Requiem for Heenan Blaikie

Listening to Roy Heenan give his spin on the demise of his law firm, I couldn’t help but hear the strains of Elton John’s “Funeral for a Friend” in my head.

It will be some time before the full back story of this debacle will be known. But in my view, Heenan Blaikie died from a combination of greed, poor management and failed leadership wrapped together in an antiquated business structure ill-suited to “more for less” client demands in a marketplace gradually filling with non-traditional competitors.

As I have said repeatedly, the Canadian legal profession is now entering the most disruptive period of time in its history. It has never faced such strong client demands for value and efficiency. It has never faced competition from non-traditional legal providers.

These are structural changes that never go away; they amplify.

And all of this in an environment of flat legal services demand, over capacity and legal tech entrepreneurs!

Layer in partners who are more loyal to themselves than to the firm and one can see that Heenan Blaikie (like every other law firm in Canada) was a house built on sand, not bedrock.

And all HB’s famous names could not stop the shifting sands.

For those who still naively believe that law is a profession (not a business) where clients come ahead of personal monetary gain, HB clearly shows the opposite.

Where were the clients in this mess?

If Roy Heenan is correct, the partners who bolted for the lifeboats, viewed clients as nothing more than portable commodities to be flaunted in front of other law firms for the sole purpose of obtaining the maximum annual draw. Such a noble profession……

And what of the support staff? Did anyone care a whit for them?

Where do they land? Or are they left out in the cold? The media and all the outpouring of sadness from the profession has focussed on the lawyers and students – not the unsung heroes of every firm, the support teams without whom law firms could not operate. The lowest paid on the law firm payroll who would kill for the salaries demanded by junior lawyers. They are the true victims of this carnage.

Sadly, Heenan Blaikie is not an anomaly. Others will follow in its footsteps over the next 18 – 24 months. The UK and US began their journey through legal services disruption 5 years ago, Canada is just late to the party.

One would hope that those lawyers from HB who will form new firms will take the opportunity to start from a blank page, free from the constraints of legacy and other problems of the old firm.

I hope that they create a unique structure and offer unique client experiences which cannot be replicated at other firms.

I hope that they will realize that the days of claiming that only lawyers are capable of running law firms are over. That the days of having a managing partner who must still maintain a practice while managing the firm is over. And the days of using hours billed and client credit as the only metrics for bonuses and promotion are over.

I hope that they work within a corporate structure with an independent board of directors and professional management teams that make all strategic decisions – leaving the lawyers to do only what they do best, practice law.

I hope that they will be employee shareholders with a fixed salary and bonuses based on a balanced scorecard of meeting personal goals and the firm meeting its corporate goals – hours churned out will no longer be seen as a legitimate metric.

My fear however is that the new firms that spring up will just be mini-HBs with lower over-head costs – and the cycle of growth to destruction will begin anew.

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Comments

  1. David Collier-Brown

    It’s arguably fair to say that “partners who … viewed clients as nothing more than portable commodities” consider the law a business as opposed to a profession.

    However, “there exists some X who consider clients as commodities” is not a proof of “for all X, X consider customers to be commodities”.

    If you wish to avoid the problem, you need to chose your management team from people who have consciously‎ identified it as a problem and committed to avoiding it. The background they come from is, IMHO, substantially less important.

    It’s also hard to do. Consider a company who’s unofficial motto is “don’t be evil”, and whose founders grew up under the old Soviet system, something they considered evil.

    They still do things in error that others consider evil, and have to get hit over the head with a clue-stick to get them to stop.

    I definitely do recommend starting one’s own company, with a salesman, an accountant and a lawyer* as the founding management.

    –dave
    [* The phrase is usually "a salesman, an accountant and an engineer". Those are the three required roles when starting a product company]

  2. Dave,

    Good points. Let’s see if the remnants of HB will seize the opportunity to start from a blank slate and set good foundations in bedrock, not sand.

  3. Mitch,
    HP’s demise does nothing to support the notion that whole swaths of law practice should be sold to corporate interests who, by law, must act in the best interests of their shareholders, not their clients.

    Alternative business structures are already, in the relatively short time they have existed, proving clearly that they result in anti-competitive corporate concentrations and loss of independence of the bar. It is already being demonstrated that law firms can and are able to adopt, adapt and improve such innovations as greater internet presence and internal efficiencies.

    The profession does not, repeat, does not have to sell its soul and its very hard-won (over centuries and often bloodily) independence to move the practice of law into the second decade of the 21st century.

    The Australians and the English have blundered badly, harmfully and tragically. Especially the English who should have known better. Those two jurisdictions will have a devil of a time (and I pessimistically predict they will fail) putting that genie back in the bottle. We should learn from those blunders and not repeat them in Canada.

    From the outside, it appears that HP’s demise resulted from a cycle of lower earnings (such cycles are common in economic life) which key partners were not prepared to ride out. Their departures triggered a cascade effect. It had nothing to do with their inability under Canadian rules to sell half their firm to a grocery chain.

    The supporters of ABS remind me of the western intellectuals who, in the 1940s, 50s and 60s, believed that communism should supplant western-style democracies and capitalism. What seemed to them, in a cloud of missionary zeal, like a good idea (frankly, they could not be reasoned with, nor were they interested in evidence, history, human nature, or logic) turned out to a harmful, failed philosophy that, if adopted, would have wreaked incalculable harm, not only on their own nations, but on the whole World. Western democracies and capitalism have their flaws (and we should work on them) but they pale in comparison to the flaws of communism.

    ABS is the shiny new toy, but it is coated in arsenic with cyanide inside.
    Brad

  4. Bradley, do you have any cites for the issues with ABS in the UK and Australia? I’d be interested to read.

  5. The “run on the bank” aspect of this sort of collapse could likely have been tempered were it to have been the case that equity partner capital contributions (PCCs) were pro rata to profits per equity partner (PPPs). In contrast, where Partner A has 10x PPP as compared to Partner B, but they both have the same PCC, Partner A can simply move to a new firm willing to continue her healthy income and not worry much about lost PCC as her PCC is small in comparison to her PPP. In contrast “poor” (to use the term loosely) Partner B with the modest 1x PPP is much more concerned (probably about 10x) about losing his PCC (and also likely has fewer re-employment opportunities). So Mitch’s article hits the nail on the head — the problem is greed. Pro rata PPP/PCC structures dis-incent or even preclude the big shakers simply skipping over to the competition on a rainy day. Perhaps the problem is that the star 10x PPP partners can negotiate (aka take it or leave it) flat-line PCCs with their more vulnerable colleagues. All proving the classic aphorism — rich get richer and those not so rich get not so rich. Partner A would think a bit more about the runner, had she had 10x PCC on hold in the old firm.

  6. The vast majority of Canadians won’t pay any attention to this story. Which is unfortunate because it graphically demonstrates what really motivates the legal “profession”: certainly not the public interest.

    If the reality for the legal profession is one of a “flat legal services demand [and] over capacity” how is that most Canadians must tackle their legal issues on their own?

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