The COVID-19 pandemic has forced upon the Indian legal market some paradigm shifts. The country’s strongest law firms are being compelled to re-evaluate their commercial strategies, not just to position themselves to win larger slices of the pie but also to consider the sustainability of their business models.
One of the most significant alterations to the landscape happened years ago in 2016 when legacy Amarchand Mangaldas Cyril A. Shroff & Co., one of India’s oldest and most prominent law firms, split into two, creating separate legal powerhouses led by the two Shroff brothers, Cyril and Shardul Shroff, who are grandsons of the founders of Amarchand Mangaldas.
The result of that has been that both firms—Cyril Amarchand Mangaldas (CAM) and Shardul Amarchand Mangaldas & Co (SAM)—have continued to thrive, winning mandates for some of country’s largest deals and matters. Their combined market share continues to be substantial in India’s booming economy.
India has benefited from the ongoing animosity between China and the U.S., which has pushed American investors to look outside of China for investment opportunities. The pandemic also gave rise to India’s technology sector, which saw several multi-million-dollar M&A and capital markets deals by homegrown companies such as digital payments platform Paytm and food delivery service provider Zomato. Last year was the best 12 months ever for the country’s capital markets and India’s largest law firms sewed up the market.
But underneath the ebbs and flows of trade, there’s a deeper change bubbling away in the legal sector.
The traditional players
For decades, many of the most successful Indian law firms have been rooted by familial ties. Even after CAM and SAM had split, the wives and children of the Shroff brothers continue to play significant roles in their respective firms. Shardul Shroff’s two daughters, Natashaa and Shweta Shroff, are both practicing partners at his firm. Cyril Shroff’s son, Rishabh Shroff, is his firm’s co-head of private client and head of the firm’s international business development function. Cyril’s wife, Vandana Shroff, is also partner at the firm.
Cyril Shroff calls it “family influenced” but concedes that the market has evolved, and to have one family control and run the firm may no longer be feasible.
CAM and SAM’s traditional competitors include firms including AZB & Partners, Khaitan & Co, J.Sagar Associates, Nishith Desai Associates and legacy Luthra & Luthra but even those players have gone through major upheaval in recent months.
Luthra & Luthra, now rebranded as L&L Partners, recently lost a court dispute against its former senior partner Mohit Saraf, whom the court found had been illegally expelled from the firm following a dispute regarding the lack of equity distribution at the former firm. Last year, Saraf set up his own practice, Saraf & Partners, which in less than 12 months already counts over 100 lawyers, many of whom defected from L&L.
Nishith Desai Associates, founded by its namesake and incumbent leader, Nishith Desai, has also recently lost several partners, according to local reports, triggered in part by a reported data leak scandal back in 2019. The firm did not respond to requests for comment on the departures or the data leak.
While Desai’s competitors consider his firm to be a sole proprietorship, Desai himself has claimed told Indian media that the firm works on a distributed leadership model, which means its staff do not hold any formal titles or work within a traditional hierarchy.
The appeal of equity
Much like the Japanese market, where the majority of the country’s largest transactions are dominated by a handful of local firms, the disparity between the top-tier firms and those in the mid-range is vast.
For many years, young aspiring lawyers would only consider working in a well-established brand name firm, even if it meant the path to equity partnership was unlikely. But for the new generation of lawyers, the allure of working for the longest-standing Indian law firm has dissipated if it means they will never be awarded the power to lead.
“Family firms are seeing the need to change,” said Jyoti Sagar, founding partner of J.Sagar Associates. “They are realizing that they have to change but how deep and how real those changes are, that’s difficult to assess,” he added.
Sagar founded J.Sagar Associates in 1991. He retired from the practice when he turned 60 in 2013 and relinquished his 7% equity on departure. In setting up his firm, Sagar went against the grain, he was adamant that family members are not to work together at the firm. It became a rule—if two lawyers at the firm were to get married, one must resign.
J.Sagar now has 37 equity partners, though none have been required to buy-in stakes. “There is no capital contribution required,” said Sagar. “Because we believe that the partners have worked their way up and have proven their mettle, so they’ve already paid their way. To us. it’s not ownership, it is more a trusteeship and a stewardship.”
