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Berjis Desai talks about the JSA experiment [EXTENDED EDITION, with herding cats, evicting passengers, equity tweaks & more]

Talking the talk with Berjis Desai
Talking the talk with Berjis Desai

As managing partner Berjis Desai’s exit nears and after the departure of senior Mumbai rainmaker Akshay Chudasama, concerns mount over the firm holding on to its democratic structure and how it can remain competitive for the next 25 years.

If you’ve read the article in Mint already, scroll down for additional interesting transcripts from the interview.

Berjis Desai, the 58-year-old managing partner of J. Sagar Associates (JSA), is set to retire in 22 months. Desai joined the law firm in 2003 from Udwadia, Udeshi and Berjis, and, together with J. Sagar, started what he claims was a unique experiment, laying down the basic principles of how to run the firm. Unlike some of its rivals, where the largest chunks of equity are held by family members or founders, J. Sagar bars family members’ entry into the firm; so if two lawyers at the firm get married to each other, one must resign.

The firm, which now has 325 lawyers and 33 equity partners, is also facing several other challenges, including the exit of Akshay Chudasama, one of the firm’s top rainmakers. In an interview, Desai discusses the firm’s future, and the opportunities and challenges it will face along the way.

It was only very late in his life that he properly met the eponymous founder of the firm, Jyoti Sagar, despite having opposed each other as legal advisors during the hostile takeover of Indian Aluminium Co. Ltd by the Vedanta Group, said Desai.

In 2002, a common friend introduced them and it was a meeting of minds, remembers Desai. “We somehow realized instantly that (we had) more or less the (same) ideas and vision of what we wanted to do and experiment with—this really truly democratic structure where people retire and no relatives are allowed in the firm, and (there is) true merit, etc.”

“It may have sounded utopian, but the fact is that the firm will complete 25 years next year.”

Despite the firm’s staying power, buoyed by some “terrific years for the Indian economy” according to Desai, that silver jubilee could prove to be the most important time in the firm’s history and future. “The experiment according to me has definitely been a success so far, but we always knew that the real challenge to the viability of the structure will come when both Jyoti and I are not partners.”

Sagar retired on 1 April 2013, giving up his partnership and remaining 7% equity stake in the firm he founded in 1991.

Desai will transition to become joint managing partner by no later than 1 January 2016, and retire completely on 1 April 2017.

Also read this from 2013: JSA founder Jyoti Sagar exit interview: From 100% equity to zero, the chips are now down

Experiments begin

The JSA experiment, says Desai, only really started in 2002 after he and Sagar met, following which Desai joined the small firm led by Sagar from Delhi with a few lawyers in Mumbai. Desai joined from Udwadia, Udeshi and Berjis with a team of 16, including retained partner Somasekhar Sundaresan.

Sundaresan is now one of the highest paid partners at the firm.

“I am proud to say (when we) started in 2003, the combined equity percentage of Jyoti and me was 66%. When Jyoti retired, (our) combined equity was 13%. And today, my equity is only 6%. So, at least (with) this experiment, whatever it is, we have not followed the route of bankrolling ourselves to the grave but to play with this experiment.”

“Some of our junior partners, depending on their assessment and evaluation, have earned and are earning more money than me. So today, somebody like Som (Sundaresan) or Amit Kapur earn much more than me. I don’t think at any other firm this would be accepted.”

Akshay Chudasama was the third highest revenue-maker at JSA according to Desai, and took home as much profit as Desai. Chudasama, together with four JSA non-equity partners in his team, on Monday joined the new Mumbai office of Shardul Amarchand Mangaldas, the firm set up by Shardul Shroff after the split of Amarchand and Mangaldas and Suresh A. Shroff and Co.

When the departure became public, it sent shockwaves through the firm, but Desai, who says Chudasama is a “close personal friend” who will be missed, downplays the impact of Chudasama’s departure on revenue and profit. “He was very dynamic, his enthusiasm was very infectious, he used to galvanize people. An excellent marketing guy, and excellent rainmaker, his networking was very good, all that will be missed.”

JSA is fairly unusual in India. It’s unlike most of its six largest rivals, where the largest chunks of equity are held by family members (Shardul Amarchand Mangaldas and Cyril Amarchand Mangaldas), founders or promoters (AZB and Partners and Luthra and Luthra), or founding partners (Trilegal, though the younger equity partners on the Trilegal lockstep can, year-by-year, rise to be on par with their older colleagues). At Khaitan and Co., the large founding family still holds a significant but not disproportionate minority equity.

