Crunch Time For Canadian Law Firms

By Jordan Furlong, Principal, Edge International

Back in November 2010, Norton Rose rocked the Canadian legal profession when it became the first global firm to enter the country, through a tie-up with Montreal-based Ogilvy Renault.

At the time, I wrote that this was an extraordinary development that would shift Canada’s legal landscape permanently, because it would “change the competitive calculus of a law firm marketplace that traditionally has behaved more like a cozy fraternity of genteel rivals.”

That it has. In the intervening years, Norton Rose expanded again within Canada, bringing Calgary-based energy law powerhouse Macleod Dixon into its operations . UK-based insurance and maritime law firm Clyde & Co. acquired a smaller firm, Nicholl Paskell-Mede , with offices in Montreal and Toronto. Dentons then entered the country last year, courtesy of a deal with Toronto-based national firm Fraser Milner Casgrain .

And today, the number of global firms in Canada has grown to four. DLA Piper, well-known for its intense long-running interest in this market, announced it was bringing respected mid-tier firm Davis LLP into its global Verein. Unique among Canada’s 20 largest firms, Davis launched its national expansion efforts from Vancouver and is still headquartered there. The vast majority of Canada’s BigLaw firms are rooted in Toronto or Calgary, in Canada’s financial services or oil & gas markets. Davis has strengths in these areas, but is known more for its transportation and infrastructure work.

For the specific parties involved, this certainly seems like a good match. Davis has seven offices, including Canada’s only law firm presence in Japan, although four of those outposts have 25 lawyers or fewer. DLA Piper has spent years hunting for a point of entry into Canada, offering local firms an international reach and platform well beyond what a Canadian firm could build alone.

But the larger trends here are more arresting. DLA Piper is the third of these four global firms to enter Canada through a firm headquartered outside Toronto, by far the country’s biggest legal market. (Ogilvy Renault, Macleod Dixon, Nicholl Paskell-Mede, and Davis each hailed from either Montreal, Calgary or Vancouver.) That might be mere coincidence. But it might also be that there’s a premium attached to merging with any large firm based in Toronto, and that global firms looking to expand into Canada don’t feel like paying it.

It’s also an interesting time to be entering the Canadian legal market. Back when Norton Rose first broke through the border, this country was riding high in the wake of the financial crisis, thanks to a strong banking system and abundant natural resources. The day that merger was announced, the Canadian dollar was essentially trading at par with the US greenback.

Times change. Today, the Canadian dollar is closer to 80 cents US. The price of oil has dropped from more than $100 a barrel to less than half of that in about eight months, and energy exports are critical to this economy. Layoffs and store closings are more frequently in the news here, and there’s reason to expect things will get worse, maybe significantly worse, before they get better. So a Canada play by a global law firm is a medium- or long-term strategic move at this point — which is sensible, because despite our imminent turbulence and short-term challenges, this market still has tremendous upside over the next several decades.

Looking at it from the other direction: if the economy continues to worsen here, then we might also see a growing number of Canadian law firms start looking for a safe harbor with a global law firm platform, especially if those firms don’t feel confident in their succession plans and growth strategies. We might even be entering another brief phase of consolidation in the law firm market here.

What this deal really signals, I think, is that for Canada’s mid-tier law firms, strong as they might be, the time for deliberation about the future has come to an end. Any such firm that still has doubts about its strategic growth plans — whether to maintain its size and independence, seek a merger partner in-country, or be subsumed into a global Verein — must resolve those doubts and reach a decision in very short order. With DLA Piper finally crossed off the list of potential dance partners for Canadian firms, that list is getting shorter all the time.

For myself, however, I still don’t think that getting bigger is the same as getting better , or that growing your number of lawyers and offices is the same as growing your business or enhancing your productivity. The real race among law firms these days is to become more effective in their services and more valuable to their clients, and most of the work in that regard has to be undertaken internally.

Outside of the most elite levels of the legal market, the battlegrounds that will separate the winners from everyone else will include system improvements, process mapping, compensation plan overhauls, pricing expertise, and client-embedded services. More rational business operations and more valuable client service: no matter where you’re based or with whom you’re affiliated, those are the only factors that will really matter to the market. Growth initiatives, organic or otherwise, will be effective only insofar as they serve either or both of those goals.