Playing at home

Co-operation rather than merger is the trend in Canada, reports Patrick Stewart. Patrick Stewart is a freelance journalist.

When Quebec law firm Ogilvy Renault opened an office in Toronto last year, it marked the end of the formal relationship between the firm and its longtime Toronto associate, and now competitor, Osler Hoskin & Harcourt. The most cogent example of the two firms' friendship was their international joint venture where they operated outside Canada under one banner, Osler Renault.

Mark Trachuk, Osler Hoskin's London resident partner, claims the two firms did not discuss merger as a way of rekindling co-operation, saying: “It is difficult for Canadian firms to merge across provinces. The cultures and profitability levels are different.”

This strong resistance to the concept of truly national partnerships is felt by many Canadian firms. It contrasts with the feeling at the end of the 1980s when the idea was actively discussed in partnership meetings across the country. Firms were flush with cash to spend on strategic matters, and optimism was riding high. When professional rules changed at the end of the last decade removing the barriers to national partnerships erected by provincial Bar associations, there was an initial burst of high profile mergers, as firms manoeuvred for position on the national stage.

But Steve Marshall, London resident partner at Toronto firm Tory Tory DesLauriers & Binnington explains that his firm decided against expanding nationally: “We are focused on the high end of the business market, and a high percentage of that business flows through Toronto. We didn't feel it was necessary to physically open up or merge to continue to attract the type of work we wanted.”

But what about servicing clients in increasingly important business centres such as Vancouver and Calgary? He admits the firm may be missing out by not having a formal presence in these cities, but insists that setting up there is not currently the right strategic move.

Yet several firms, including his, attempted to present a form of national identity through strategic alliances which were often pitched specifically at the international market. Most of these initiatives have since unravelled. Tory Tory retains an affiliation with Montreal's Desjardins Ducharme and informal links with Vancouver's Lawson Lundell, the firms that made up the original international team, but there is no longer talk of taking the relationship further.

Toronto's Fasken Campbell Godfrey and Montreal's Martineau Walker have gone one step further with the creation of Fasken Martineau, an alliance that the firms market, where possible, as one entity both nationally and internationally. An executive committee oversees the joint venture's operations. Yet a merger is discounted. “The relationship is working well as it is structured,” says John Elias, Fasken Martineau's London resident partner. “There is no incentive or motivation to merge.”

As one observer comments: “Times are so good right now, there is no pressure on firms to do the things that would stand them in good stead in the long-term.” That view may be a little harsh, though. The bottom line is that bringing together firms imbued with a strong sense of regionalism adds up to a logistical nightmare.

Despite the boom, Quebec has benefited least from the upturn because of political uncertainties, and any Toronto-Montreal merger would be problematic. At the other extreme, the Vancouver market is evolving quickly and firms there are still trying to define what strategic direction to take.

Most firms report that they review the national option from time to time, and some have expanded or are looking to expand elsewhere in the country. Two years ago, Osler Hoskins set up a Calgary office, while Fasken Martineau is looking to ally with a Vancouver firm.

But nothing is happening quickly, and more radical solutions are only likely to occur if competitive pressures demand it. US law firms are being watched carefully. At the moment, only Baker & McKenzie, Shearman & Sterling and Skadden Arps Slate Meagher & Flom have offices in Toronto, and only Baker & McKenzie practises Canadian law. But links being forged between US firms and Canadian corporations, which are increasingly tapping the US financial markets, could be developed if the firms decide to develop their Canadian practices further.

The accountancy firms are a more immediate concern. Recently, Ernst & Young set up an associated law firm in Toronto, the first such move by a large accountancy firm, and it took on lawyers from established law firms. Most expect the other accountancy firms to follow suit in time. They are not seen as a major source of competition in the short term, but their growth is a challenge for all law firms in the longer term. One of their advantages will be their ability to market themselves as national entities.

Whether Canadian firms will lose competitive advantage if they do not become more national in outlook remains a moot point. But until a threat materialises, most firms are likely to keep on fighting moves towards further integration.