As such, unlike firms where the majority of client relationships are concentrated with the promoters or founders, firms such as JSA are at a bigger risk of rainmakers leaving and taking some of their business with them. On the flip side, JSA’s structure can also make it more resilient to such churn.

Getting partnership remuneration right is one of the most important things for any law firm, says Desai.

Paisa please

Partners’ remuneration at JSA is completely fixed for three years, based on a variety of factors over a preceding three-year period. Desai explains, “Every three years, the compensation committee resets the equity percentages, depending upon the data for the last three years. So, it’s a backward-looking system. How you performed between 1 April 2014 and 31 March 2017 will determine your new equity percentages starting from (1 April) 2018. That’ll be fixed for three years.”

According to Desai, partnership remuneration at JSA is competitive and is made up of a variety of factors. The most weightage—40-45%—is given to the revenue a partner and his/her team generates.

Every partner will also get additional points related to how well their practice area, including other partners, contributed to the bottom line of the firm, and points for assisting in management, brand building and internal training as well as a “subjective evaluation for what we call JSA values”, says Desai.

The remainder includes “virtually a full 360” appraisal, including self- and peer-assessment, and a determination by an elected compensation committee. “We are trying to eliminate subjectivity here, because the more there is subjectivity you have, the more people are disgruntled. Particularly in a set-up like this, where Jyoti and I both will not be there.”

Associates also get 8% of whatever they bill themselves, and retained partners take 12% of their personal billings, but it is not an eat-what-you-kill model (where every partner operates as a silo for profit purposes, which has the advantage of rewarding star performers but can result in a lack of cohesion among a firm’s partners). The profit JSA can offer its partners are competitive, argues Desai, though the exact formula will be tweaked slightly in the coming months.

“You have to pay a premium for the umbrella under which you work, the idea for which you work. Even if (one is) a star player, if he’s told to go out and perform and to run a firm, he will realize how difficult it is, he will recognize that. He may be a star player but he requires the umbrella of the firm, the brand equity of the firm, the people and resources and everything,” he says.

“The day people realize they don’t require the umbrella of the firm and can start on their own a boutique firm or a boutique practice, obviously they will walk.

“This is the core challenge of how (to integrate) your individual aspirations and institution building. It is easy for Jyoti or for me to say, yes we genuinely want to build an institution and we want to leave a legacy behind, to be remembered, that yes, this was created as an experiment. But on a day-to-day basis, for the younger folks to realize, to place (this) over their individual ambitions and aspirations, it’s difficult for them, but that’s the whole thrill of the experiment.”

JSA’s system has an inherent meritocracy and democracy, and variations thereof are the standard at international law and professional services firms that boast hundreds of partners. But culturally, it may not be the perfect fit, worries Desai.

“The Indian mindset, at times I feel, is happier to follow a dominant individual. Whether it’s a family, or whether it’s a dominant individual, they somehow feel happy to follow a father figure, whom either they trust or they love or they fear.

“But the idea of your own equal coming to power and going past you, I think Indians have still not accepted that idea, that somebody who was your peer until the other day, or junior, will become the managing partner.

“I think—again I can say without any doubt—as far as Indian law firms go, no one is closer to this experiment or model than us and, therefore, the challenge is obviously the greatest.

“If this Rubicon is crossed and this challenge is overcome, I see an absolutely terrific future for the firm. (With respect to) any dominant individuals in other firms, biology doesn’t respect individuals—one day people are going to perish and with them, the firm crumbles very fast.

“A firm with so many star players and with an institutionalized thing, the key man risk is of course minimized. But then there are other risks,” says Desai.

People within JSA and without are concerned about the key man risk of life without him and Sagar, admits Desai. “Any change always causes some concern; what happens is that the main concern in everybody’s mind—I know this sounds terribly immodest—is what will happen in 2017, because then they see in their minds a void or a vacuum.

“So we have to come up with a credible structure. In the initial stages, it will not give 100% the same comfort, it would be silly to say (that), it won’t. But even if it gives 70% the same comfort to people—even managing partners—the critical word is trust. People should genuinely trust that he will do what is right, not only in terms of money, not do things like for his own ego, or his own aspirations, though there is nothing illegitimate about it that a person thinks about his own career and all.”

“The next five years, or even maybe three years—from 2017 to 2020 are critical. If you successfully meet that challenge, I’m pretty sure that this will be a great institution, that will survive for several years.”

Sagar has still been attending executive committee meetings from time to time, but he and Desai are both “gradually trying to recede into the background and let people make their decisions about various things”, says Desai.

“All I’m going to do in 2017—for those two or three years critically—(will be to function) as a friend or philosopher guide, for no financial or monetary gain, but just because they are my friends and this is my institution, so to say. I will obviously lend a helping hand if there’s any crisis or any major issue, but not in day-to-day management.”

Success in succession?

Finding a successor who can shoulder that burden and be accepted by the rest of the partnership will be key.

The managing partner role at JSA is not particularly powerful within the firm’s constitution, says Desai, being largely a figurehead to convene the executive committee (excom) of five elected members—Mumbai-based Dina Wadia, Delhi-based Amit Kapur, Bengaluru’s Murali Ananthasivan, Delhi's Shivpriya Nanda and formerly Chudasama, who has now temporarily been replaced by Sundaresan until the election in October.

The excom is where the real power at JSA lies, though the managing partner tag, prestige and symbolism are still important to the firm. The first ever elected managing partner at the firm could therefore risk dividing the partnership along lines of politics and loyalty.

But Desai hopes that politics won’t be a problem, in part helped by secret balloting that is standard at JSA for equity partnership decisions. “As far as the managing partner is concerned, ideally, we’d like a consensus to emerge, whether it’s a single managing partner or a joint managing partner. There’s also a view that there should be a collegiate model, like a very strong excom, because at the end of the day, you do require a very strong leader.

“Or that the excom becomes very strong that you don’t require a managing partner at all—something similar to what you see in Trilegal—where there are more or less equal stature (founding equity) partners, which is not so over here. And in a much larger set-up (here)—I think it’s for the partnership to decide, and we are deliberating on it in a very structured way.

“But I think what is most likely to emerge is either a single managing partner, or two joint managing partners, and a more empowered excom.”

Whoever, if anyone, does get the job won’t have an easy time of it. Desai says he regularly spends 70% of his time on management (which he jokes rose to around 90% when handling the short-lived crisis sparked by Chudasama’s departure).

While Desai says he would definitely exercise his vote as an equity partner, the “last thing I would like to do is influence people’s mind how they should vote” and adds that all of the three or four partners likely to be in the fray are trusted by the other partners, which is the most important criterion for the job.

Desai says he believes that he and Sagar laid down a solid foundation on that front. “There could have been many inefficiencies, many mistakes, many blunders, but nobody can accuse us of being hypocrites or not having walked the talk. We have walked the talk. There is no doubt on that and we have continued to walk the talk.”

Whether and for how long the next generation will keep walking that talk, avoiding the infighting and turf wars that can easily infect law firm partnerships, will now be the million dollar question.

A version of this article was first published in Mint. Mint’s association with LegallyIndia.com will bring you regular insight and analysis of major developments in law and the legal world.

Want more Berjis and JSA? You’re in luck.

Extended edition transcripts from the interview below (please excuse typos or grammatical errors or flow due to transcribing spoken speech, which are probably our fault). And yes, it’s long, but also pretty interesting…

Is law firm management like herding cats?

Not really. Initially when I came to JSA, this appointment (of me to managing partner) was there, but then became kind of an ex officio post on the excom, as well as heading practice area meetings, etc. Neither Jyoti or I had any special powers under the partnership deed.

To that extent, everybody is equal – the deed provides for a managing partner position – it gives certain powers, but there are no special powers. More to chair the excom and stuff like that.

Casting vote it does not say so , but it has never happened. But I suppose if excom is divided, there would be a casting vote but it's never happened so far.

As far as Jyoti and I are concerned, it was more moral persuasive authority, without any doubt. Now of course with Jyoti gone and my retirement in the next 22 months, so we want to evolve a structure which is obviously robust.

And as I told you, this is an experiment that has been done never before in this country for law firms.

Divine chemistry

It has worked quite wonderfully well so far in terms of growth and things – in 2003 we were 40, today we are 325 attorneys. And in terms of revenue growth – those were some terrific years for the Indian economy. Jyoti and I always had a divine chemistry so to say.

