Going Global

Jay Park’s curriculum vitae reads like a well-worn passport: projects in Russia, Kazakhstan, China, Vietnam, Indonesia, Thailand, Pakistan, Kuwait, Algeria, Egypt, Nigeria, Sudan, Venezuela, Trinidad, Mexico and Bolivia. Clients include the governments of Vietnam, Russia, China and Pakistan, not to mention the World Bank and an impressive list of Canadian and international oil and gas companies. A senior energy partner with Macleod Dixon LLP, part of Calgary’s so-called legal triumvirate (the other two firms being Bennett Jones LLP and Burnet, Duckworth & Palmer LLP), Park has a top-ranked international practice.

“I didn’t set out to have an international focus,” says Park. “My domestic experience qualified me to do international work. As a firm we entered international markets courtesy of our Canadian client base.” But it’s no longer only Canadian clients that want Park in Mexico or Albania, two countries from which he has just returned. Now the clients themselves are international.

The same is true for Peter Mendell, a senior corporate partner with Davies Ward Phillips & Vineberg LLP in Montreal. Mendell is in Los Angeles to start the wheels moving on a new acquisition. “My deal is in Los Angeles, but it has nothing to do with US law,” he says. And very little to do with Canadian law. “My clients are flying in from Paris, the other side is from Japan, and I’m in Montreal. Los Angeles is the most convenient place for us to meet. This time.”

Park and Mendell are examples of globalization. Mendell’s representative client list includes “a Canadian-based, but Canadian-Norwegian-Korean controlled company that’s setting up a Singapore-based joint venture with interests in Korea, Thailand and China.” He relishes the deal he did in 2002 for Australian-based Amcor Ltd., which included the acquisition from a Germany company of 58 subsidiaries in 26 countries around the world. “Zero Canadian content.”

Mendell’s practice involves dozens of foreign jurisdictions, but these days most of it—even when he’s acting for Canadian clients—is governed by US or UK law. His competition is not the Montreal or Toronto heavyweights. The lawyers he competes with, and most often sees on the other side of the table, come from New York and London. The same is true for Park. Macleod Dixon’s international energy and resource practice has it squaring off against firms such as London-based Allen & Overy or Houston-based Vinson & Elkins LLP.

Make no mistake about it. The stakes are high. Off the record managing partners at a good number of the major firms acknowledge that more than 30 per cent of gross fee revenue is derived from Canada/US cross-border and international work.

The importance of the global and Canada/US cross-border playing field has made life brutally competitive for a select group of Canada’s top-tier law firms. “There’s a perception that the border between Canada and the US is somewhat less important than it used to be,” notes Mendell. “Toronto being the financial capital centre of Canada, my perception is that Toronto is less important than it used to be, just as Montreal is less important than it used to be.”
The implication is that top-tier legal work—what dreams, reputations, and profits are made of—is also not quite what it used to be. As a number of pundits would have it, the new international legal world belongs to the major New York and London firms. Further, with respect to the all-important Canada/US cross-border work, the centre of gravity is arguably shifting to firms in New York, Chicago, Houston and Palo Alto.

Mendell immediately takes issue. “The reality with us, in both our Montreal and Toronto offices, is not that. We have been exceptionally successful and we have not suffered at all.” Led by Maryse Bertrand, the Montreal office of Davies Ward quarterbacked Alimentation Couche-Tarde Inc.’s $1.12 billion acquisition of US Circle K Corp., acting on both sides of the border. Out of Toronto, partners such as Berl Nadler and Kevin Thomson run international transactions for clients such as Celestica Inc. and Barrick Gold.

Most major Canadian law firms can point to a good number of cross-border transactions, including major international transactions, in which they’ve played a significant role. But for the top-tier as a whole, globalization and the integration of North American markets is not necessarily good news. As Andrew Fleming, a senior corporate partner in the Toronto office of Ogilvy Renault bluntly puts it, the coveted high-end corporate work “is disappearing. It’s going south.”

Barry Reiter, a corporate/technology partner in the Toronto office of Torys LLP, agrees with Fleming. “As business continues to consolidate and the Canada/US border disappears, more and more of what used to be premium Canadian legal work is done out of the US.”

