Oh, Canada!

In some quarters, there is the misperception that Canadian law firms lag behind their American counterparts when it comes to marketing practices, but in fact Canadian firms are no less sophisticated at marketing. They simply operate in an environment that is vastly different. Based on conversations with various Managing Partners, Chief Operating Officers, Chief Marketing Officers and other legal industry insiders it is clear that the marketing of Canadian law firms suffers more from the structure of the Canadian sector than from any specific approach to marketing.

Market Snapshot

There are five main markets in Canada built around regional city centres: Vancouver, Calgary, Toronto, Ottawa, and Montreal. The big profile firms in the country are based in Toronto, where the lion's share of corporate Canada and influential financial markets fuel Canada's economic engine.

Only fairly recently did a national market become possible as a result of the 1989 Supreme Court of Canada ruling in Black et al v. Law Society of Alberta, which opened the door to inter-provincial law firm mergers. The bulk of such mergers happened in the late 1990s, resulting in about a dozen national firms vying for the coveted “Seven Sisters” moniker. Membership in this prestigious group of Tier One firms for corporate matters has not changed since its birth in Lexpert magazine's inaugural edition.

The national law firm phenomenon was spawned in part by fear of globalization: Canadian law firms felt they had to “bulk up” to better compete when mega-firms from New York and other major U.S. centers entered the Canadian market. Canadian firms were also motivated to get big in order to position themselves as desirable candidates for a North/South merger.

It has been obvious however, that U.S. law firms do not need to secure a large footprint on Bay Street to compete with Canadian law firms. There are a handful of small satellite offices in Toronto representing their well-recognized U.S. firms. Some practice Canadian law while the majority focus on U.S. law, but more importantly they stand as a gateway to bring Canadian business directly to the U.S. firm. Unless there was a solid business case for a North/South merger, almost everyone recognized the detrimental impact such a merger would bring to the U.S. firm's profit per partner ratio. There is only one national Canadian law firm that has consistently qualified on the AmLaw Top 100 list over the past 4 years and even then, it falls in the bottom tier.

In comparison, the U.S. has many strong regional markets, many of them ultra-competitive. The sheer number of capable firms in the U.S. is dizzying. One insider offered this generalization: The more competitive a market for legal services, the more aggressive and developed its marketing practices are, especially when 70 firms are chasing the same piece of business.

Another marketing head noted the extent of litigation-driven business differs greatly between the two countries. There is a greater tendency to go to court in the U.S. over disputes, and state prosecutors are much more aggressive.

Finally, New York is simply on a scale completely different from Toronto. There are a number of top-ranked Canadian-based firms that have established a New York presence ' the first of which was Tory's in 1999 ' but for the most part their presence is to raise awareness with New York firms in order to capture a greater market share of South/North business.

Most COOs suggest the Canadian market has matured since 2000, reducing growth opportunities. They feel that client loyalty is declining while price sensitivity is increasing.

There remains a deep concern regarding the shrinking Canadian market for high-end legal services. Canadian clients are spending less of their legal budgets in Canada, despite the fact that the fees that Canadian law firms charge pale in comparison to the U.S. firms. High-end transaction business and major capital market work, including IPOs, is static or growing slowly at best ' and every firm is after it. The deal flow in general has declined as Canadian companies eye bountiful capital pools south of the border. Mega-deals are being done by fewer and fewer law firms. On cross-border deals, it's not uncommon for a Canadian client to first retain a U.S. firm and leave it to that law firm to retain a Canadian firm ' even if the company has had a previous relationship with a Canadian law firm. Ultimately for Canadian firms, it means the audience they need to market to becomes the U.S. legal profession, not Canadian business.

Canadian businesses typically have fewer firms engaged than U.S. businesses. A familiar theme perhaps to U.S. firms, Managing Partners in Canada say that their largest clients have never been more demanding. It was widely reported that TD Bank formally reviewed a multitude of law firm engagements across the country and consolidated to but a handful of preferred legal service providers. Other financial institutions soon followed suit.

A dramatic increase in RFPs and beauty parades are also evident for a couple of reasons. CEOs and Boards are pushing their legal departments to improve value but more importantly it is sending a signal that legal services are increasingly becoming commoditized. Companies are shopping the legal work around in order to secure the best pricing deal. Some practices are caving to price pressures while other practice groups are looking to capture more value through sales approaches and rudimentary key account management.

