From The Globe and Mail: Death of a law firm: Behind the collapse of Heenan Blaikie

Source: FOR THE GLOBE AND MAIL

‘We had a happy firm where people liked each other. We didn’t try to be the highest-paid firm but the happiest firm in the country,’ Roy Heenan says of the law firm that bore his name.

CHRISTINNE MUSCHI/The Globe and Mail

Roy Heenan always believed the firm that bore his name should be a place where people loved coming to work.

Over four decades, as Heenan Blaikie LLP grew from a small Montreal operation into one of Canada’s first national law firms, with more than 500 lawyers in its ranks and ex-prime ministers on the payroll, his vision was zealously maintained. The firm hosted monthly cocktail events, awarded quarterly « staff appreciation » gifts ranging from scarves to chocolate fondue sets, and even bought cars for its partners.

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But, after a trickle of partners fleeing the firm turned into a torrent, that world abruptly fell apart this week. In a conference call on Wednesday evening, the remaining partners said goodbye to each other and voted to dissolve the firm. Hundreds of support staff, in addition to a dwindling number of lawyers, were suddenly jobless – although Heenan Blaikie remained profitable, earning $75-million last year.

No single culprit was to blame for the largest failure of a law firm in Canadian history. A terrible year for merger-and-acquisition deals had brought long-simmering tensions between the firm’s Quebec offices and its Toronto branch to a boil. But there was also dissension at the top and an increasingly tough environment for law firms in general.

Underlying it all was the fragile nature of a professional partnership, where the departure of a few partners in search of bigger paycheques elsewhere can lead to a « run on the bank » that propels those who remain out the door.

A pivotal moment for the firm came when Mr. Heenan stepped away from his role as chairman in 2012. His hold on the firm was such that partners could never agree on his replacement, creating a leadership vacuum that he and others say resulted in infighting between offices and practice groups, battles over who deserved what share of the firm’s declining revenue, and an inability to make the changes many observers say law firms need to make to survive in the 21st century.

While co-founder Peter Blaikie was also instrumental in the firm’s growth, it was Mr. Heenan – chairman from its founding in 1973 – who convinced Pierre Trudeau to come to work for the firm after Mr. Trudeau left politics in 1984, a move that greatly enhanced Heenan Blaikie’s profile. (Jean Chrétien would later follow in his political mentor’s footsteps.) It was Mr. Heenan’s art collection that graced the corridors of the firm’s offices and it was Mr. Heenan’s strong hand that dominated internal discussions.

Heenan Blaikie was governed by an executive committee and had an unusual two-headed structure with a pair of national co-managing partners, one in Toronto, and one in the firm’s birthplace of Montreal. But until his resignation as chairman two years ago, it was Mr. Heenan who called the shots.

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« No one, not even [prominent Heenan Blaikie partner and Canadian Olympic Committee president ] Marcel Aubut would stand up to Roy, » a former Heenan Blaikie lawyer said. « When he spoke, people just shut up. »

In an interview on Friday, Mr. Heenan blamed the firm’s executive committee for failing to replace him and abandoning the firm’s people-first philosophy, allowing the firm to succumb to infighting and ultimately die.

« We had a happy firm where people liked each other. We didn’t try to be the highest-paid firm but the happiest firm in the country, » Mr. Heenan said. « Unfortunately, that started to disintegrate when I stepped down. »

With no one succeeding Mr. Heenan in the strongman role, the firm’s partners also elected to replace its two long-standing managing partners, Montreal’s Guy Tremblay and Toronto’s Norman Bacal, who founded the firm’s Toronto office in 1989. Both had been at the helm, with Mr. Heenan, for 14 years.

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The transition came at a terrible time for the firm, which grappled – as all Canadian law firms did – with a drying up of corporate mergers and acquisitions in the first several months of 2013, something Mr. Bacal called a « perfect storm. » A small number of partners began to leave.

Tensions erupted between the Toronto and Montreal offices and their two new managing partners, Robert Bonhomme in Montreal, and Kip Daechsel in Toronto: « Their relationship was perhaps not always the best, » Mr. Heenan said.

Mr. Bonhomme, who resigned as managing partner of Heenan in January, declined to be interviewed. Mr. Daechsel did not respond to requests for an interview.

With revenue declining and profit per partner shrinking in 2013, disputes arose over profit sharing, as lawyers in Calgary and Toronto billed higher rates than the ones in Montreal or Trois-Rivières, and labour and employment lawyers did better in a slow economy than lawyers whose billings depended on corporate deals. (Normally, labour and employment lawyers bill lower rates than corporate deal makers.)

« There were differences [of opinion] between some of the departments in Toronto and in Montreal. When I was chairman, I made sure that didn’t happen, » Mr. Heenan said.

« As a result, one group starts pointing at the other, and the other group starts pointing back, » he added. « It leads to squabbling within the offices. And once the offices view things differently, the reality is: Do you want to stay into a national partnership? And the answer is no. »

Reached Friday, Mr. Bacal – who had been in talks that could see a group of Heenan Blaikie lawyers from the Toronto office join the global U.S. law firm DLA Piper – said the reasons behind the firm’s demise were more complex than those outlined by Mr. Heenan. Mr. Bacal was on the front lines of the firm’s crisis, brought back into the management fold to advise Mr. Daechsel before taking on a major role in December in an effort to try to stop partners from jumping ship. (A spokesman for the group of former Heenan lawyers, Bob Richardson, said in an e-mail late Friday that the talks with DLA Piper had been suspended.)