To make matters worse, there is an ever-increasing number of lawyers chasing the diminishing premium work. Ironically, many of the country’s major law firms have spent the last decade shedding unprofitable “commodity” practice lines in favour of the high-margin, top-end corporate work. “There are far too many lawyers and law firms focusing on the high end,” says Reiter. “Eventually there will not be enough of that work to go around. That’s why we see consolidation in the legal market and why we see a number of firms in jeopardy.”

Consolidation within the domestic market, i.e., national mergers, is by no means an answer to the globalization of legal markets. Macleod Dixon and Bennett Jones have built “internationally relevant” energy practices without mergers.

Over the past decade the London-based majors, such as Clifford Chance, Linklaters and Freshfields, embarked on extensive mergers throughout Europe. This was in large part in response to the massive entry of US firms into the UK and European markets. It remains unclear whether the strategy has worked. In a recent issue of Capital Finance, which ranked law firms according to the value of their European M&A deals last year, almost half of the top 15 were American firms. The UK firms were winning on “volume” but the US firms were winning on “value.”

The problem is one cannot draw this comparison. Apples and oranges. London and Frankfurt remain important corporate and financial markets. You have to be “on the ground” in these markets. With respect to the Canada/US transactions, however, US firms simply run the deal out of New York.

There is a new geopolitical reality. “US counsel are taking the lead on deals,” says Hugh MacKinnon. MacKinnon is managing partner of the Toronto office of Bennett Jones. “They see Canada as part of North America and not as a foreign country. It’s natural for them to drive the deal.”

MacKinnon, like most Canadian and American lawyers, differentiates sharply between US/Canada and international deals. Dealing with both categories, according to the Lexpert Big Deal database for the 12-month period ending October 10, 2003, 68 per cent of the 25 most significant corporate transactions were either principally Canada-US/global or had important Canada/US cross-border aspects. When one culled this list to the top 15 transactions, the figure jumped to 80 per cent.

Dealing with Canada/US cross-border deals as a separate category, according to Toronto investment boutique Crosbie & Company Inc., the dollar value of such transactions in 2003 came in at a whopping $62 billion (up from $46 billion in 2002). Any way you slice it, it is an enormous market.

Canadian firms are still on cross-border deals, of course. But now they’re not always playing the role to which they were accustomed. As pointed out by Andrew Fleming, “There’s a big difference between doing the deal and giving local legal advice.” Giving local legal advice can be profitable and it’s better than being left off the deal sheet altogether. But, as every ambitious lawyer knows, it’s the firm that’s “doing the deal” that gets the glory (and the real money). Everyone else is a powder monkey, more or less.

As noted by Clay Horner at Osler, Hoskin & Harcourt LLP in Toronto, “There are different arrangements with those kinds of deals.” Horner has driven a number of high-profile, cross-border deals on behalf of Canadian, US, and international clients. He knows there are alternatives to being a spearcarrier.

According to Horner, if the law firm represents a Canadian client the arrangements include “situations where you’re the client’s principal outside advisor and you enjoy a position of trust and confidence such that you are coordinating the transaction. The US firm that is involved is providing specific American expertise to situations where you’re working in true co-counsel arrangements.” For example, Oslers has shared the co-counsel role with US powerhouse Sullivan & Cromwell LLP on several deals, including Horner’s recent representation of Mississauga-based Moore Corporation Ltd. in its acquisition of Chicago-based Wallace Computer Services, Inc., and then the subsequent Moore Wallace merger with RR Donnelley.

Many Canadian lawyers, however, find themselves de facto benched when clients go international. “Ten to 15 years ago, clients doing transactions anywhere in the world would call on their Canadian counsel,” says Fleming. “Now they’re going to US counsel to do the deal and they use Canadian counsel for local advice.”

Of course there are exceptions. Davies Ward drove the bus on both sides on the border in the Couche-Tarde acquisition. In the pending $2.375 billion acquisition of Eckerd by Quebec-based Jean Coutu Group Inc. from JC Penny Company Inc., Fasken Martineau DuMoulin LLP (Martineau Walker) is sharing the work 30/70 with Chicago-based McDermott Will & Emery. Tellingly, even though Faskens, which has a 30-year history with Jean Coutu, negotiated the deal, coordinated the work, and actually made the “purchasing decision” regarding what US firm to use, the perception on the street is that because there is a US legal powerhouse involved, the involvement of Faskens is minimal.

