Canadian Lawyer

in the near future. "We think it is time to let go of any lingering notion that the industry will revert to the boom years before the Great Recession anytime soon," predicts the Citi report. "With profit growth and other financial indices reaching lower set points in the past four years, we anticipate that the current state of the industry will remain the norm for the foreseeable future." B ut what about the Canadian legal marketplace? Has it coped better than its American or European counterparts? Is the future of Canadian lawyers and Canadian law firms just as bleak? Nobody really knows. In what has proved to be a sore spot for those who study the Canadian legal marketplace — and perhaps a blessing for Canadian law firms — hard figures are non-existent. There is not a single consulting firm or organization that examines or tracks the Canadian legal scene with the same depth as the Americans. "It would be really nice to have the same kind of data so that you can objectively evaluate this marketplace," remarks lawyer Mitchell Kowalski, author of Avoiding Extinction: Reimagining Legal Services for the 21st Century. "So we're stuck with anecdotes and best guesses. That, in turn, allows the marketplace to be even more non-reactive to any kind of change because there is no one out there with data that says there's a problem here." Furlong concurs: "We are hampered by the fact that there is almost no publicly available information about mid-sized to large firms in Canada in terms of their profitability and revenue," says Furlong. "The only rankings of Canadian law firms that you will find anywhere is based on the number of lawyers. So we are working in the dark." Nevertheless, it is widely assumed because the Canadian economy was relatively unscathed by the 2008 financial crisis, the financial impacts on Canadian firms were not nearly as severe as their American and European counterparts. Nor does it appear the wholesale bloodletting still taking place in the U.S. in a bid to shave costs and maintain profitability has occured or is about to occur to the same extent in Canadian firms. In the U.S., associates and support staff have been laid off in droves. Partners too are under the gun. De-equitization, which really took off three years ago, will continue unabated, says the Georgetown Law report. Approximately 15 per cent of some 120 firms surveyed by Wells Fargo Private Bank's Legal Specialty Group said they intended to cut partners in the first quarter of this year. Another survey conducted by American Lawyer revealed 55 per cent of 113 managing partners and firm chairs planned to ask one to five partners to leave the firm in the coming year. Though little quantifiable information about the Canadian legal marketplace is available for public consumption, Canadian law firms readily concede the market has changed. "Although Canada has been more resilient than the U.S. and Europe, the research findings apply in full measure," says Les Viner, managing partner of Torys LLP. "The legal marketplace is fundamentally different. There are several reasons that is so, but the number one driver is Economics 101: supply and demand." André Vautour, chairman of the board at Montreal law firm Lavery de Billy LLP, acknowledges the market is flat, and would be surprised if it grew greater than the rate of the economy over the next couple of years. "We're not that different from the U.S. and European markets but, on the other hand, I don't think we have been affected as much as they have been," says Vautour. "We're not seeing a big fall on realization rates for instance. Our hourly rate increases, however, have been much more modest compared to before. Our productivity has decreased but it is marginal in our case. It has meant though that we have not hired as much as we did in the boom years but we haven't made a conscious decision to reduce our payroll or reduce the number of our lawyers." Andrew Fleming, managing partner of the Toronto office of Norton Rose Canada LLP, points out Canadian law firms "are not immune" to the trends that have taken hold in other jurisdictions. Indeed, Canadian law firms are grappling with the underlying market forces that emerged even before the financial crisis of 2008, though some believe the crisis accelerated its evolution. The drive towards the commoditization of legal ser- vices, the emergence of non-traditional service providers, and the changing roles of in-house counsel and corporate law departments are all disruptive forces forcing Canadian law firms to take a hard look at how they operate. It's not as if they have much of a choice because the combination of all of these forces has led to a pivotal shift in the legal services market. In a word, it has become a buyer's market. Clients are taking a much more hands-on approach, and are driving all the critical decisions over the structure and delivery of legal services. They are also holding lawyers far more accountable than ever before, and expecting — if not demanding — efficient and cost effective services delivered on a timely basis. "Before you get retained, clients want a dialogue upfront," says Oslers' Guindi. "Clients want to control who is participating in the file. They want to have an understanding on the risk tolerance or materiality levels that are going to apply throughout the course of the mandate. They want constant dialogue, and most of all they don't want surprises when it comes down to the issues they are going to face, the bill, the people on the file." T he shift from the seller's market that traditionally dominated to a buyer's market should mean purchasers can drive a much harder bargain. In today's highly competitive market, discounts are almost a given. That is certainly the case in the U.S. With too many clients chasing too little work, the Citi study notes pricing concessions have become a fact of life. "Clients . . . are using their newfound bargaining power with alacrity," it says. In turn, many firms have given in, offering discounts because they feel it is "better to keep lawyers' plates full with lower-billing work rather than half-full with full-priced work." But playing the heavy discount game can lead to bittersweet results, warns McCarthy Tétrault LLP partner Matthew Peters, who is responsible for the development of the firm's overall approach to the marketplace and clients. "We have seen this in circumstances with other firms where they are loading up," he says. "There is no barrier to scraping up hours. Their view is that it's such a low rate we better rack up the hours in order to increase the www.CANADIAN L a w ye r m a g . c o m June 2013 27

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