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Trilegal, the first generation law firm which was set up in 2000 with the aim of building a new age law firm has recently overhauled its partnership structure. The firm has introduced sub-management committees to authorise decision-making process in the firm and has also changed its partnership structure to a full equity partnership, completely scrapping salary partnerships. The firm has also set up a remuneration committee to evaluate the overall performance of the partners.
Last week, Trilegal and Allen & Overy ended their referral agreement, a relationship that lasted for five years.
Bar & Bench spoke to Trilegal Founding Partner Anand Prasad on the recent changes made in the management structure, the firm’s profit sharing method, and the Trilegal-A&O split.
Anand Prasad said,
“We began reviewing our 13-year lockstep model and the management structure more than a year back. The general thinking amongst the partnership at that point in time was whether we were fine with the existing model or do we need to change it. It seemed at that point that we were growing well as a firm and profitability was increasing but we were not sure that the mechanisms for managing the systems that we have today were going to be good for the future too. So, we thought ‘Let’s do an exercise and get some consultancy firm to figure out to if we need the change in our management style or profit share mechanism’”
“We hired RSA Consulting to undertake this exercise for us. We took a couple of months to decide on the consultancy firm because we wanted someone who understands the Indian mindset and we thought RSA Legal was best for our firm.
It was an extensive exercise that RSA did with our firm, which went on for more than a year. RSA spoke to all our partners at different points in time, again and again. There were plans drawn and presentations made based on numerous interviews with partners, market and financial analysis and firm-wide assessments,” said Anand.
Talking about the decision to covert the partnership into full equity partnership Anand said,
“In our firm, we had equity partners, which is the lockstep and then we had salaried partners. Ultimately, the after the RSA exercise was over, we thought that it was a good idea for the partnership to be structured as an all equity partnership.
So now, all our partners are equity partners unless somebody chooses that they don’t want to enter the equity model for whatever reason. We, therefore, have one partner who has chosen to stay out of the lockstep.”
The equity partnership is effective from April 1, 2012. The firm now has total 20 equity partners in its 13-year lockstep.
Earlier, the firm had around 3 years of non–equity partnership and thereafter the partner would enter into a 13 year-lockstep. Anand said,
“Then existing equity partners thought that in the Indian market conditions may be 13 years was too long and we should bring it down to 10 years. Then the question was that if we want to make it all equity, what should be done about the three years of salaried partnership. So we decided to knock off three years of salaried partnership and let the equity be a 13 year-equity”.
“So effectively we have reduced three years from the lockstep and now the moment you become a partner you are part of the equity”, noted Anand.
Gateways replaced by Remuneration Committee
“Then the question was do we have gateways? Financial gateways would have very specific aspects to them and partners on the lockstep would be subject to a minimum financial threshold on the lockstep ladder. We realised gateway brings in lot of problems like an ‘eat-what-you kill’ kind of model.
Initially, our system was slightly more revenue focused and we were more financially-oriented firm and in our earlier lockstep model there was one financial gateway after two years. The general feeling in the firm was people did not desire it; it evoked an adverse reaction from within the firm”, told Anand.
Talking about the initial consultation process on gateways Anand said,
“While we were in the consultation process with RSA, lockstep with multiple gateways was suggested and most partners rejected the move to introduce multiple gateways system to hold partners at particular points in the lockstep. I think there was rejection across the board of that method of functioning where you are sort of constantly being evaluated with a hawk eye whether you are going through the gateways or not. People were extremely uncomfortable and it would have radically changed the way the firm functions”.
Anand also said that for a few weeks they thought that they would eventually accept this but after a few weeks of considering it all the partners rejected this move and said “they didnt’t like this model; they did not want to compete with their fellow partners”.
“So we decided that for us in our circumstances, we are better off if we don’t have a gateway. Instead we have what we call a ‘Remuneration Committee’ that will do an overall evaluation of performance. Performance is not only financial but is performance based on practice. Practice includes the kind of clients, visibility of deals, how much work are you bringing in for fellow partners and of couse there is a billing element. It is not only about billing but it’s more about the practice as a lawyer. We have decided not to make revenue the only criteria by keeping it easy and simple so the partner doesn’t feel the pressure all the time. So, we have an overall evaluation parameter which will happen on an annual basis and there will be periodic reviews of that too.”
Basically, a lockstep system of profit sharing allows each equity partner to obtain an enhancement in equity, year on year, and ultimately become equal in equity holding to the founding partners. At Trilegal, it would take an entry-level equity partner 13 years to get to the top of the lockstep but this will be subject to the evaluation of the Remuneration Committee.
Anand further pointed out
“Why do you become a Partner in a firm? Is it only to make money or to become part of an organisation? The best way to be part of the organisation and feel connected is to participate in the administrative and managerial decision-making”.
“What we felt was there was lack of decision-making and it all came down to the founding partners. We didn’t want to behave in a manner that ‘okay we have decided so rest of the firm will follow’. We wanted to include all the partners in the firm in the decision-making process. So through this consultative process we have set up decision-making committees”.
The decision-making has been split into various sub-committees and over and above is the Management Committee consisting of three partners, which has Anand Prasad, Rahul Mathan and Karan Singh. In the future, if they feel they might reduce the number in the Management Committee to two”.
