MUMBAI: HSA Advocates, an infrastructure and transaction law firm, recently hired a senior professional to head the firm. Founder Hemant Sahai stepped aside in April for Amitabh Sharma, who joined as managing partner from one of India’s biggest law firms — Khaitan & Co.

Such a move would have been unprecedented until recently in India’s legal circles, where the top job at small and mid-sized firms is usually held by the founding family, especially since Sahai is only in his mid-50s. But under fire from the big law firms that are luring away talent with skyrocketing salaries, smaller firms are being forced to make drastic changes as they fight to retain their best people and attract fresh talent.

HSA, which currently has about 85 lawyers, is undergoing a restructuring exercise that involves a revamp of its institutional, governance andcompensation systems.

Phoenix Legal, another New Delhi-headquartered firm, is in talks to hire a consultant and is looking to restructure its equity model, which will then be linked to performance.

Compensation, profit sharing, job profiles, ownership structures — all these are up for transformation. Some are even offering pensions and post-retirement benefits. Among the advisers being roped in for the exercise are Boston Consulting Group (BCG), Aon Hewitt Consulting, Singapore-based Comaea Consulting and London-based Miller Hunter, Hildebrandt Consulting, apart from the big four — EY, PwC, Deloitte and KPMG.

HSA is looking to hire BCG for its ongoing revamp. “Many Indian law firms, including ours, are trying to create institutional structures insulated from family/individual ownership, management and governance control,” said Sharma. “The churn within the big law firms has resulted in some kind of uncertainty in the minds of clients, which again is one of the influencing factors — other than the cost competitiveness — for clients to look more seriously towards the pool of mid-sized firms.”

The root of the revolution stems from the split in Amarchand Mangaldas & Suresh A Shroff & Co., then the country’s biggest law firm, and led to brothers Cyril and Shardul Shroff parting ways. This gave rise to two big firms — Cyril Amarchand Mangaldas (CAM) and Shardul Amarchand Mangaldas (SAM) — which fought for talent, poaching from other firms, including Zia Mody-led AZB & Partners.

Mody went on her own hiring campaign. Ashwath Rau, senior partner at CAM, joined Mody along with his team in Mumbai. CAM recruited Percival (Percy) Billimoria from AZB for its Delhi office. Rau joined AZB & Partners in the beginning of June as senior partner and he is looking after the firm’s general corporate practice along with transactions.

The grapevine has it that some partners who were earning around Rs 2.5-3 crore annually are now getting Rs 7-9 crore. That’s forced smaller firms to change. Firms are looking to reward loyalty with partners completing a certain number of years assured of a rising share in equity. Law firms undertaking such exercises include S&R Associates, Phoenix Legal, MDP Partners and IndusLaw among others. Trilegal has already implemented a full equity lockstep partner compensation model, which involves profit sharing, along the lines of that adopted by international law firms.

“We continue to review and refine that structure with a view to building an institutional firm that offers partners the best environment within which to build their practice and their professional future,” said Rahul Matthan, partner, Trilegal.

“We have various initiatives underway that are aimed at adopting technology to better improve the efficiency of our services and have invested heavily in institutionalising the firm so as to appropriately broad base the leadership of the firm.”

Consultants say many law firms operate like family-run shops with equity seldom passed on to outside professionals. But with many lawyers demanding equity to stay, change has become inevitable.

“The competitive landscape has changed for law firms in India and there are some big shifts, like the nature of demand changing due to the size of the Indian companies and people (employees, lawyers) seeking a stronger and more immediate value proposition,” said Alpesh Shah, senior partner, BCG. Many Indian law firms are trying to create institutional structures insulated from family and individual ownership, management and governance control.

Nishit Desai & Associates, a law firm based in Mumbai, has been exploring new verticals and giving responsibilities to younger lawyers. Similarly, Suneeth Katarki, founding partner of Bengaluru law firm Indus-Law has successfully tapped startups with the help of younger lawyers driven by promises of rapid advancement. The firm has been talking with one of the big four to advise it on an equity partnership model.

“You need a certain scale to be a toptier law firm and so we were very clear that we wanted to grow fast to achieve that scale,” said Katarki. “While good-quality work always helps build your brand and grow fast, we were also lucky in that many of our clients were unicorn startups that grew rapidly and to meet their growing requirements we got the opportunity to grow.” The firm, which has 16 partners and 120 lawyers, intends to hire about 200 lawyers in a few years.

“When you are in a hurry to achieve such scale, you need to hire the right expert,” Katarki said. Such firms are far more generous with promotions and awarding partnerships although there is some muttering about dilution of standards, usually on the part of older lawyers. “We are engaging our firm to review our remuneration and partnership structure consistent with our philosophy to be a meritocratic firm which does not shy away from diluting equity,” said Saket Shukla, cofounder of transaction and dispute firm Phoenix Legal. The firm has grown from four founders and six associates to a 60-member firm. All this churn comes as law firm revenue has been hit with Indian conglomerates hiring in-house lawyers. But specialisation doesn’t come easy to smaller firms.

“As Indian companies become big, they have operations globally and across multiple businesses and need alaw firm that can advise them in broader areas as well as specialised complex international matters as they already have huge in-house teams which are already doing a lot of basic work,” said Shah of BCG. Law firms are also making changes with an eye to the future.

“Increasingly there is a concern among law firms about what will happen to the partnership and who will take over after the main partners retire,” said Anandorup Ghose, partner, talent and rewards, Aon Hewitt Consulting.

“Currently, the structure for partnership equity transfer across generations is not very clearly defined in the mid-tier firms.” The aim is to prepare a second rung that can take over and buy out older partners and owners. Unlike other sectors, consolidation is rare in legal circles.

“In our minds, the next great challenge that the industry will need to address and resolve is institutionalisation as existing traditional hierarchies need to give way to newer more modern leadership and management structures,” said Matthan of Trilegal.

Many small firms also send younger partners for signing international deals, an opportunity hard to come by in the larger firms as it’s usually handled by partners. Smaller firms say they are also more nimble at dealing with technological advances.

“We are not only aggressively involved in hiring consulting firms to advise us on making operations more structural but also spending money on costly legal software and technologies.

That was not the case a couple of years ago,” said Nishit Dhruva, managing partner of Mumbaibased law firm MDP Partners. “We are also planning to expand in terms of bench strength.” Others are also betting on rapidly growing startups, an area that bigger law firms would find it difficult to tap.

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