Marketing Motions

All of these factors, taken together, have dramatically pushed the complexity of effectively marketing a law firm in Canada. No wonder more than half the CMOs we talked with said that a major mind shift in the way firms market and sell their services will be needed in order to grow business. The key question is: Are Managing Partners or governing bodies within the firm listening?

The new model requires a smarter, strategic approach to marketing with a greater focus on business development. Whether the Canadian market has room for a dozen national full-service legal providers remains questionable. What might become necessary for Canadian firms is to take a more strategic focus on a few practice segments and to develop unique and differentiating expertise.

In the past 3 years, marketing departments at the fore have shifted from the variety of one-off traditional tactical marketing and communication-related deliverables to focused efforts on developing and growing long-term relationships with clients and prospects. This strategic approach identifies key clients and targets prospects with potential for growth. Specific plans to define service teams and identify offerings in order to build the business relationship are developed with the guidance of an in-house marketing expert or external consultant. Such efforts include satisfaction surveys to better understand client needs and gauge firm performance over the course of the business relationship.

Unfortunately, the majority of Canadian firms still view marketing as a cost center. Because of that, they assign budgets and make decisions purely from a dollars-and-cents perspective rather than value and return to accomplish business objectives, which does not make sense. Many departments are finding their workloads increasing and budgets decreasing. Department turnover ratios far exceed those of other professional services firms and the average term of a CMO in Canada falls well short of 2 years.

Of equal impact is the aversion to investing in market research. Firms are quick to pay huge sums to list in a variety of legal directories that have little marketing value, yet prefer to trust and rely on anecdotal knowledge of the market place and their clients. Even if the firm is about to enter a new market or offer a new service they will abstain from investing in real client or market intelligence. Business Intelligence is one area the majority of participants recognized in which a few American firms excel.

Recruiting efforts to staff marketing departments has changed noticeably from internal administrative moves to retaining marketing talent experienced in proposal writing and practice group management. Many of Canada's top firms experienced a change of marketing heads in the past year and some firms used the opportunity to retain sales talent and business development expertise from other professional service firms.

An Identity Crisis In The North

Looking at the Canadian legal landscape, it appears that most Canadian firms suffer from an identity crisis. They do not know who they are, who they want to be, or who they should be ' much less how to get there. One reporter suggested that firms are still thinking about who they were or are in early stages of transitioning from the “founder” model to the “institutional” model.

The biggest concern for marketing directors at Canadian firms is to figure out how to position today's law firm and how to deliver against that position in a way that allows the firm to differentiate and either maintain or grow the margin. After that, they recognize everything becomes tactical rather than strategic. Asking a marketing department to differentiate based upon a business model that is not differentiated is an impossible task. Put aside lawyer-client personal relationships, which are fleeting as the younger generation of lawyers rise in the partnership ranks, and the reality is clients are getting the same service and offerings from a dozen different firms despite their claims of providing the highest quality and service compared to other firms.

A notable few Canadian firms began branding and positioning efforts to differentiate, but it is questionable how many have actually maintained implementation and developed staying power. There are but a few exceptions where Canadian firms have taken strategic steps to define their “core” ' playing to their strengths, to change their business model and differentiate. Tory's, with its New York office, and Davies, with its M&A expertise, are most frequently noted in this regard.

What Direction Will It Take?

There is a broad spectrum of players in Canada, but which firms are positioning to become the winners in a market that is unsettled and evolving remains anyone's guess. Everyone questions how many top-tier law firms can operate profitably in a country of just 32 million people and in a market that is becoming more and more a mid-tier.

The hypothesis leads one to believe consolidation may be on the horizon, and a sharper division between the top three Canadian firms, which will do the majority of the big deals, with everyone else slipping to a second tier even though they might currently consider themselves top-tier. Much like the evolution of accounting firms where we saw the Big 8 become the Big 6, resulting now in the Big 4, which legal firms in Canada will break away from the coffee klatch of the Seven Sisters to establish the trio of smart brothers?

Discussions will continue in future columns with Managing Partners, COOs and CMOs of Canadian law firms. We look forward to exploring further aspects of marketing the law firm in the Canadian market.