“It is disappointing when a Canadian client says to you, I’m buying a company in Germany, so I’m going to use a London firm with a German office,” continues Fleming. It happens. In 1998 the German office of New York-based Shearman & Sterling acted for Daimler on the Daimler-Chrysler merger, not on the US but on the German aspects. This sent shock waves through the German legal market. It changed the ground rules.

It’s still difficult to draw hard across the board conclusions. “I haven’t had the experience where I’ve said I’m disappointed, I don’t understand why they’ve made this choice,” says Horner at Oslers. “I find that some clients make that choice if there are very good relationships. They make that choice after talking to you. A lot of times clients ask what you see as your ability to contribute to this transaction and my approach is to really think what’s going to be best for this client. I have had many situations where I have said to a client this is what we can do, but you know that’s not enough. We need to get somebody involved that can do whatever it is that we can’t do. Osler, Hoskin may be helpful in suggesting someone and sometimes that may involve us continuing to have a real role and, frankly, sometimes it does not involve us continuing to have a real role.”

As Horner goes on to note, “There can be nothing more damaging than a client sensing you’re fighting over your role. Over time, those that add the most value will find they have the most business.”

But suppose that those who add the most value turn out to be New York counsel? On the cross-border playing field loyalty is fickle and rarely synonymous with nationality.

The hollowing out of Corporate Canada—corporate head offices moving to the US or elsewhere—is the least of the problems. Many, with the Toronto Stock Exchange most prominent, consider hollowing out to be a myth. Last year’s figures from Crosbie & Co. report that Canadian companies bought twice as many foreign companies as foreign companies bought Canadian. Canadian acquisitions of US targets totaled $28 billion ($49 billion when all foreign targets are considered)—a threefold increase over 2002 numbers.

Longer term data from Industry Canada and the US Department of Commerce paints a somewhat different picture. Between 1995 and 2001 Canadian companies acquired 697 companies while US companies acquired 3,008 Canadian companies. At the high-point of the cross-border acquisitions, 62 of the 300 largest companies listed on the TSX, representing more than one quarter of the public float of the TSX index, disappeared.

The latter numbers ring more true to those lawyers who’ve been forwarding their reporting letters (and invoices) to Houston and Palo Alto. But, ultimately, it doesn’t really matter who is buying whom. What really matters is who’s doing the deal and this is determined by who’s making the legal “purchasing decision”. These days the majority of these purchasing decisions are made by US law firms or US in-house corporate counsel.

Hollowing out factors into who makes purchasing decisions, as does NAFTA, which means, inter alia, that Canadian subsidiaries of multinationals are more easily controlled from US offices. “We used to have a number of Japanese clients who’d have their North American headquarters in Vancouver, Toronto and the US,” notes John Clifford, a partner with Toronto-based McMillan Binch LLP. “Now, Canada reports to the US and the US headquarters reports for all of North America to Tokyo.” Guess who’s making the legal purchasing decisions?

As Clifford points out, “The reality many big Canadian, and particularly Toronto, firms have to face is that on corporate transactions the legal buying function is often made by US law firms, not the corporations themselves.” A 1998 client survey drove the point home for McMillan Binch. The survey disclosed that not only did a significant proportion of the firm’s business come from the US, but that for most of these cross-border deals, clients relied on US counsel to recommend or retain the Canadian law firm.

Another key driver is the globalization of capital markets—particularly the near-total integration of the Canadian and US capital markets—which has diminished the importance of domestic financing. “There has been an almost complete integration of North American capital markets and, in particular, our integration with the world’s largest capital market,” notes Richard Balfour, a corporate partner with Torys in Toronto. Balfour’s defining global transaction was the “once in a lifetime” demutualization of Sun Life Assurance Company of Canada, begun in 1997 and completed in 2000. The deal involved jurisdictions on three continents and is generally recognized as one of the most complex demutualizations in the world to date.

“Any law firm in Canada that’s focused on the large corporate market has to take into account the integration of financial markets,” continues Balfour. “There is really not a choice. You have to adapt to that.”

Add to this the simple fact that Canada, relatively speaking, is a small market. Ambitious Canadian companies outgrow the domestic market quickly. That noise you hear, as John Clifford puts it, “is a sucking sound as Canadian corporate functions move to the US.” So where does that leave corporate lawyers at major Canadian firms?

In many cases, scrambling. “I would hazard a guess their grip on clients is slipping away,” says Garry Gartner. Gartner leads the tax practice in the New York office of Torys. A Canadian lawyer, he came to New York in 1986 to build the US practice of, as it was then known, Goodman Phillips & Vineberg. Long before NAFTA it was clear to Gartner that “globalization of clients would require a new kind of lawyering.”

“The parochial legal requirements that kept Canadian law firms secure will fall and drive major Canadian clients into the arms of US and UK law firms,” Gartner predicts. “Clients don’t really care who’s doing their work or where. They want someone to drive the global machine. Law firms have to respond to that need or they will be toast.”

For Gartner the 1999 merger of then Toronto-based Torys with New York-based Haythe & Curley was simply a business-driven necessity. “What’s Canada? It’s a jurisdiction where to succeed you have to prove yourself in the US and abroad. That’s been long true for Canadian business, now it’s true for Canadian law firms.”

“Canadian firms thought they were safe because the New York and London firms weren’t opening up in Canada,” Gartner continues. “Globalization does not mean opening up offices in Toronto. The US and UK firms are doing pretty good selling services around the world. They don’t have to open up on Bay Street.”

That its competition had significantly broadened wasn’t lost on Torys. As Richard Balfour notes, “We had started to compete with the major non-Canadian law firms in the world, which of course are above all centered in New York and London. In the ordinary course, if you’re thinking about a blue chip Canadian client that needs representation outside of Canada, the natural places to go are the major firms in New York and London — Cravath, Davis Polk, Freshfields or Slaughter and May.”

Suddenly the game wasn’t about breaking through or staying on the top in Toronto or Calgary, it was about staying in the game. Period. As Barry Reiter points out, “Our clients increasingly do business outside Canada, and particularly in the US.” It’s a fact. Long before free trade, as early as 1977, about 85 per cent of Canadian business was expanding into the US in one fashion or another. By the mid-1990s Canadian companies were raising more capital in the US than in Canada. By 1999, when the Torys merger was finalized, it was clear where the major growth opportunities for a corporate firm would be—and it wasn’t Bay Street.

“We had clients who loved us, who were very close to us, and who used us for all their Canadian work, but we couldn’t service them in the US because we didn’t practise US law,” explains Reiter. If the firm has any regrets about its New York plunge—to date, copied by no one although in its greenfielded 25-lawyer, US law New York office Davies Ward does have an earlier version—it’s that they didn’t do it sooner. As Reiter regretfully notes, “We still don’t do the US work for those of our Canadian clients who established earlier relationships with other US firms.”

The point? Not growing with your clients is a dangerous proposition.

You can kiss them goodbye. “It’s a global oil and gas industry,” says Jay Park. “The oil and gas industry decides on where it’s going to invest based on opportunities globally.” Park and his team have worked on oil and gas and energy projects across Asia, Africa, South America, and the Middle East. Working with clients who were as likely to go to Angola as continue to grow in Alberta, Park and his Calgary colleagues learned early on they were competing in a global legal market and that keeping clients meant going to extraordinary lengths to grow with them.

“We either had to make the commitment to fully support our clients in certain key jurisdictions or take them international and kiss them goodbye,” explains Park. Macleod Dixon went to Russia with Gulf Canada (ConocoPhillips Canada) as “lawyers with suitcases,” recalls Park. “Once Gulf was up and running in Moscow, we were not as useful to them sitting in Calgary. They needed local people to deal with domestic issues.”

And domestic issues there were aplenty. The Iron Curtain was down, the Soviet Union was falling apart, legislation was changing daily, and more and more Western companies were eyeing the resulting chaos as an opportunity. Macleod Dixon took the plunge and in 1990 became one of the first non-Russian firms to open up in Moscow.

The Moscow office has had its ups-and-downs, along with the Russian economy. As the corporate and financial services international law firms lost virtually all of their work in the late 1990s and jumped ship, Macleod Dixon’s resource-based office hung tight. Brags Park, “We are probably the top mining firm in Moscow now.”

The Moscow office landed the firm a great deal of work in Almaty, Kazakhstan—so much that by 1995 it opened up in Almaty (an associate office in Atyrau, Kazakhstan’s “Houston,” was added in 2001). Two Latin American offices—Caracas in Venezuela and Rio de Janeiro in Brazil—were next and the firm is currently considering opening a third office in Latin America and/or entering the volatile Middle East.

Park credits the success of the firm’s international strategy to its focus on emerging markets. Competing on the global playing field does not necessarily mean taking on US or UK legal giants in their home markets. “There are lots of talented and competent lawyers in New York, Houston, and London,” Park notes. “There are very few Western-trained lawyers in Almaty and Caracas.”

But, and here is the key point, a lot of potential clients in emerging markets want Western quality legal advice. As Park explains, “In Brazil until five years ago there was one oil and gas company. Now there are 25. Opportunities for law firms exist wherever expansion of industry is occurring.” For oil and gas, and the energy and resource sectors generally, these opportunities are increasingly in frontier markets.

It’s not that Canada is any less important for Macleod Dixon. “But, if you take energy as a focus area, the expansion potential internationally is better than the expansion potential domestically,” says Park. “We already have a big share of the domestic market, we frequently run into conflicts and growth domestically is challenging. When you see an opportunity like Brazil, or Latin America generally, you say that’s where we’ve got to be. You’ll pick up more work there than getting one new client in Calgary.”

Rival Bennett Jones implemented its international strategy differently. Over the last four years it has been investing significantly in its Toronto office and national platform. It currently has no international offices, although national managing partner Bill Rice confirms the firm is seriously considering opening in Southeast Asia, most likely Indonesia.

Bennett Jones pays great attention to the Calgary-Houston corridor and has been at the table for virtually all of the recent US/Canada cross-border oil and gas mergers. It has established continuing relationships of note with the merged entities, even where the headquarters relocated to Houston and even where the primary relationship was with the Canadian target. Bennett Jones alumni Henry Sykes and John Richels are now, respectively, presidents of US giants ConocoPhillips Canada and Devon Energy Corp., and the firm continues to do a significant amount of Canadian work for each client.

Globally, the international energy practice team at Bennett Jones, led by Robert Rooney, has major projects in Indonesia, Singapore and West Africa. Further demonstrating its commitment to taking clients international, former Prime Minister Jean Chrétien is now counsel to the firm on international energy matters. “A unique resource,” as national managing partner Bill Rice puts it, “bringing contacts and lines of communication in countries where the firm’s clients are looking at developing energy projects.”

The broad international practice base pursued by Bennett Jones and Macleod Dixon allows the firms to be relatively unperturbed about the recent corporate power shift to Houston. But then, they’ve seen it before. In Calgary it’s not called hollowing out. It’s just the US part of the cycle.

“The recent consolidation of oil and gas companies in Canada has reduced the number of clients. The client base is smaller and a lot of them are internationally controlled,” concedes Park. “But this is the fourth crop of mergers that I’ve seen in the course of my career, and it will be followed by domestic Canadian companies being formed and funded. I’m not despairing for a declining Canadian client base yet. This has happened at least four times before.”

Most firms in Toronto are not wringing their hands. Yet. “For most Canadian firms, in most practice areas, the continuing integration of the North American economy has not made that much of difference,” says Hugh MacKinnon. “For Canadian counsel, outside of a couple of centres, this is nothing new. They have been doing collaborative work with US counsel for years, knowing the US lawyer who is driving the bus.” They have evolved strategies to stay relevant to their clients and to US and international counsel.

This has been the historical pattern in Atlantic Canada. “It’s a fairly small pond and we’re used to our clients outgrowing the Atlantic Canada market,” notes Larry Stordy, a partner with Stewart McKelvey Stirling Scales in Halifax. “The big corporate clients of this region have long expanded beyond Nova Scotia and Atlantic Canada. We have great relationships with law firms in Ontario and Quebec and now we’re doing the same in the US.”

Montreal firms faced this dilemma as well and they went international long before their counterparts in Toronto even considered opening in New York or Calgary. “The Montreal firms like Stikeman Elliott and Phillips Vineberg were on the leading edge,” says MacKinnon.

Stikeman Elliott opened a London office in 1967. Phillips Vineberg went to Paris even earlier, in 1963. Stikemans currently has international offices in London, Hong Kong and Sydney. Davies Ward has international offices in New York, Beijing and Paris.

Yet the real driver for the Montreal firms, either in terms of entering Toronto greenfield (Stikemans, Ogilvy Renault) or by way of national merger during the late 1990s, was the migration of important Montreal corporate work to Toronto. There is thus considerable irony when Globe and Mail business columnist Eric Reguly recently observed that “New York, Boston, Atlanta, Dallas and San Francisco could do to Toronto what Toronto did to Montreal.”

Most threatened by the prospect of decision-making shifting to the US, and the bypassing of Canadian capital markets, are the large Toronto-based firms, particularly their M&A and corporate finance practices. “Toronto had been content to look inward longer than other centres because the domestic market centered here was so large,” notes MacKinnon. It can no longer afford to do so. As MacKinnon puts it, “Firms should be looking at the key practice areas of the future, and how these areas are affected by their US strategy, instead of looking in the rear-view mirror, wishing we had that work.”

There is a new legal Rubicon. As Barry Reiter notes, “There are still some firms who covet the days we once had in the domestic market, when we didn’t have to be out there competing in the global world.” The consensus among many top corporate lawyers is that while there remains a place for domestically focused practices, corporate firms have to adapt to competing on the global playing field.

For Torys the future is clearly to play to a wider stage. “It sounds immodest, but our move into New York is a bold step,” says Reiter. “It’s us being confident that if our centre of gravity shifts to the US, if we will have 300 lawyers in Toronto and 500 lawyers in New York, because it’s a bigger market, that’s good for us.”

No other Canadian firm has crossed the Rubicon as completely as Torys. Not Davies Ward. Not McCarthy Tétrault. Not Fasken Martineau nor Fraser Milner Casgrain. It involves fundamental questions as to how a firm will position itself respecting the all-important cross-border work and Canadian market referrals from US firms.

In early 2004 Blake, Cassels & Graydon LLP opened offices in New York and Chicago. “Our intent is not to compete with the large US law firms,” says Mike Gans, one of two Blakes partners now resident in New York. “We practise Canadian law exclusively.” The purpose of the offices is to pursue Canadian work originating in the US. Geoff Belsher, the firm’s Chicago resident partner, notes that the two offices are just part of “an increased focus on the US across all our offices. We’ve become significantly more active in marketing ourselves in the US, and we’ve dedicated substantial resources to the strategy.”

McMillan Binch is following a similar strategy, without the expense of US offices. Branding itself as “America’s Canadian law firm,” McMillan Binch has long realized that “a significant part of the firm’s business comes from the US, with a particular strength in the Midwest.” John Clifford, the partner in charge of the Midwest initiative, goes on to point out that he and his colleagues spend a lot on time in Chicago and other Midwestern cities “meeting with lawyers we know and want to know. We have found that most of the largest and smaller US law firms are not coordinated in how they make referrals. Our priority is to be at the top of the list.”

It’s a strategy that accepts McMillan Binch won’t always be driving the bus. As Clifford concedes, “You always want to be doing the deal, but the reality is that US counsel may perceive you as just a Canadian piece, or a piece of a Canadian piece.”

Garth Girvan, a leading corporate lawyer at McCarthys in Toronto, doesn’t see carpetbagging, rep offices, or “best-friend policies” as viable long-term solutions for delivering cross-border services to Canadian or US clients. “The firm that gets it right will be the firm that is able to service clients in US or Canadian law, whichever is relevant.”

The current US law capability at McCarthys is modest. The firm’s “non-exclusive” alliance with New York-based Fried, Frank, Harris, Shriver & Jacobson LLP is “confined to capital markets work.” Girvan, however, envisions his firm “in time developing our own US capabilities. The future will permit a number of firms practising both US and Canadian law. It’s not the solution for everyone, but some firms will do that and probably that’s the direction we’re going.”

In keeping with its commitment to a major cross-border practice, McCarthys was recently joined by John Manley, Canada’s former deputy prime minister, finance minister and, most important, foreign affairs minister. The firm is looking to profit from, in the words of CEO W. Iain Scott, Manley’s “wealth of experience and contacts in the business, government, and public policy communities in Canada, the US, and internationally.”