We've virtually never had a difference of opinion, forget a dispute. And that itself was I think the real critical key strength, it was so complementary. And this is not just a manner of speaking – there was his strength, and my weaknesses and my strengths and his weaknesses were so complementary, it was like a marriage made In heaven.

His strength in processes, in following processes, setting up systems, whether it is knowledge management systems or whether – all the various management processes, he's a really genuine original thinker on the Indian legal management scene. And I'm saying this not because he was my partner, but I genuinely feel – that everybody will recognise.

But at the same time, those processes and those methods was not my forte or my cup of tea. But at the same time, my commercial sense and my ability to bring people from different firms, like Dina joined us and Akshay joined us...

Bringing all these people together from different offices, that was my strength.

JSA Bombay was virtually greenfield, only some 5 or 6 attorneys – we were about 16 people who joined at the time (with retained partner Som also from Udwadia Udeshi).

Excom involvement

At times he [Jyoti] has attended excom meetings – but now onwards we have decided that he will not attend – once this new dispensation is in place, either 2016, or maybe even 1 October, that's work in progress – whenever new dispensation is in place, but latest 1 January 2016, in order to let the process flow unhindered, and sometimes people feel that they feel that – our meetings are quite stormy at times. And it's not that people don't speak up.

But still we have felt that at times the younger partners, out of respect and the Indian tradition for respect and all, find it a bit difficult to disagree with Jyoti or me.

We would prefer that they should get a free hand and I think that we will increasingly stop attending definitely excom meetings, now equity partner meetings we are 33 strong with Akshay gone, but that, effectively he is not there in the day-to-day management but he continues to be involved.

As far as I'm concerned, from 1 April 2017, it will be a complete break.

Secret ballots, unlike the Kremlin

What we will do is – as compared to the West again or even the Big Four auditing firms in India, we are still the law profession is very small as you know. So elections though we've had past elections, for electing the excom by secret ballot, or even inducting new equity partners as we've had 8 in March, it was by secret ballot, according to the equity percentages in the deed.

Properly conducted with scrutineers and all, so that nobody feels that a particular partner is foisted upon. There were acceptances and there were rejections.

Not one of those old Kremlin type of elections - Soviet elections - where the joke is that somebody, there was a robbery in the office of the Kremlin, that the thief escaped with next year's election results – so it's not like that.

How and when the excom works

The excom functions like the security council and the equity partners is like a general assembly.

AS the size of the firm grows, we'll have another 7 or 8 equity partners next year from 1 April, already we have 3 equity partners elect who are there, as you know.

If that happens, it becomes difficult to decide detailed decisions in a partners meeting- excom is more like a board of directors.

Equity partners meet about 4 or 5 times a year. Excom is more often. Usually once in 45 days, it depends on the need – we have a video call or a conference call as and when the requirement comes.

Well, virtually (every week) – it's a constant process. You do things over email. Every day.

Partnership remuneration is being tweaked

Some people – heavy hitters may feel they are not being compensated enough for their contribution to revenue, whilst we are trying to build up practice areas.

[It is a] work in progress. It is not radically different but some of the weightages we have tweaked from the feedback we've had from each individual partners .

We'll only know (high and low) when data for period is mined. Only changed now is Akshay's percentage is redistributed and some little bit of compensation adjustments will need to be done. But barring that it will start effective from 1 April 2018. For the data mined in that 3 year period so it's not going to be an immediate change.

Can partners predict how much they will take home?

Not 100% (predicable) but (partners) can predict to a very large extent, usually 80%. It's not a huge surprise. But it's work in progress. We have experimented with it, it's not easy. Management of various aspects reflecting the consensus, carrying people along, everybody has a different viewpoint depending on where he or she stands.

So we (also) have points for seniority in the profession, few points.

… There are 3 chartered accountants – 3 cost accounts [who handle all the number crunching].

Every equity partner can get that at the flick of switch, who's earning what, what the occupancy level is.

Isn’t it risky to lock partners into the same salary for three years?

It's part of the deal – this introduces certainty – you can argue that a guy that he knows his equity is locked in for 3 years, can become sanguine about it or complacent about it, but generally people don't do that, that hasn't been a problem.

If they're doing other functions like management functions, looking after important portfolios like finance or HR or whatever, then they are sufficiently compensated. Obviously they realise that the high hitters or your star players in terms of revenue have to be compensated. Because nobody is going to year on year – everybody realises that this is an umbrella under which they function, and you have to pay a premium or price under the umbrella.

