Why Law Firms Collapse

Volume 3 • Issue 3 • March/April 2017
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Killed by Kindness?

Congenial culture and the dissolution of Heenan Blaikie

A recent Harvard Law School case study, “Heenan Blaikie: The Glue Dissolves,” examines how Canada’s seventh largest law firm went from having its strongest year financially in 2010 to dissolving in 2014. The piece, written by Nathan Cisneros and Lisa Rohrer, explores the challenges of achieving alignment between offices of a major Canadian law firm, the tension between accountability and collegiality, the factors that contribute to the success or failure of a leadership transition, and the role of governance structures in a firm’s success. Ultimately, the case study provides an in-depth examination of law firm failure, emphasizing the role that a firm’s culture can play in its demise.

The firm’s history

Heenan Blaikie was founded in Montreal in 1973. Its founding lawyers, Don Johnston, Roy Heenan, and Peter Blaikie, eschewed a formal partnership agreement in favor of a handshake, determined that their firm would be guided by the values of friendship, trust, and respect. Before long, the firm’s elite labor and employment practice and its unusual familial philosophy attracted prominent Canadian politicians. By the 1990s the firm was embarking on an aggressive campaign of expansion, opening offices throughout the country. The most noteworthy of these was Heenan Blaikie’s Toronto office, primarily focused on corporate work in a city that was emerging as the nation’s business capital and challenging Montreal’s status as the economic center of Canada. Picking up on this movement of power within the country, the case study quotes Norm Bacal, who in 1989 was a newly minted Heenan partner and founded the firm’s Toronto office that year: “The center of the country had moved to Toronto. … At the time we were 50 lawyers, and I was worried that I’d be a mere number in Montreal … but in Toronto I had the chance to make a mark.” In 1997, reflective of the emergence of Toronto as a major pole of the law firm, Bacal was named co-managing partner, along with Guy Tremblay, who was based out of the Montreal office. Heenan, meanwhile, remained chairperson of the overall firm.

Expansion and the ill-fated leadership transition

Heenan Blaikie weathered the 2008 global financial crisis fairly well. Indeed, in 2010 the firm employed 600 lawyers and 1,300 staff and celebrated its best ever financial year. The Toronto office was the source of a significant amount of growth, often through hiring laterals—so much so that it overtook Montreal as the largest office. As the case study points out, the problem was that “[s]uch rapid growth created new management challenges. A Heenan partner observed, ‘The firm expanded faster than its management structures and administrative capacity.’” Moreover, there was a shift in firm culture. Tremblay, the managing partner in Montreal, noticed a cultural shift as longer-tenured lawyers were sidelined in favor of lateral hires who could bring in big commercial deals and corporate work, particularly in the commercial center of Toronto. Overall, many Heenan lifers felt that the profusion of lateral hires led to an influx of lawyers who valued profits over maintenance of the firm’s collegial culture.

In 2012 all three of the firm’s top leaders—the two co-managing partners, Tremblay in Montreal and Bacal in Toronto, plus founding chairperson Heenan—planned to hand over the reins to a new generation. The Toronto office felt that the first of the new managing partners, Montreal’s Robert Bonhomme, was unfairly and undemocratically foisted upon them and demanded a procedural change before the second managing partner, Toronto’s Kip Daechsel, was installed. Even more ominous was the failure of the effort to replace Heenan, who had served as chairperson for the firm’s entire existence. As the case authors write:

The executive committee’s lack of agreement on a new chairman reflected broader tensions that had come to the fore in recent years about the firm’s strategy, leadership, and values … Just as troubling, revenue slipped from 2010 to 2011, and again in 2012.

Things come undone

The new managing partners were faced with a troubling combination of a faltering legal market; the retirement of several major, lucrative files; partner defections; and bad press. In 2013 they began to cut underperforming partners and clashed over the trade-offs between preserving the firm’s culture and taking immediate, drastic action to address the firm’s perceived financial instability. By the fall of 2013, faced with a series of defections and a breakdown of communication between the co-managing partners, the executive committee voted to overhaul the firm’s leadership and management structure.

