The real story behind the biggest collapse in modern Canadian legal history; Heenan Blaikie reveals the flaw of the partnership model

Ian Holloway: Heenan Blaikie reveals the flaw of the partnership model

Ian Holloway, Special to Financial Post | February 11, 2014 | Last Updated:Feb 11 2:05 PM ET
So a giant has fallen. Last week, the remaining partners of the law firm of Heenan Blaikie LLP voted to dissolve the partnership and to wind up the business

. Practice groups have decamped to firms that, until a short time ago, were rivals. A rump tried to become the Canadian bridgehead of global firm DLA Piper, but those talks appear to have failed.

Drew Hasselback: Too many Bay Street firms are chasing scarce high-dollar business, while too many firms rely on a star-system that makes them susceptible to the same exodus of legal talent that brought Heenan Blaikie down this week. Continue reading.

To their credit, the remnants of Heenan Blaikie appear to have made it a priority to find landing spots for their students. One assumes that individual lawyers have done the same for support staff.

Measured in terms of column inches, the Heenan Blaikie collapse is the biggest story concerning the Canadian legal profession in modern history. There have been firm implosions before — most notably the Toronto firm of Goodman and Carr in 2007.  But these were all localized, and compared to Heenan Blaikie were small scale. But Heenan Blaikie was different. It may not be old enough to have earned the title “venerable,” but it was a significant player. Not only was it large — at its peak, it had more than 500 lawyers — but it had a national, and even international (an office in Paris) footprint. Moreover, it was a virtual retirement homeforformer prime ministers, premiers and judges. And it all came unstruck in the matter of a few weeks.

Once the death spiral of partner flight begins, it is nearly impossible to arrest it

Plainly, this is the stuff of headlines, especially in a gossip-nourished profession like the law. But there is a deeper element to the story that concerns us all. For at base, this was not a story about a particular law firm. There are any number of firms who could have suffered Heenan Blaikie’s fate. Once the death spiral of partner flight begins, it is nearly impossible to arrest it. No doubt there were a number of managing partners over the past couple of weeks who have been silently reciting each night the old policeman’s prayer: please, Lord, not on my shift.

The real story behind the Heenan Blaikie collapse is not one of financial failure. As the firm’s co-founder and namesake, Roy Heenan, has said, the firm was profitable to the end. Rather, the problem was that it was not as profitable as it had been. And given that most law firms operate on a partnership model, this meant that individual partners weren’t going home with as much in their pockets. So a few, who figured they’d do better elsewhere, upped stakes and left, leaving their erstwhile partners to their fate.

What this points to is a twin failure of the conventional Canadian law firm model. The first is that the partnership structure makes it difficult to plan for the future. Firms tend not to accumulate significant reserves like corporations do. Put in lay terms, they don’t have rainy day funds. That is because firms live in the present. A law firm’s net income after expenses is the partners’ income. And, not surprisingly, those partners want to take that income home, rather than leave it for the future, when they may no longer belong to that firm.

The witches’ brew comes when one factors in the second failure of the conventional firm model. That is the erosion of the notion of loyalty to the firm as a core professional value. It wasn’t that long ago that the norm was for a lawyer to spend his or her entire career at the same firm. The firm might have ups and downs; new clients would be won and established clients would be lost. But the lawyer defined him or herself professionally by association with the firm. Today, such a notion seems quaint, almost to the point of ridiculousness. Indeed, in some ways it is unusual for a lawyer not to switch firms during the course of a professional career. And for the highest-billing lawyers, the law firm today is completely fungible. That was precisely the phenomenon that we saw in Heenan Blaikie. As soon as the going got tough — though in fact that simply meant, “got a little less good than it had been” — high-billing lawyers began to bolt. Thus began the so-called run on the bank.

A real time parable about the enduring importance of the core value of loyalty to one’s colleagues

This is the Achilles heel of the Canadian legal profession. Canada’s lawyers are facing a triple professional crucible: globalization, the commoditization of routine legal work, and the technological revolution. But these things represent an opportunity as much as a threat. There is no reason lawyers can’t harness technology and process engineering to work not just more efficiently, but truly differently — and thereby provide the sorts of services that the Canadian public needs in a profitable way. But here’s the rub: in order to do so, the lawyer needs a level of social cohesion. “Every man for himself” or “Eat what you kill” — whichever the preferred metaphor — is a recipe for collective self-destruction, as the Heenan Blaikie saga makes plain. Almost every lawyer is smart. A disproportionate number are type A personalities. Many have an entrepreneurial disposition. But the quality that makes a firm durable is loyalty. For loyalty begets culture, and culture in turn begets durability.

Heenan Blaikie’s demise as a story in financial failure? No. What it is is a real time parable about the enduring importance of the core value of loyalty to one’s colleagues, and the inherent destructiveness of self-centredness. That is the true lesson of the tragic saga that was the implosion of Heenan Blaikie. One can only hope that lawyers out there are listening.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: