What is the best way for a law firm to manage the exit of a star partner? Six senior lawyers share their views with Vandana Chatlani

With the global economy firmly in the grip of the covid-19 pandemic, one could be forgiven for assuming that the retention of key talent is not at the top of the list of issues keeping law firm managing partners awake at night. Lawyers would surely be grateful to have any job at the present time and be unlikely to go out in search of greener pastures.

But such an assumption may be misguided – and dangerous. While attrition rates among senior lawyers have certainly fallen since the onset of the pandemic, high-profile departures continue to rock established law firms.

AZB & Partners, for example, lost partner and A-list lawyer Madhurima Mukherjee, who in June took up a consultancy role with J Sagar Associates and became the mentor at charity IDIA, which works to promote access to legal education for people from underprivileged backgrounds. Similarly, Ajay Raghavan, a sought-after partner in Trilegal’s employment practice, and also an A-list lawyer, left the firm earlier this year to set up a climate change NGO.

Law firms are aware of the danger, and the fact that so many have continued to roll out partnership promotions and other retention measures, even as they reel from the effects of the pandemic, demonstrates their fear of losing star performers. AZB & Partners, HSA Advocates, IndusLaw, J Sagar Associates and Trilegal are among many firms that have announced partnership promotions in the midst of the crisis.

India’s legal market traditionally had very low attrition levels, with lawyers often staying with one law firm for the majority of their careers. This began to change in the early 2000s, when it became commonplace for lawyers to switch between competing firms, opt for in-house roles, join peers to launch their own firms, or leave the profession to pursue different avenues altogether.

The nationwide recruitment market churned in 2015, when India’s largest law firm at the time, Amarchand Mangaldas & Suresh A Shroff & Co, split into two firms – Shardul Amarchand Mangaldas & Co (SAM), and Cyril Amarchand Mangaldas. Both of the new firms embarked on aggressive hiring sprees at all levels, with knock-on effects that reached just about every major law firm in the country.

Such mass movements of lawyers have not been seen since, but in the past few years an increasing number of high-profile lawyers from large established firms have jumped to competitors, or set up on their own.

‘Almost zero’

“We’ve been fortunate that until about 2004 to 2005, attrition was almost zero,” says Rajiv Luthra, the managing partner at L&L Partners. “Over the past five to seven years, the whole marketplace has changed, along with the opportunities available. New firms have emerged, foreign law firms are hiring from India, head-hunters are very active, startups are looking for legal talent … this never existed in the past. We are trying to empower our people more to figure out what they really want.”

The evolution of the legal market has spurred investment in practice development, compensation models, technology, talent acquisition, retention and training. Much of this has led to a maturity and overall acceptance that exits are inevitable regardless of the size, stature and reputation of a law firm.

“In the initial stages about 20 years ago, when we were much smaller, I used to be extremely upset when someone left,” says SAM’s executive chairman, Shardul Shroff. “As time goes on, you realize that this is a service industry where people will come and go. It is part of life. You can’t hold on to people if they want to leave.”

“It is par for the course to have some partners leave at some time,” says Vivek Chandy, the joint managing partner at J Sagar Associates (JSA). “It is not overly concerning.”

Difficult conversations

While attitudes towards partner exits may be healthy, facing the departure of a prominent partner, and perhaps members of his/her team as well, is not always easy.

Vikram Nankani and Rohan Shah, two of the four founding partners at Economic Laws Practices (ELP), left the firm in 2013 and 2016, respectively, to pursue counsel practices. “There were many questions raised on whether we had the capacity, especially in tax and litigation, to carry forth the legacy of the founding partners,” says Sujjain Talwar, another of the firm’s founding partners. “These were fair questions and while we said ‘yes, we have the capability and people to deliver’, the proof lay in how many people stayed on at the firm, and whether clients, business and our reputation continued to grow.”

Talwar admits that a greater degree of handholding was required to preserve ELP’s standing and credibility, during and after the transition period. The firm held numerous meetings, scheduled collaborative off-sites, laid out business plans and trusted younger partners to plug the vacuum of leadership and expertise left by the exiting founders.

“These exits happened at a critical time, when the GST [goods and services tax] was just being rolled out,” says Talwar. “It was a new statute that affected so many companies and industries, so it allowed us the opportunity to engage with clients on a regular basis, rather than episodically.

“Clients were able to see our tax teams working over a period of time, rather than on one-off calls or emails, which automatically built confidence. It was helpful for us because it exposed them to the depth and breadth of our tax practice.”

Manan Lahoty left L&L Partners last August to join IndusLaw, whisking away a team of 17 including four partners. Lahoty’s exit was a contentious one, which led to arbitration proceedings between the parties and eventually litigation in Bombay High Court over non-compete and non-solicitation clauses. The parties eventually agreed to settle the matter through an interim arrangement.

The exodus was viewed as a blow for the firm, and Luthra says he became heavily involved to reassure clients that they had not been abandoned, and that unfinished matters would be completed. L&L and IndusLaw agreed to service outstanding mandates together during a transition period where fees were divided between the firms, with L&L retaining deal credit for prospectuses, according to several sources.

“I got involved personally and went round to meet all the clients,” says Luthra. “I spent about two weeks in Mumbai and a week in Delhi speaking to everyone. Luckily the chairmen and managing directors of many banks and companies have become personal friends of mine over the years, so I managed to get a decent portfolio.” The firm also hired Jitesh Shahani last November from Allen & Overy, who worked at L&L as a junior lawyer at the start of his career. “We’ve luckily closed our eighth deal since Manan left,” says Luthra.

“It has broken my faith a little in human beings, but we all live and learn and move on,” he says. “It wasn’t the best thing to happen, but when you can’t control things, you should be the one giving the bad news, and not hear it from a third party. I always take the bull by the horns.”

Last April, HSA suffered a mass exodus after DSK Legal took seven of its partners including senior partners Anjan Dasgupta and Aparajit Bhattacharya.

Rajiv Luthra,Managing Partner,L&L Partners

“When people leave, it creates a void, and you can adopt an adversarial position or you can be open,” says HSA partner and chief strategy officer, Ashutosh Gupta. “It was important for us to be honest about what led to that exodus, admit that it was a great loss for us and commit to evaluating the situation to see what we could do better in order to course-correct as required. If you put too clever a spin on things, people will know immediately that something is amiss.”

Mass exits can often lead to widespread speculation from external observers about a firm’s health, operational effectiveness, financial position and human resource policies. But it can also cause jitters and shake faith internally. In such situations, says Gupta, media reportage is not important, because it runs on a one-week cycle and is soon forgotten. Strong internal messaging, however, is paramount to ensure people are aligned within an organization.

“What helped HSA is taking seasoned senior and principal associates to meetings when we would meet clients,” he says. “It was very important for them to hear not just a partner or managing partner, but a client saying, ‘we understand these things happen all the time and we have full confidence in the firm’.

“Associates will naturally relay these conversations to their peers internally, and that makes for effortless messaging and inherent credibility, rather than a speech given by the firm or team’s leader. It is a fundamental way to retain associates.

“It takes time, especially if it is a large enough team separating from a firm,” says Gupta. “It took us about six or seven months to recover, but we’ve managed to attract talent from L&L Partners, SAM & Co, Khaitan & Co, and others.”

Protection measures

Lawyers joining a new organization are accustomed to signing employment contracts designed to uphold post-termination obligations such as non-disclosure of confidential information, non-solicitation and non-compete.

However, Gupta says senior leadership has become increasingly focused on this area in the past two or three years. Earlier, the inclusion of such provisions in a contract was seen as a box-ticking exercise, while now, Gupta says, “it is very common for the HR head or managing partner to sit partners down and really focus on the consequences of those clauses”.

Although these safeguards offer the firm some degree of protection, Gupta admits there are always workarounds and loopholes because most large firms have prior connections with top-tier established companies.

At L&L, the employment contract typically states that lawyers who leave cannot work with the firm’s clients for two years. However, Luthra says the firm can exercise leniency before the end of this timeframe. “A number of our good clients have taken seven or eight of our lawyers as in-house counsel,” he says. “If people go happy, you become the go-to firm. If you make it acrimonious, people will work with someone else.”

Tech talk

 

Law firms buy into technology as tool for evaluation, protection

While law firms have been using practice management software for several years to enhance growth, profitability and improve client servicing, many are taking the next step to look at analytics relating to employee performance.

“We used to have a very simple appraisal system because I knew everyone,” says Rajiv Luthra, the managing partner at L&L Partners. “Now I have a team that is creating a dashboard with all the parameters laid out. It isn’t all based on money, but also takes into account attrition, attendance, client development, billing, etc.”
In terms of data protection, Luthra feels assured. Every evening, 2TB of data from each of the firm’s four offices is downloaded and sent to a safe at least 20 buildings away from the firm’s premises. “Data is also backed up from each office to the other,” he says. “We’ve had this in place for the past 16-18 years.”

HSA is using data analytics to go beyond billing and timesheets to consider factors such as lead generation and the status of leads. The firm is also trying to promote a cross-selling perspective among the top 20% of clients in each practice area. “It is the proverbial low-hanging fruit,” says Gupta. “If you are already well-entrenched in a group, it makes sense for you to be introducing a couple of other practices for which immediate need exists at the client’s end. We aren’t using data analytics only to assess a single partner relationship, but to understand how to boost our performance in different geographies, sectors and client groups.”

Shardul Amarchand Mangaldas & Co uses technology to help immediately monitor partners who have announced their exit plans. “If you were to take anything that doesn’t concern you as a departing partner, our IT department would get an immediate notification about the sites you have visited internally,” says executive chairman Shardul Shroff. The IT department could then impose restrictions on the sites available to that partner as they service their notice.

SAM & Co does not have a full-fledged non-compete agreement, but the firm insists on exiting partners serving their full notice and gardening leave before joining a competitor. It also asks partners to comply with a non-solicitation clause, which originally lasted for four or five years, but has progressively been reduced in some instances to one year and in others to six months. “The market is mobile and there’s no sense in trying to chain people to yourself,” says Shroff. “Beyond a particular period of time, people must be let go.”

Every equity partner must put in a capital contribution at SAM & Co as part of the firm’s entry strategy. Shroff says those coming in at a profit-sharing level must have “skin in the game”. If an equity partner decides to leave without serving his/her full notice period or gardening leave, SAM & Co has the right to withhold their capital. “We’ve never had the occasion to exercise this right,” adds Shroff.

If a partner leaves on good terms, they are entitled not only to their capital, but also their share of the profit, which is decided annually and prorated up to the date of their departure. “These are incentives to behave well,” he says. “We don’t forfeit the profit just because someone decides to leave. If you are fair, people are fair.” Although employment contracts across many law firms contain non-compete provisions, some are more strictly enforced than others.

Fortunately for ELP, the founding partners exited in a “collaborative and consensual” manner, choosing to practise as independent counsel rather than joining one of the firm’s competitors. “They were very considerate,” says Talwar. “Everyone was taken into confidence, lawyers knew months before this occurred, and so we had enough time to make the necessary adjustment.”

ELP’s main concerns, says Talwar, are always to prevent disruption at the firm and solicitation of other team members. However, when it comes to clients showing a preference for the exiting partner, Talwar says ELP has always respected their wishes. “We wouldn’t fight that,” he says. “If a client feels comfortable and confident working with a specific partner, no amount of processes, procedures and contracts can take away from that. There is no point harping on about non-compete covenants.”

JSA’s philosophy goes against restricting client access altogether. “We have no such provision,” says Chandy. “If a partner was good enough to have a large number of clients that they could take with them, chances are we would have made them an equity partner. Each person has the right to reach out to clients … they are most welcome to take them. Ultimately clients will decide who they want to work with.”

Sridhar Gorthi, a partner at Trilegal, shares the same view. “We believe our partners are professionals who will conduct themselves ethically and with the highest levels of integrity,” he says. “If we have to part ways, we do our best to keep things amicable and professional. As a result … we do not see any value in imposing restrictive conditions such as gardening leave, etc.”

Sujjain Talwar,Founding Partner,Economic Laws Practice

Safety nets

Senior lawyers across law firms have been known to operate in a semi-autonomous manner for years, working under the banner of a particular firm’s brand, but essentially managing their own pipelines of work. Lawyers at this level have often been criticized for their unwillingness to share knowledge and skillsets, thereby fuelling a culture of insecurity and secrecy.

These attitudes have shifted in the recent past as firms take active steps to dismantle silos in a bid to foster true partnerships and create deep layers of expertise for clients to tap into. As a result, it is now fairly common for mid and large-sized firms to have multiple partners in each practice area, and at least two attending every client matter.

Trilegal, too, has sought to build institutional client relationships, “with multiple partner touch points to better integrate and strengthen relationships at a firm level”, says Gorthi. “In the event of a partner departure, we take proactive steps to discuss with the client, upfront, on steps to manage the relationship and retain work – for example, by bringing in relevant partners with the right expertise to continue servicing ongoing work and manage the future pipeline.”

Many firms that were previously fixated only on numbers and revenue have now realized the value of considering other performance and delivery factors. “There has been a dramatic change with more broad-based oversight,” says Gupta. “We have a 360-degree HR appraisal process, which most firms have adopted. That gives us a lot of intelligence from juniors about how teams are being managed.”

At HSA, pitching and business development always involves two partners. The idea is to create a second level of connect within the institution while preserving the space for each partner to showcase their talent. “One is the relationship partner, while the other can step in if required so as not to stymie the lead partner’s market-facing spark,” says Gupta.

SAM follows a similar approach, with each practice comprising multi-partner teams. For example, an equity-led partner team will usually have two or three salaried or fixed-sharing partners. While this does not suggest dispensability, Shroff says it means there are always others who can easily transit the matter. “We build in a sufficient timeframe so we can have a full transition take place to ensure the client is never stranded,” he says.

Sridhar Gorthi,Partner,Trilegal

Talent retention

Firms that have tried to imbibe the philosophy of institution over individual often find it easier to replace exiting stars with new top talent.

Trilegal prides itself on its “strictly meritocratic work culture”, which encourages collaboration across teams and specializations. Out of 54 partners, only six have left the firm in the past five years. Of these, just two went on to join competing firms, while 11 partners joined from rivals over the same time period.

In April, the firm introduced a new governance structure with a management committee, board, heads of practice groups and office heads to focus on supporting an inter-generational transition and further institutionalization.

The firm’s “all equity” model offers another huge draw. “The model gives our partners a sense of ownership coupled with a high degree of autonomy and independence in the way they manage their practices,” says Gorthi.

Other firms have adopted a similar ethos. At ELP, “no one stays at the firm permanently and no one gets an unlimited amount of profits,” says Talwar. The firm has a semi-lockstep system in place and a retirement age of 65, which means there will always be another generation of partners waiting in the wings to inherit and become custodians.

JSA is also renowned for offering equal opportunities and an open door to equity for those partners capable enough of fulfilling the required criteria. “No one owns the firm,” says Chandy. “Ultimately we are an LLP [limited liability partnership], so you must have trust and faith in all your partners.”

Shroff believes the firm’s freedom of operation, lack of micromanagement, exposure to high-calibre deals and rewards for outstanding performance hold great appeal for aspiring partners. He also emphasizes a kind and humane approach to running the firm. “It’s ultimately how well you treat people that determines your retention strategy.”

Luthra has taken a number of concrete steps to modernize L&L Partners and open up avenues to ownership, and in the past eight months he has been working on plans to dilute his equity. The firm also amended employment contracts, which previously stipulated that lawyers were bound to the firm for four years. “The younger lawyers would tell me the rules were very draconian,” says Luthra. “I realized a lot of good people stopped choosing the firm for this reason. Now we have a simple gestation period of about six months, after which either party can leave after providing a reason.”

HSA’s business origination incentive rewards non-partners for the clients they bring into the firm. “Many times junior lawyers would introduce partners to their friends or peers working at different companies, however, they never received recognition or credit for that,” says Gupta. “That shouldn’t be the case because associates are critical members of the firm.”

The firm has also developed a structured “cross-sell incentive”. So partners who bring in a client (even if they are an existing client) for a practice area different to their own, are entitled to a certain range of financial and non-financial incentives, explains Gupta.

A silver lining?

An amicable parting of ways is always the goal. Lawyers say if they avoid burning bridges, partner departures can potentially generate new avenues of work. “One of our bright youngsters got an opportunity to become an equity partner at PwC,” says Luthra. “It has been a year since he left and I don’t think a week passes by without him sending us a new client.”

Chandy says JSA is always happy to recommend people who have left the firm. “We have alumni working with many clients and corporates – it’s a way of getting more work,” he says.

Shardul Shroff,Executive Chairman,Shardul Amarchand Mangaldas & CoMany are confident about filling gaps at the senior level. Shroff says head-hunters have been able to locate different people across organizations over a three-month period to replace partners who have left. “The market is not so shallow; there is enough talent,” he says.

Gupta points out that larger firms often have a rung of senior partners who tend to get a lot of face time and publicity, internally and externally. “There is a very capable level of lawyers just below them who crave more exposure and experience,” he says. “It is this talent that ends up filling the void.”