By January 2014 things turned dire. Overshadowing Bacal’s reemergence and fervent attempt to spearhead a rescue strategy, which proposed collecting written commitments from every partner to stay with the firm for one year, was Bonhomme’s resignation from the executive committee and proposal that the firm dissolve. On February 5, 2014, Heenan’s partnership voted to dissolve the firm, thus finalizing the firm’s shockingly speedy unraveling. As Professor David B. Wilkins, who has taught the case numerous times, puts it, “No one wants to be the last person out the door.” This mindset fostered a panic that led to the defection of high-level partners, which in turn drew the attention of the press and created public relations headaches for Heenan. The firm officially closed down on February 28, 2014, just after its 40th anniversary. “It was such a wonderful place, but in the end, we killed the spirit,” said Daechsel. “Something went wrong; the dream became a nightmare,” Tremblay reflected, “Trust is the glue, the grout that holds the wall of brick together. Remove the trust—and everything crumbles.”

Throughout its downward spiral, the firm remained financially stable and profitable. In fact, in its last six months of existence the firm experienced a swift uptick in business. As the case authors report, Toronto partner John Craig commented to the press, “That’s another irony in all this—things seemed to be turning around. … People think the firm was going bankrupt. Of course not. The firm was very profitable.”

What is a case study?

A case study is an educational tool that allows students to analyze a factual situation confronting an individual or organization. Case studies, which are historically accurate, address topics such as the evolution of an organization’s business model, cooperation within teams, a corporate lawyer navigating his turbulent career, or a difficult merger between two law firms. Cases are not meant to provide definitive answers but instead to show multiple points of view and highlight the complexities and ambiguities of particular situations.

Why did Heenan ultimately fail?

What makes the case study of Heenan Blaikie so fascinating is how the very idiosyncrasies in management and vision that led to the firm’s rise to prominence were also integral in its downfall. While the unique two-pole structure worked for the firm and enabled it to thrive when Bacal, Tremblay, and Heenan were at the helm, without them, the curiously shaped house of cards swiftly fell apart. Below we highlight a few of the major reasons. For full context and to explore all the reasons Heenan failed, you can purchase the full case study here.

Lack of succession planning. When the longtime chairperson and nearly equally long-serving co-managing partners all departed within a 12-month time frame, there was bound to be a rocky period. However, few would have predicted the ultimate outcome of the power transfer. Moreover, Heenan’s unique governance structure entailed both benefits and drawbacks. On the one hand, the split managing partner role achieved representation from the firm’s two major poles in Montreal and Toronto. On the other hand, it also required a strong chairperson to resolve the differences. When Heenan stepped down from the chairperson’s seat without a replacement, there was no one to settle the differences between the firm’s new and inexperienced managing partners. As Wilkins explains, “Heenan relied heavily on charismatic leadership. The problem is, it was never institutionalized.” As such, when challenges arose, the firm lacked the strong leaders and managers to achieve difficult but necessary changes.

Lack of management and leadership during the crisis. Going into 2013, the new national co-managing partners had a total of one year of experience in this role between them. By the time of failure, the general perception was that the leadership wasn’t leading and management wasn’t managing. This became all the more apparent during the 2013 downturn in the Canadian legal market. As the co-managing partners began to butt heads with each other regarding the best course of action, the press got wind of the internal conflicts. And, as a few high-level partners defected, there was an added sense of doom.

Lack of alignment between offices. Toronto and Montreal engaged in a long series of battles, including the procedure for replacing the managing partners, who should fill Heenan’s position as chairperson, the offices’ relative profitability, and the ideal firm culture. This conflict likely played off, and was exacerbated by, the more general political, economic, and social divisions between Toronto and Montreal within Canadian society.

Lack of balance between collegiality and accountability. The firm took pride in prioritizing values over money. However, as it expanded, often through lateral hires who brought in big commercial deals and corporate work, many felt that the firm’s unique culture was being eroded. Some partners believed that concern for preserving the culture prevented firm leadership from acting more aggressively when faced with a downturn in financial performance, which led them to defect and effectively gutted the firm.

Why does it matter?

This case study illustrates how a firm’s culture, alignment, and organizational structure can lead to its downfall in spite of economic stability. For young lawyers, this piece illuminates weaknesses to avoid when choosing where to work. For more-experienced lawyers, it demonstrates problems to look out for and avert through leadership positions. These lessons are particularly salient for firms with major practice areas that align to different parts of the market, firms experiencing expansion while trying to maintain a common culture, and firms that have long relied on charismatic leadership.

Why Law Firms Collapse Volume 3 • Issue 3 • March/April 2017

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