In some quarters, there is the misperception that Canadian law firms lag behind their American counterparts when it comes to marketing practices, but in fact Canadian firms are no less sophisticated at marketing. They simply operate in an environment that is vastly different. Based on conversations with various Managing Partners, Chief Operating Officers, Chief Marketing Officers and other legal industry insiders it is clear that the marketing of Canadian law firms suffers more from the structure of the Canadian sector than from any specific approach to marketing.

Market Snapshot

There are five main markets in Canada built around regional city centres: Vancouver, Calgary, Toronto, Ottawa, and Montreal. The big profile firms in the country are based in Toronto, where the lion's share of corporate Canada and influential financial markets fuel Canada's economic engine.

Only fairly recently did a national market become possible as a result of the 1989 Supreme Court of Canada ruling in Black et al v. Law Society of Alberta, which opened the door to inter-provincial law firm mergers. The bulk of such mergers happened in the late 1990s, resulting in about a dozen national firms vying for the coveted “Seven Sisters” moniker. Membership in this prestigious group of Tier One firms for corporate matters has not changed since its birth in Lexpert magazine's inaugural edition.

The national law firm phenomenon was spawned in part by fear of globalization: Canadian law firms felt they had to “bulk up” to better compete when mega-firms from New York and other major U.S. centers entered the Canadian market. Canadian firms were also motivated to get big in order to position themselves as desirable candidates for a North/South merger.

It has been obvious however, that U.S. law firms do not need to secure a large footprint on Bay Street to compete with Canadian law firms. There are a handful of small satellite offices in Toronto representing their well-recognized U.S. firms. Some practice Canadian law while the majority focus on U.S. law, but more importantly they stand as a gateway to bring Canadian business directly to the U.S. firm. Unless there was a solid business case for a North/South merger, almost everyone recognized the detrimental impact such a merger would bring to the U.S. firm's profit per partner ratio. There is only one national Canadian law firm that has consistently qualified on the AmLaw Top 100 list over the past 4 years and even then, it falls in the bottom tier.

In comparison, the U.S. has many strong regional markets, many of them ultra-competitive. The sheer number of capable firms in the U.S. is dizzying. One insider offered this generalization: The more competitive a market for legal services, the more aggressive and developed its marketing practices are, especially when 70 firms are chasing the same piece of business.

Another marketing head noted the extent of litigation-driven business differs greatly between the two countries. There is a greater tendency to go to court in the U.S. over disputes, and state prosecutors are much more aggressive.

Finally, New York is simply on a scale completely different from Toronto. There are a number of top-ranked Canadian-based firms that have established a New York presence ' the first of which was Tory's in 1999 ' but for the most part their presence is to raise awareness with New York firms in order to capture a greater market share of South/North business.

Most COOs suggest the Canadian market has matured since 2000, reducing growth opportunities. They feel that client loyalty is declining while price sensitivity is increasing.

There remains a deep concern regarding the shrinking Canadian market for high-end legal services. Canadian clients are spending less of their legal budgets in Canada, despite the fact that the fees that Canadian law firms charge pale in comparison to the U.S. firms. High-end transaction business and major capital market work, including IPOs, is static or growing slowly at best ' and every firm is after it. The deal flow in general has declined as Canadian companies eye bountiful capital pools south of the border. Mega-deals are being done by fewer and fewer law firms. On cross-border deals, it's not uncommon for a Canadian client to first retain a U.S. firm and leave it to that law firm to retain a Canadian firm ' even if the company has had a previous relationship with a Canadian law firm. Ultimately for Canadian firms, it means the audience they need to market to becomes the U.S. legal profession, not Canadian business.

Canadian businesses typically have fewer firms engaged than U.S. businesses. A familiar theme perhaps to U.S. firms, Managing Partners in Canada say that their largest clients have never been more demanding. It was widely reported that TD Bank formally reviewed a multitude of law firm engagements across the country and consolidated to but a handful of preferred legal service providers. Other financial institutions soon followed suit.

A dramatic increase in RFPs and beauty parades are also evident for a couple of reasons. CEOs and Boards are pushing their legal departments to improve value but more importantly it is sending a signal that legal services are increasingly becoming commoditized. Companies are shopping the legal work around in order to secure the best pricing deal. Some practices are caving to price pressures while other practice groups are looking to capture more value through sales approaches and rudimentary key account management.

