Owners of some Indian law firms are ceding control to partners as they strive to transform from family-controlled to collegial partnerships with surviving partners and struggle to retain and attract talent.
Century-old family-controlled Khaitan & Co which fully owned its equity shares until 1970 now have 25% with the rest distributed among its 57 lawyer partners. The number of partner family members and their rights have also shrunk in the past few years after the firm begun this exercise.
?We have shifted from family-controlled to process-driven,? says Haigreve Khaitan, partner at Khaitan & Co. ?The firm has five family partners now, 5%, with no reserved rights.?
Jsa Advocates and Solicitors, India?s third largest law firm by number of lawyers also chose to institutionalise. Its main promoters ? Berjis Desai and Jyoti Sagar ? will be left with zero shares by 2017 as they retire by company?s policy at 60.
?We chose to follow McKinsey & Company,? says Jyoti Sagar who enjoys no special rights in the company as founder-owner. ?The idea is to build a collegial firm with surviving partners.?
Indian law firms are of four types. One, legacy firms from British raj days, two, family-owned family-controlled, three, sole proprietaryship and four partnership-based corporate law firms. ?When we started in 2002, both partners owned 66% equity in the firm; now, we jointly own 15%,? says Berjis Desai, who joined Sagar in 2002 as managing partner. ?The stake was distributed to firm’s equity partners selected every three years in the past nine years.?
The firm, which specialises in seven practices from dispute resolution to banking and finance, has now one-fifth of equity partners grown from the ranks and 28 retainer partners.
Some firms limit partners’ equity, while others offer unlimited equity. In jsa, each equity partner is entitled to own up to 5% in the firm which will be frozen until five years after which the partner will be reviewed by the firm?s for dividends. A 5% stake means the partner will be entitled to 5% of the profit of the firm, which does not allow relatives to work together as one of its many policies another being two partners signature mandatory to encash a cheque.
?In partnership deed, there is no junior or senior, and this system helps you to be equal and independent,? says Desai who switched to a lawyer from a journalist in Bombay Samachar, a Gujarati daily published from Mumbai. ?It works like a company,? says Desai, who is writing a novel.
In Khaitan, there is no limit to equity partners can hold. ?There is no limit; it is based on performance,? says Khaitan. ?Some partners may earn more than me.?
The firms have chosen to cede their equity for three reasons. One, they did not want firms’ control in few hands; second, they wanted lawyers to be equal and independent and third, they wanted to attract talent. jsa has grown to 250 lawyers from 40 in the past 10 years and Khaitan have 300 lawyers on its rolls.
?The trend will continue to attract and retain talent,? says Suhas Tuljapurkar, managing partner, Legasis Partners, a law firm. ?Unless the ownership quotient is shared among partners, institutions may fall apart.?
Jsa grew from a single promoter in 1991 to two owners in 2002 and now, it is run by an executive committee of five partners elected every three years in a secret ballot. The firm had done away with consensus selection in 2009. Khaitan had gone a step ahead, appointing a chief executive to run its management apart from a selected executive committee.
Promoters have also transferred the firm?s brand and goodwill to a trust. ?The goodwill and brand do not belong to equity partners; rather, it belongs to the firm,? says Sagar, who will retire by 2013 and his partner Desai by 2017.
Corporate law firms are at a nascent stage of development. ?We have not grown out of the traditional personality driven business running like a fiefdom, says Sagar. ?Now, firms have slowly started moving into collegial partnerships.?