« It’s accurate but out of context, » Mr. Bacal said. « The economy for every firm was such that I think everyone’s Toronto commercial practice was having a very bad first half of the year. We weren’t experiencing anything different than anyone else. »

He said Mr. Bonhomme and Mr. Daechsel were doing their best to find their feet: « Communication in any organization is the key to survival. We were dealing with two new guys who were trying to figure out how the new system was going to work. … It was just a bad time to be learning. »

The problem is that once a few partners in a law firm start leaving and pulling their invested capital – usually a year’s income – out of the firm, the financial pressures begin to mount. Remaining partners do not want to be left with nothing but the firm’s debts and empty offices. Partners began to trickle away in 2012, and continued to leave in 2013, with the pace quickening near the end of the year.

Some losses were bigger than others. In Montreal, Manon Thivierge, a renowned tax expert, left Heenan for Osler Hoskin & Harcourt LLP at the turn of the year, followed by star litigator Marie-Josée Hogue, who went to McCarthy Tétrault LLP. The departures of the two long-time partners, who brought in lucrative clients, created a panic among the Montreal office’s 175 legal staff.

« From that point, the dominoes started falling, » a former Heenan lawyer said.

In January, Mr. Bacal and other firm leaders held a meeting to tell Toronto partners that profit per partner was down 15 per cent.

Still, the firm brought in $225-million in 2013 and had a profit of $75-million to divide among its 200-odd partners. It was by no means bankrupt, or even losing money. But some partners were now facing a 15-per-cent pay cut and started getting richer offers from other firms.

Mark Power, a lawyer in Heenan Blaikie’s Ottawa office who is now part of a group launching a constitutional law boutique, said the firm used to have a culture that was not all about money. « The issue isn’t that Heenan was not profitable; the issue seems to be that it was not profitable enough for some, » Mr. Power said. « And that’s crazy. »

The departures snowballed, making it almost impossible for the firm to contemplate continuing, faced with acres of empty office space.

« Toronto had lost so many people that they were counting the number of vacant floors, floors that were going to be vacant, » recounted Geoff Plant, a former B.C. attorney-general who was a partner in Heenan Blaikie’s Vancouver office. « And you are paying rent. Rent’s expensive. Who’s going to pay the rent? »

The firm’s rapid decline underlines the delicate nature of legal partnerships, said Vancouver law firm management consultant Colin Cameron: « I think it shows how fragile these firms are. … They need a shared vision, but they have partners who effectively have their own work, their own little empires within these firms. »

Some of Heenan Blaikie’s problems were particular to it. Observers say the firm’s reputation took a hit in early 2013 when Griffiths Energy International was convicted of breaching Canada’s anti-bribery law after it forwarded a $2-million (U.S.) payment to the wife of Chad’s then-ambassador to Canada. Griffiths Energy had retained the services of Heenan Blaikie to advance its interests in Africa.

Some say the firm was overreaching. Aiming at mining deals in Africa, it launched a Paris office in 2011, with 16 lawyers in a chic neighbourhood – just as a recession crunched Europe’s economy. At the heart of the venture was Jacques Bouchard Jr., the Montreal lawyer who led the controversial Griffiths file. He left Heenan in December of that year following an internal investigation. He later faced professional disciplinary proceedings over allegations that while at his previous law firm he forged signatures at the bottom of embellished résumés to win World Bank work. He lost his licence to practise law for six months.

While some inside and outside the firm maintain the Griffiths and Bouchard affairs damaged Heenan Blaikie’s reputation, Mr. Bacal, the former national co-managing partner, disagrees: « I don’t think it had the slightest impact on the firm’s reputation. »

However, he agrees the Paris adventure as a whole was a drag on the firm’s finances. In its defence, Mr. Heenan points out it had been approved by a majority of partners, who knew it would take time to work: « The office wasn’t that costly, and all the partners were aware at the time of the vote that it would take two to three years to establish it. »

In the end, the firm ended quietly. A « civil and respectful » partners’ retreat in a Montreal hotel last weekend, with some partners dialled into a conference call, discussed various options to stop the bleeding, including spinning off offices or shutting down the entire firm. After three more days, and a steady stream of departing lawyers, the remaining partners were invited to join another conference call Wednesday night, to do what many knew was the only thing left to do: formally vote to dissolve their partnership.

Many Heenan partners described the firm’s once-congenial working atmosphere as a family. Mr. Bacal, who laboured to keep that family together and spent his entire career at the firm, said the breakup meetings were not angry or resentful affairs.

« There was something completely bittersweet about the whole thing, » he said. « Everybody knew where this was headed. … Both meetings, the one in Montreal in particular, was a chance for the partners to say goodbye to each other after a really long and beautiful association. »

With files from reporters Boyd Erman, Janet McFarland, Kathryn Blaze Carlson and Sean Fine