Marketing Motions

All of these factors, taken together, have dramatically pushed the complexity of effectively marketing a law firm in Canada. No wonder more than half the CMOs we talked with said that a major mind shift in the way firms market and sell their services will be needed in order to grow business. The key question is: Are Managing Partners or governing bodies within the firm listening?

The new model requires a smarter, strategic approach to marketing with a greater focus on business development. Whether the Canadian market has room for a dozen national full-service legal providers remains questionable. What might become necessary for Canadian firms is to take a more strategic focus on a few practice segments and to develop unique and differentiating expertise.

In the past 3 years, marketing departments at the fore have shifted from the variety of one-off traditional tactical marketing and communication-related deliverables to focused efforts on developing and growing long-term relationships with clients and prospects. This strategic approach identifies key clients and targets prospects with potential for growth. Specific plans to define service teams and identify offerings in order to build the business relationship are developed with the guidance of an in-house marketing expert or external consultant. Such efforts include satisfaction surveys to better understand client needs and gauge firm performance over the course of the business relationship.

Unfortunately, the majority of Canadian firms still view marketing as a cost center. Because of that, they assign budgets and make decisions purely from a dollars-and-cents perspective rather than value and return to accomplish business objectives, which does not make sense. Many departments are finding their workloads increasing and budgets decreasing. Department turnover ratios far exceed those of other professional services firms and the average term of a CMO in Canada falls well short of 2 years.

Of equal impact is the aversion to investing in market research. Firms are quick to pay huge sums to list in a variety of legal directories that have little marketing value, yet prefer to trust and rely on anecdotal knowledge of the market place and their clients. Even if the firm is about to enter a new market or offer a new service they will abstain from investing in real client or market intelligence. Business Intelligence is one area the majority of participants recognized in which a few American firms excel.

Recruiting efforts to staff marketing departments has changed noticeably from internal administrative moves to retaining marketing talent experienced in proposal writing and practice group management. Many of Canada's top firms experienced a change of marketing heads in the past year and some firms used the opportunity to retain sales talent and business development expertise from other professional service firms.

An Identity Crisis In The North

Looking at the Canadian legal landscape, it appears that most Canadian firms suffer from an identity crisis. They do not know who they are, who they want to be, or who they should be ' much less how to get there. One reporter suggested that firms are still thinking about who they were or are in early stages of transitioning from the “founder” model to the “institutional” model.

The biggest concern for marketing directors at Canadian firms is to figure out how to position today's law firm and how to deliver against that position in a way that allows the firm to differentiate and either maintain or grow the margin. After that, they recognize everything becomes tactical rather than strategic. Asking a marketing department to differentiate based upon a business model that is not differentiated is an impossible task. Put aside lawyer-client personal relationships, which are fleeting as the younger generation of lawyers rise in the partnership ranks, and the reality is clients are getting the same service and offerings from a dozen different firms despite their claims of providing the highest quality and service compared to other firms.

A notable few Canadian firms began branding and positioning efforts to differentiate, but it is questionable how many have actually maintained implementation and developed staying power. There are but a few exceptions where Canadian firms have taken strategic steps to define their “core” ' playing to their strengths, to change their business model and differentiate. Tory's, with its New York office, and Davies, with its M&A expertise, are most frequently noted in this regard.

What Direction Will It Take?

There is a broad spectrum of players in Canada, but which firms are positioning to become the winners in a market that is unsettled and evolving remains anyone's guess. Everyone questions how many top-tier law firms can operate profitably in a country of just 32 million people and in a market that is becoming more and more a mid-tier.

The hypothesis leads one to believe consolidation may be on the horizon, and a sharper division between the top three Canadian firms, which will do the majority of the big deals, with everyone else slipping to a second tier even though they might currently consider themselves top-tier. Much like the evolution of accounting firms where we saw the Big 8 become the Big 6, resulting now in the Big 4, which legal firms in Canada will break away from the coffee klatch of the Seven Sisters to establish the trio of smart brothers?

Discussions will continue in future columns with Managing Partners, COOs and CMOs of Canadian law firms. We look forward to exploring further aspects of marketing the law firm in the Canadian market.