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Trilegal to get sexy back without A&O love after radical management & equity shake-up

Anand Prasad: Co-founder (now oustable)
Anand Prasad: Co-founder (now oustable)
Exclusive: Trilegal, which is claimed to have been growing at 25 per cent per year, has converted into nearly a full equity partnership, created an elected management committee and a democratic model where the founding partners could theoretically be ousted by an equity partnership vote.

Legally India was candidly walked through the changes and examines the back story to the end of its best friendship with Allen & Overy (A&O), the grief lawyers can cause, one-way referrals and the inevitability of associate attrition when a firm has to run fast without godfathers.

Sexy back

Several years ago, Trilegal used to be one of the sexiest firms around, judging anecdotally by buzz from students and jobseekers. Its story of five young lawyer friends who started their firm in 2000 and became a global brand in 2008 after tying-up with top international firm Allen & Overy (A&O), became a template (and a pipedream) for a generation of start-ups.

But over time Trilegal evolved from sexy young upstart to become a part of the establishment, suffering from the same issues that plagued its older rivals such as defections – critically losing three equity partners who broke away to form Phoenix Legal in late 2008, facing an increasing cost base and associate attrition.

As of last week, the best friend relationship with A&O has ended – both firms publicly and mutually blamed the lack of progress and future in liberalising the Indian legal market to foreign lawyers.

But parallel to the break-up lies Trilegal’s radical internal shake-up that has been planned for more than a year and includes the firm’s reinvention as an all-equity, democratic partnership, which it hopes will safeguard its future.

Lock in

According to Delhi-based Trilegal co-founding partner Anand Prasad, revenues at the firm have been increasing by 20 to 25 per cent year-on-year for several years, with a slightly lower annual growth in headcounts and total profits because of a larger cost base. On the flipside, profits per equity partner (PEP), had grown faster than total profits.

Despite this growth, culturally stagnation had begun to creep into the firm’s model.

“It seemed like we are becoming like the old firms, like we are not family members, but five guys who are running the show. That philosophy is not what we started out wanting to be. We wanted to be more inclusive,” said Prasad. “Our partners wanted greater inclusivity but wanted greater inclusivity without the downside that a typical ‘hard model’ would bring.”

“Generally speaking we are now an all-partner equity firm and everybody is on a lockstep,” he said, explaining the change made several months ago with retrospective effect from the start of this financial year.

A total of 20 partners are now equity partners in a single partnership on the firm’s 13-year lockstep, said Prasad, but he noted that one partner, whom he declined to name, elected to stay outside of the equity pool. New partners would not have to invest capital into the firm to enter the lockstep, nor would they retain or cash in any share on exiting the partnership.

Before, Trilegal had only around nine equity partners, with the rest being salaried partners who would usually remain at non-equity level for three years before being elevated into the lockstep. “We’ve effectively reduced our lockstep by 3 years,” said Prasad.

Existing salaried partners were slotted into the lockstep on a case-by-case basis, rather than all entering at the most junior level.

Legally India first reported in August 2011 that the firm was working on rejigging its equity structure (click to read more about Trilegal’s lockstep model).

In a lockstep partnership, partners at each level of seniority are allocated pre-determined points that represent a share of the firm’s profits. Every year as a partner the points increase by a fixed amount until they reach the maximum profit share at the plateau lockstep level – 13 years at Trilegal.

Advancement up Trilegal’s lockstep would not be fully automatic, said Prasad, but determined by a remuneration committee of three partners reporting on partners’ non-financial and peer-reviewed performance. Under the system partners could only advance but never drop down the lockstep.

Democratisation

The remuneration committee members - co-founders Prasad, Karan Singh and Rahul Mattan – also make up the firm’s management committee (MC) that decides overall firm strategy and oversees the other governance committees. After an initial two year term other senior partners could also be elected into the committee by partnership vote, said Prasad, and noted that MC might be reduced to two partners in future.

Anand also noted that the partnership as a whole had the ability to eject any partner from the firm with a “super majority vote” of two thirds of partners, or if contested, by partners holding at least two thirds of the equity.

This would advantage the incumbents, admitted Prasad but added that the balance would move as more partners climbed the lockstep and reached the plateau.

Leaving lawyers

High attrition has “traditionally been our case”, admitted Prasad. “We’ve never had low associate attrition. My response typically would be, if you want to be a high quality firm, you will face attrition.”

“We have a system that continues to capture the know-how and regardless of attrition keeps profitability and revenue high – not profitable by cutting costs, but by growth of revenue.”

“The hours can be pretty bad,” said Prasad, “but at the end of the day we don’t have a deep relationship, no family relationships or friends to fall back on [to get work from clients]. Where the only USP is high turnaround and good work product, that makes you run faster.”

“The question you ask is are you losing guys that you really wanted to keep?” All firms, including Trilegal, would lose “one or two” associates that it really wanted to retain, he said, but added: “We continue to be friends with people who leave - people have a right to work how they want to. Not to say those people are right or wrong, they choose a different lifestyle [of lower work pressure].”

A&O split

Echoing the mutual press release by A&O and Trilegal announcing their split, Prasad noted that both partnerships felt that foreign law firm entry into India was not on the horizon.

“The call we had, was that the relationships was going well, interpersonally and professionally, people get along very well and the fit was good. But for the next two years they [the government] certainly are not going to take a call on opening the market – they’re not able to take a call on more important things.”

“Safely, liberalisation of the Indian market is at least four to five years away. And that is, if you’re optimistic about what will happen, because it is quite easily possible that it’ll be 10 years away.”

While the client pool was enthusiastic about liberalisation and continued to be, there was not enough strong client pressure to convince the government to move, he said, and there was a small “benefit to grievance ratio” in opening the legal sector, as opposed to multi-brand retail, for example, which could create jobs and economic benefits to larger sections of voters.

“The prime opponents of legal market opening are very close to the establishment,” said Prasad. “You see in terms of when lawyers go on strike, the pain is enormous – it’s easy to motivate them to go on strike. The pain is too high, and the benefit is negligible to corporate India, who doesn’t to vote.

“Junior lawyers - how many votes are there? You can’t even get a municipal council elected with those votes. The early life of the government is where the legal market can be liberalised much faster; in the second part of the government’s life, it is very, very unlikely.”

So, the question arose for both firms, according to Prasad whether “is it going to be advantageous, now that it looks at a distant horizon? Do you get engaged with the perspective of getting married or stay engaged in perpetuity?”

For both firms, independence was now a more attractive option.

Severance

Prasad said that the break with Allen & Overy was ”a real termination of the relationship” and not just an announcement designed to increase referrals from other firms. This would also mean that Trilegal partners would probably not be invited to attend A&O’s annual general meeting of the international partnership anymore, he confirmed.

Trilegal would probably not get access to as much knowledge sharing with A&O as had occurred under the best friendship, although some support would continue because “we used to pay for most of it”, said Prasad.

Only a minority of Trilegal’s work had consisted of referrals, said Prasad, but of foreign law firm referrals 70 to 80 per cent came from A&O. This would probably continue to some extent.

“Some level of the trust [we’ve built with A&O partners] will translate to different partners of A&O continuing to work with us,” he speculated. “And there’ll be clients and partners in other international firms who want to work with us. The totals will balance off.”

Referrals from foreign firms other than A&O had increased in recent years, said Prasad, and larger “multi-million dollar deals” usually had an international law firm involved and going through some “referral mechanism”.

“A host of the smaller deals will be direct [domestic instructions],” he added but admitted that only few of those resulted in referrals to A&O.

“The truth is that we’ve not sent massive [work the] A&O way. We’ve had a limitation being the firm that we were. There’s been work that’s gone the direction of A&O from us, but those are not the big deals you read about often… Not the Reliances or Tatas.”

The question for both firms in the relationship was “are we doing ourselves a service by continuing this or do we try a different approach?”, said Prasad.

For Trilegal, there was an advantage as being seen as an independent outfit, although on the flipside it had also been an advantage to have been associated with a brand name such as A&O.

“We’ve not been very strategic, like most of our competition,” said Prasad about the firm’s historical approach, which was to “make more money than we made last year” and provide a better service to clients.

He said he did not think this approach would change in the near future but then again, if the firm really is growing at 25 per cent year-on-year why change that non-strategy?

However, Prasad is aware that the current crop of partnership changes and their success will be fundamental to keeping up the firm’s growth, with or without A&O.

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