Despite his steadfast belief, Sagar says building a partnership that survives its founders is still very much an experiment in India.
“Ultimately, the issue is, are you willing to have a collegial approach to developing a practice and to create a pipeline of leaders who can overtake and grow the pie? Or is it going to be completely predicated on what you, your son, your daughter or your wife thinks?” said Amit Kapur, the current joint managing partner at J.Sagar. “That’s the hard reality of how it stacks up.”
Newer entrants to the market have also implemented different business models and strategies in a bid to compete with the mavens, particularly in attracting talent. Trilegal, for example, founded in 2000, is on a journey to challenge old structures.
“We are a full equity model, it’s an equity lockstep with all performance parameters written into partnership deeds, it’s extremely transparent,” said Nishant Parikh, Trilegal’s co-managing partner.
The firm has an executive committee that is voted in by its lawyers. It revisits its strategy every three to four years and hires external consultancies to examine its investments in talent and footprint. It has successfully attracted senior partners from AZB Partners and CAM in recent months. Over the past year, the firm has also grown not just in headcount but also in revenue by about 35% in 2021.
Saraf & Partners also attributes its hiring success to its business model, which gives partners control over the growth and direction of the firm, something they did not have whilst at L&L.
Saraf himself has been funding the launch and growth of the firm. He needs to move quickly, he explained, as the market is booming, competition is strong and critical mass is key. The firm now has over 30 partners, all of whom are equity partners and decisions involving the practice are not made without partner consensus.
Success vs succession
Some argue that the new models may just be change for change’s sake. AZB is one of the most prominent law firms in India but, unlike its counterparts, the firm has not joined the ‘overseas presence’ bandwagon, nor has it invested in technology and innovation.
The firm’s structure has stayed the same for many years and it has worked very well, its managing partners say. Just last month, AZB advised Swiss cement company Holcim on a $10 billion asset sale deal to Adani Group, which was represented by CAM.
AZB’s focus is on growing and doing what it already does best, the partners say – delivering high quality legal advice on India’s most prominent deals.
“For us, traditionally, work has never been a problem,” said Zia Mody, AZB’s founding partner and co-managing partner. “We’ve always been able to attract marquee deals and clients, the quality has always assured a repeat. So to that extent, our agenda would be to grow with good people, because the work is on the table. The question is how much you can deliver with the perfection that would then enable us to put more blue water between us and the rest of the firms,” she added.
Mody manages AZB with two other co-managing partners Ajay Bahl and Bahram Vakil. Their competitors consider them to be matriarchs and patriarchs, suggesting the firm is being controlled by three leaders who own majority of the equity of the firm.
“We, definitely as the senior statesman, have the ultimate accountability in making the right decision,” said Mody. “But I don’t think it would be a decision where the core of our senior partnership around us would say that it was not consultative, or it was not inclusive, or it was done at any intention, other than for the benefit of the firm,” she added.
While, Mody, Bahl and Vakil are not blood relatives, all three have had their children previously practice at AZB, though none have stayed.
“Management and equity ownership are interlinked,” one Indian managing partner commented. “Family-run firms, patriarch and matriarchs, often dominate management which means every meaningful decision is driven by their personal thought process, that’s a huge stumbling block,” he said. “It’s a meaningless democracy is one person or family is going to call on 60 to 70% of the equity.”
Mody declined to comment on the equity distribution at AZB but argues that while Bahl, Vakil and herself oversee their own regions, they also each have a consultative group of four or five partners. There isn’t a set protocol and each region “runs its own show”, explained Mody, and the structure is due to the different cultural nuances present in each city.
Mody and Bahl did agree, however, that could be time for them to consider retirement, though both explained that they are most energized by dealmaking and have not had time to properly develop succession plans.
“As founders, we don’t have anything to prove anymore,” said Mody. “We’ve been there, done that, and our people have seen just our lives dedicated to the firm.”
Succession will become a significant problem if the control and equity do truly belong to just a small group of lead partners. Particularly as Indian firms continue on its growth trajectory, that business model will be nearly impossible to sustain.