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Jul 26, 2010, 03.03 PM | Source: Forbes India

What's brewing at Amarchand and Mangaldas?

Amarchand & Mangaldas, India’s biggest law firm, has all the trappings of a family-run enterprise including sibling rivalry. The Shroff brothers must quickly set their house in order

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Whats brewing at Amarchand and Mangaldas?

Amarchand & Mangaldas, India’s biggest law firm, has all the trappings of a family-run enterprise including sibling rivalry. The Shroff brothers must quickly set their house in order

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Whats brewing at Amarchand and Mangaldas?

Where is the wealth?

One way to remove the “glass ceiling” concern is to make sure employees have a stake in the rewards. For most of Amarchand’s 90 year history, all of its profits went to the Shroffs. In 1995, the firm started allowing non-family members into the profit pool when respected litigator M.P. Bharucha and his wife, corporate lawyer Alka Bharucha, entered the firm. Still, this meant only 10% of the profit pool went to non family members, the remaining 90% was split amongst the brothers, Cyril and Shardul, their mother Bharati and their wives, Vandana and Pallavi.

This has cost Amarchand. Many within the legal industry point to the case of Rahul Guptan, who joined Amarchand’s Mumbai office in 1999 and soon became a rising star. A capital markets genius, he was appointed partner there in April 2006. He quit in 2008, one month before turning equity partner. “It’s pretty well known in the firm that he left because he had issues with the amount of equity he was due to receive. Apparently, it was too little,” says an associate at Amarchand, who asked not to be named. “Although the official line was he left for personal reasons, we didn’t buy that for a minute. He was doing so well, for someone at his level; it had to be a bigger reason.”

Worse, Guptan left and joined Clifford Chance, a huge UK based global firm, making the threat of losing talent to increasingly aggressive foreign law firms more real. “Top tier talent will never play second fiddle to ownership structures that are not merit based, says Dilhan Pillay Sandrasegara, managing partner at Singapore-based Wong Partnership. “When your market is a closed one — you can do that. But don’t forget, in terms of transportability of talent it’s an open market — that person knows he or she is the best, and they will leave.”
Guptan wasn’t the only one to take issue with the Shroff’s inability to relinquish ownership. The Bharuchas, a husband and wife team who had been with the firm since 1994, also left in early 2008 to set up their own practice. Employees say they walked out because they were dissatisfied with the management of the firm.

Both were equity partners and it was a huge blow to Amarchand, creating a lacuna in the firm’s senior management. A space, many say, is still to be filled. “They are insecure with letting partners grow beyond a point. The Shroffs handle the business development and they’re reluctant to let the goodwill of clients pass down to others,” says a partner in an international firm.

Shardul Shroff disagrees. He points to the fact that two out of every three initial public offers of shares last year were handled by Amarchand and they were all executed by people other than family members. “These are full time capital market lawyers, each managing 60 lawyers under them, and these are the people executing, not us!”  But what the lawyers really want is a higher percentage of profit sharing.

The Shroffs have over the last two years conceded this demand through an ambitious project called Project Moses. Since Project Moses, the family pool now holds 75% and the number of equity partners have increased to 17. The non-family share is distributed through a seven step lockstep process and top of the equity pile is about USD 2 million. The lockstep will most likely pause when profits are split 50:50 between non-family and family members.

“This is a modified lockstep in the sense that if somebody is not performing as well as expected, they can be halted and if somebody is really performing well, they can be advanced quicker,” says Nick Jarrett-Kerr, a consultant specialising in strategy, governance and leadership development for law firms and who advised Amarchand on the overhaul of its lockstep “But even though the family share will eventually dilute over time, it will become a smaller slice of a bigger pizza.”

The move is welcome. Equity partners like L. Viswanathan and Ashwath Rau, both contemporaries of Guptan, feel the lockstep is a sign that the Shroffs want them to have a real stake and sense of ownership in the firm. They never left because they feel adequately rewarded, have strong client relationships that were allowed to develop and they maintain Amarchand is the best law firm to work for. “The legal profession in India continues to be dominated by individuals. Just like Jack Welch of GE dominated his space. But he didn’t do it at the cost of others — he was a giant among giants. You have to build other giants, “says Dinesh Kanabar, Deputy CEO of KPMG, India. Accounting firms like his went through similar challenges in professionalising about 30 or 40 years ago.

But the decision to relinquish control was a tough one. “I was in a despondent mood,” admits Cyril. “It was a huge emotional decision. Some of that tension is still there in the mind because you don’t know what will happen, but we have no choice, given our ambition. Having taken that decision, it’s a one way street and we have to move forward.”

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