There is an HR sub-committee, a Know-How sub-committee and an IT sub-committee. The decisions of these sub-committees are final though they may consult the Management Committee but the Management Committee will not overrule their decision. These sub-committees have started functioning a few months back. There are different partners participating in the different sub-committees along with administrative people with no single partner on more than one committee.
Thus, decision-making is spread across the firm. “At this stage of our firm, we think it is working well”, said Anand.
The Trilegal and A&O break up
Last week, Trilegal and A&O ended their five-year old referral agreement. Both the firms in a joint statement said,
“Unfortunately, the lack of progress towards legal sector liberalisation in India has led both firms to conclude their existing arrangement is restricting their ability fully to exploit the growing opportunities in India.”
Anand reiterated the same thoughts and said,
“Today, you can be sure that with this Government, no liberalisation is going to happen. And any new government will at least take 2-3 years to figure out what is to be done. So, clearly for the next 5 years no liberalisation is happening.”
Though he was quick to add that,
“If there was liberalization now or sometime in the next 6 months or if it was inevitable in the next 6 months then this would not have happened. And if liberalization had happened then the firm would have almost certainly done whatever the law had permitted it to do in terms of doing it together”.
Anand also thinks that the A&O and Trilegal relationship is possibly another victim of the policy paralysis of this government. Talking about who initiated this move to end the relationship, Anand said,
“We are the guys who are on the ground here. We have an annual review process and this question used to come up at each of our annual reviews that what is the market like and where is it going and is it likely to open up. So, as part of the annual review these questions again came up and it clearly looked that for another five years the market will not open up. So, when the market is not going to be opening up, do you have an end objective or do you continue in this relationship in the way we are? Are both firms going to get limited opportunities? If liberalization happens then we effectively are able to exploit various opportunities but because we are into ‘this semi-relationship’, it seems some of the opportunities are passing us by. There was a consultative process and the feeling was to look at other approaches and we felt that its best to end the formal relationship and the decision was taken in a joint annual review”.
“Though obliviously there is a strong interpersonal relationship and a professional relationship between the two firms and it still continues to exist”, added Anand.
Anand also admits that this relationship was hampering its own brand building and said,
“A&O is a much larger brand and the existence of a much larger brand when we are not formally being able to do anything with it actually hampers our own brand building. So the market begins to view you as not the best because every time you do anything good it iss attributed to A&O the bigger brand. It will never be attributed to you, and if you do something lousy you are stuck with it, so basically you have worse of all situations. From our perspective, it was limiting our brand building. Even the Indian client would view us as an A&O affiliate, so a part of your success will get attributed to the fact that you are getting doles out of that. We got no doles out of that but that’s the perception, because as a layman, why will you not have that perception.”
While talking about the opportunities that the firm thought that they were missing out on, Anand explained,
“I am giving our perspective. See if we have a regular client and that client is doing some deal in India and he wants to pick us for the deal but since it’s a global deal they will also appoint an international firm. So, the global firm will say that these guys are [the] A&O firm and we don’t want to use them but we want to use another Indian law firm, so we would get knocked off even though we were a regular law firm for that client. I am giving you a hypothetical example. Similarly things go other way as well, that A&O gets thrown out of something and we get appointed along with some other international firm to do something. So those were the opportunities we were missing out on. Also, we didn’t want to be seen to be taking hard positions while competing with each other. If we were the same firm, those issues would not arise. Therefore, when you are in a relationship you are obviously restricted”.
Anand also shared his thoughts on the five-years of relationship that they had with A&O and how did they benefit from that arrangement. Anand said,
“It has been an extremely enjoyable relationship, we ended up doing things we may not have done had we been not in this relationship with A&O. I think one of the clear gainers for us from where we were is that it immediately enhanced our market visibility. That was a very large upside for us.
The second thing was that A&O helped us with a lot of our internal processes that we were struggling with, which was a very important aspect for us. For instance, setting up IT, HR and financial systems etc. We got a lot of help from A&O in putting together all these different kinds of systems. We wanted to basically clean up our system, become more intelligent about our system, not go back to re–inventing the wheel.”
Sharing his thoughts on law firms entering into tie-ups with international firms, Anand said,
“I think in today’s market if you want to do a tie up then an A&O like tie up would be ideal. You have to be lucky enough to pick up a firm that you can work well with. There can be firms that are not as open and more difficult to work with. So you have to be lucky in terms of whom you pick up but if you definitely need to do a relationship, a non-exclusive relationship works very well.”
Lastly, what if the liberalisation happens in the next 5 years? Anand said,
“After 5 years we may be a very different firm and of a different size. Who knows what happens in those 5 years. We will take those decisions whenever they need to be taken. Today there is no liberalization and unlikely to take place in the immediate future. We may have grown strong enough, to be just by ourselves or we may not have grown but we may still decide to be independent. So it depends what the lay of the land is. We will decide when the time comes. After 5 years we may decide that yes it makes sense to tie up with A&O and we will do that. If we decide to stay independent, we will stay independent. So, it all depends on where things will be.”
It clearly appears that liberalisation and missing out on the future opportunities and benefits were the primary drivers to end this referral arrangement. However, Anand feels that the recent changes at the firm in the partnership and management structure will play a significant role in the firm’s future success and growth.