Can you offer remuneration that is competitive enough at the partner level, to retain rainmakers such as Akshay?

If he (a rainmaker) performs well on all accounts, in terms of marketing, business development, marketing and all that, yes it's possible to match.

There are people who are quite outstanding in various things: Akshay, but there are many others, someone like Amit Kapur who is one of our highest – or the highest - revenue earner, he is actively involved in management. I

I don't know how he manages, I don’t think he sleeps.

Is there politicking and canvassing over who will be managing partner?

[JSA is] too small and informal in that sense.

I don’t think – so far – [managing partner elections are] a bit of a taboo subject, nobody has very clearly said that they want to be managing partner.

In a sense everybody knows who the 3 or 4 people in the fray would be.

Lessons from Akshay leaving? Loss of revenue, some clients?

Yeah yeah, of course – Akshay is, it's very difficult for me to talk about him because he's a close personal friend and virtually doesn't do anything without asking me, which makes it even more difficult.

But I don’t think there's any apprehension of huge loss of revenue or that – in terms of overall contribution to the firm, he was one of the great performers, but there are others who are far above him also, there are [two] people whose revenues were more than him. His performance in the last couple of years was very good.

His loss of revenue, and some of the clients will go and some of the clients will stay, depends on relationships. That is not really the worry – but he will be missed in terms of – he used to galvanise people. He was very dynamic, his enthusiasm was very infectious, he used to galvanise people. An excellent marketing guy, and excellent rainmaker, his networking was very good, all that will be missed.

The productivity challenge: Jettisoning baggage from a ‘relaxed’ boat

The challenge of productivity which many law firms are facing and which we are also facing, and we've had relatively a relaxed atmosphere, we've been rated as best law firm employer for years running.

But that kind of environment, that here it's possible to be more relaxed, that's affected productivity levels – attorney occupancy. So keeping that in mind, it's become very clear that we're going to highly incentivise people to perform and eliminate people who don't perform.

So far we've been very benign but we have decided that obviously we have to have an efficient business model which is strongly – values is one thing, viability is another – if there is no viability, values evaporate in thin air.

We are doing exercises in that right now – mostly at HR level – non equity partner attorney level.

So we are going to weed out and make a more lean and mean team.

To boost profitability, to boost productivity - first is to boost productivity – more is productivity. Because you can't have people sitting on the bench, which is an issue with many large law firms.

People sit on the bench and people are underemployed. Not good news for people who are fully occupied and who are really slogging their butt off.

Doesn’t the remuneration system already disincentivise passengers? I.e., low performers get paid less?

They don't get the same money – we have monthly fixed retainer, performance bonus which depends on performance, and we have billing sharing, which is 8% of billing. The revenue attributable to you for the work done.

In the sense – if I have only one associate working on that matter and I raise a bill of Rs 1 crore – he will get 8% of that, if he did all the work, and if a retained partner [that number is] 12%.

And that is the differentiator – the people who perform well get much more money than those who don't.

Plus they get performance bonus, plus increments in retainer also depends on performance.

There are people who don't care and really work hard and earn more, but historically baggage always develops, and in a benign environment like ours, where we've a bit more lax and relaxed and more compassionate and kind, we've had some historical baggage. And now we've decided we have to get rid of the historical baggage.

Those who don't earn their living so to say, who are bleeders so to speak, where cost of the firm is more than the revenue they earn, you can't have that situation.

A small minority - on the contrary, the performers they want that we implement this – everybody wants, a few may suffer, it's a small minority.

Will you outright fire people?

I don't think, maybe in some cases we'll have a conversation and rejig them and all, but we'll tell them, look we have to reduce your package, where we can't have a situation where year after year – we exclude people who are on maternity leave or on deputation or it's the first year or some extenuating circumstances, but if for 5 years you continue to bleed, no firm can continue – you can't have those passengers, we're going to have those passengers off.

Are there passengers in the equity partnership?

I wouldn't call them passengers, nobody who takes home more than the revenue that they bring in, but a couple of them, the younger partners are still getting their act together, but it's only a couple of them, but some younger partners are doing brilliantly and punching much above their wait, but maybe a couple of people.

At the equity partner level it's fortunately not an issue, at least not at the moment.

Everybody thinks that they don't get what they really deserve, but that's human nature.

Correction: Our earlier reports erroneously stated that JSA’s excom was formerly four-strong. It used to have five members.

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