual practitioners." That doesn't bode well for their future. Says Troister, "One of the most important aspects of a successful firm is trusting your partners to put the firm first. As soon as you have a 'me-first' mentality, the firm is finished."
When partners can't agree on one plan, the firm dies. That's essentially what happened to Morris/Rose/Ledgett when its lease came up-lack of agreement on how to deal with the firm's financial and strategic challenges led to a starburst that scattered its 45 lawyers throughout the Toronto legal community. "Some people liked the idea of the firm, and wanted it to continue as was. Others wanted to hunker down and focus on what they did best," says former Morris/Rose partner Joel Rose, Q.C., now at Aird & Berlis LLP. Yet others were busy exploring merger options. The result, say other former Morris/Rose partners, was a "definitely not amicable" separation with current "dialogue" between those partners who went to Aird & Berlis, Miller Thomson, and elsewhere "minimal."
Know thyself. Cliches may become tired, but that doesn't mean they are less apt. For Morris/Rose, the basic problem was they lost sight of who they were. According to a former partner who spoke off the record, "The firm had grandiose ideas about where they were headed, moving from reasonable space at 145 King St. West where everybody was making money, to palatial space in the BCE Tower-just in time for the crash in 1990. You could feel the entire building creak as the practice contracted. There were no institutional clients, just some pretty good lawyers whose practices were independent."
The break up of Calgary's MacKimmie Matthews was friendlier than that of Morris/Rose, but no less traumatic. The firm's dissolution came on the heels of the most profitable year in its history. "This was not a wind-up that was forced, as most are, by poor financial performance," says John Houghton. Two long-term commitments-a new lease and a technology upgrade-forced partners to re-evaluate the firm's future. "As we were unsure that we had universal views on how the future would unfold for law firms, the view became more attractive to wind-up the firm and pursue, either individually or in smaller groups, the opportunities that the market presented to us," says Houghton.
Similar factors were at play when the partners of Douglas Symes & Brissenden dissolved their partnership in 2000. "Different lawyers had different visions of where the future was going," says Martin Gifford, now at Miller Thomson in Vancouver. "Some thought it was boutiques. Some thought national law firms were the answer and wanted to get into merger discussions. Others wanted to continue as a local mid-sized firm." (Parenthetically, the Vancouver marketplace adds one more "unique" reason: the break up of the firm came on the heels of a B.C. Court of Appeal decision denying the firm professional liability insurance covering two lawsuits pending against it. The claims against Douglas Symes were based on the firm's "vicarious liability" for the conduct of one of its former partners, who had left in 1995. Coincidence? Sure, why not.)
In smaller firms, every partner's voice still means a great deal, and working towards consensus is the order of the day. As Gifford puts it, "Everyone is involved in management to a certain degree." That's also true at the firms that haven't imploded. Cohen compares the decision-making process at Torkin Manes to that of one of its clients: "When a memo comes from the president saying this is the way it's going to be, that's the way it is.... When a memo comes from us, that memo better have been circulated 10 days in advance, reviewed by 25 other people, and then say here's the memo we've all agreed on."
Not the best model for surviving a crisis. "It was certainly difficult to build consensus, and it was impossible to have unanimity," says Houghton of the last days of MacKimmie Matthews. "Managers or leaders can only lead within the parameters that are permitted by the followers. And if you have too diverse views in the followers, even the best leaders cannot create a single view."
The future is...unclear.
Martin Gifford prefers to view the end of Douglas Symes & Brissenden as "an evolution rather than disbandment." He's now at Miller Thomson, in a rapidly expanding office of 63 lawyers. For Gifford, as for the leaders of Miller Thomson, "the clear trend is to the national firms." Miller Thomson is creating a national firm through mergers with mid-sized and predominantly mid-market firms.
Goodman and Carr, Torkin Manes and Brouillette Charpentier Fortin get periodically courted by wanna-be nationals or other mid-sized firms looking to bulk up. "If we wanted to be one hundred lawyers, we'd be there tomorrow," says Cohen. But why?
"Mergers can be seen as a defensive strategy. But the merger of two mid-sized law firms does not make a top transactional firm," says Luftspring. "The firms that are chasing that top-tier, they're really mid-market firms that are bulking up. The merger of two firms like ours, it just makes a big firm." If you want to switch from mid- to tier-one, "You have to change the way you're thinking. You have to plan, rationalize, as well as grow." Goodman and Carr's clients don't need the firm to have offices in Calgary and Vancouver. If they need a law firm in Montreal, "We shop three or four firms for the best expertise."
In Montreal, Brouillette keeps on shaking off "tier-one Toronto firms" that are rediscovering that market. "We're not interested. Why would we do that?" Or, as Cohen responds, "We don't need your grief and aggravation, thank you very much, we'll deal with our own." For Sangra, Moller, it's pure mathematics. "It doesn't make sense financially, and we already get the sort of work we want to do."
But never say never. Michael Thackray is very happy with where his firm's at right now, but he's keeping his options open. "You never know, Baker & McKenzie might call and say we want to consume you, here's $15 million, would you guys accept? It wouldn't take me very long to get over that."
After MacKimmie Matthews folded, John Houghton went to Donahue & Partners, Ernst & Young's associated law firm. He's not there anymore-Donahue is barely there anymore-but he still sees the future as being dominated by "very large, very sophisticated, international legal advisors, and I still think that E&Y or the multidisciplinary arrangements could and should be the mechanism to provide that."
There's room for mid-sized firms in that universe, too. Houghton, now president of former client Agronomic Growth Industries, uses a mid-sized, mid-market firm himself-as well as one of the largest Calgary firms and a national law firm that doesn't have a Calgary office. Sophisticated clients shop for expertise and experts-in most cases, regardless of the size of their platform.
The future of mid-market firms is likely to be Darwinian. The weak will die. The strong will survive. The really strong-those with a united partnership, a sensible practice focus, strong identity, stellar client relationships, an eye for exploiting under-serviced markets, and decision-making processes that allow them to react quickly to opportunities-will thrive. Says Michael Kalef, "Big firms are like dinosaurs...in terms of size, and we should be able to run circles around them."
Marzena Czarnecka is a Lexpert staff writer. Initial research on this story conducted by Ann Macaulay, also a Lexpert staff writer.