At Macleod Dixon in Calgary, Jay Park is looking past New York and Houston to emerging markets not yet populated with New York and London majors, where a Canadian firm can benefit from first mover advantage. He already enjoys one significant advantage over his Toronto corporate finance and M&A colleagues. As they debate whether to practise US law or not, he’s working in an international oil and gas sector where “Canadian approaches, Canadian laws and procedures are well-accepted internationally.”

Toronto mining lawyers, such as Jay Kellerman at Stikeman Elliott, and John Craig and Paul Stein at Cassels Brock & Blackwell LLP, enjoy a similar advantage. “We’re a resource-based economy,” says Kellerman. “Having had that base led us to develop expertise and now we rank up there in the world. Canada has been successful in exporting that know-how around the world. Any place new mining exploration is going on, it’s led by Canadians.”

By contrast, in the global capital markets Canada is, well, as one of the more polite New York lawyers phrased it, “somewhat important but not strategically relevant.” And so, while industry practice areas like mining and oil and gas thrive on globalization, the continentalization of the North American economy, as Hugh MacKinnon puts it, has had the “large M&A/corporate financing groups in Toronto watch important clients float down the Hudson River.”

Gulf Canada, the client that led Macleod Dixon to Moscow, was historically a Bennett Jones client. But, Macleod Dixon had a partner, Paul Drager, who had served as a diplomat at the Canadian embassies in Moscow and The Hague. They took Gulf—and then numerous other clients—to Russia. Bennett Jones got to take Gulf to Indonesia, and continues to work for Gulf Indonesia, now also owned by ConocoPhillips. And if the firm’s plans to open up an office in Southeast Asia go forward, Gulf may well be credited with taking each of the Calgary energy rivals international.

Gulf’s use of both Calgary powerhouses illustrates another rule of the global playing field: just because your client used you for the last 50 years doesn’t mean they’ll use you in their next transaction, especially if they’re going international. It doesn’t matter that Toronto firms are more expensive than Vancouver firms or that New York firms charge higher rates than Montreal. The rates in London and New York are exorbitant, but it’s London and New York names that dominate global corporate deals.

Andrew Fleming at Ogilvy Renault suggests Canadian law firms are dropping their “mantra” of “we’re cheaper, our rent is lower, our lawyers make less, our secretaries make less, we can offer a lower cost service.” It’s not the image you want to put forward when competing with New York and London majors. As Fleming puts it, “If we want to do higher margin work, we should not say we’ll do it for cheap.”

The editors of The Economist (February 26-March 3, 2000) agree with Fleming. “When billions are at stake, nobody is sacked for hiring the best lawyers. Even the sometimes inflated bills of the top firms are a small fraction of the cost of such deals, and far less than the investment bankers’ fees. For these reasons, the world’s biggest companies have traditionally played safe and reached for one of the top New York or London firms.”

High stakes. High fees. But there’s more. Credibility. Clients operating internationally want competent lawyers those who know how business is done in the foreign jurisdiction.

Sophisticated domestic and international clients accept that a Blakes or Oslers lawyer can hold his or her own with a counterpart from London or New York. But do they know how business is done in New York? Or Kazakhstan?

Some do. Macleod Dixon differentiates itself by demonstrating solid frontier markets capability through its international offices, staffed with local, but Western standards-trained lawyers. At Davies Ward, Peter Mendell has a reputation for knowing how business is done everywhere. “Most of the time, the work you do, whether it’s in Australia, Regina, or Paris, it’s the same,” he shrugs. “The laws are a little different, but the work is the same.”

Some don’t. That the North American and global playing fields will lead to diminishing returns for some Canadian firms is probably inevitable. The hardest hit will likely be firms who rely heavily on a traditional relationship-based client base. The New York and London law firms that dominate international corporate transactions today are predominantly transactional, and for a good reason. As Torys, arguably one of the most relationship-based law firms among Toronto’s top-tier, found out, good client relationships aren’t enough when a client outgrows what you offer.

Brutally competitive? Yes. Unfair? No. Those that have profited from cross-border and global work have all emphasized that law firms must grow with their client base. As firms confront the growing relocation of corporate and legal decision-making to the US, they would be well-served by a rereading of Marshall McLuhan (1911-1980), “Control over change would seem to consist in moving not with it but ahead of it.” As UK legal powerhouse Freshfields never tires of pointing out, one must anticipate where markets will take clients, before the clients themselves know.

Marzena Czarnecka is a Lexpert staff writer.