317 - What's brewing at Amarchand and Mangaldas?

What's brewing at Amarchand and Mangaldas ?
Published on Mon, Jul 26, 2010 at 12:01

By: Shloka Nath

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

If I hadn’t done law, I would have been a doctor,” says the quiet and diminutive man sitting on a plush chair at the Mumbai office of Amarchand & Mangaldas & Suresh A. Shroff & Co. (AMSS), the firm that advises the bluest of blue chips in corporate India. In many ways, Cyril Shroff brought medical precision to the practice of law at the family-run firm, one half of which he inherited.

It is Saturday and the ace corporate lawyer is relaxing in a bold red shirt. He talks about the new thing that has him excited. He is helping draft the new Unique Identification (UID) Bill for the government. “Cyril has such a sharp mind. He cuts through complex regulations and he has such a good understanding. He is like a brain surgeon,” says Nandan Nilekani, chairman of UIDAI and one of the co-founders of Infosys.

The firm, jointly run by Cyril in Mumbai and his brother Shardul in New Delhi isn’t just the largest, but is also the most influential law firm in the country. It is reported to be raking in annual revenues to the order of USD 100 million. It employs over 470 lawyers across five offices. The firm has grown rapidly over the last decade, and it plans to double its size in the next two or three years. It has changed the way Indian law firms operate by pioneering new models in recruitment and partnership. It is the firm of choice for many of India’s top business houses including Reliance Industries, Tata group and ICICI Bank. Amarchand’s lawyers are often present in the most influential boardrooms mapping out the most powerful deals. Its managing partners are regularly involved in framing government policy and regulation. You can see why the firm has a formidable reputation in India and abroad. “The Shroffs have briefed me on many matters, and I find them excellent to work with,” says lawyer-turned-politician P. Chidambaram, union home minister, in an exclusive chat with Forbes India.
Life, it would seem, is perfect for the hoary Amarchand. Except that it isn’t. The problems of India’s family-run firms that grow large are catching up with Amarchand. The Mumbai operations run by Cyril and the Delhi operations run by Shardul have two distinct operating cultures. This means daily operations are not standardised across the firm and the two offices don’t always agree on the future plans.

Some clients say they feel comfortable being advised only by the senior management because of a lack of mature talent at Amarchand. Many lawyers at the firm feel that the family wields too much control over the business and doesn’t share enough of the profits, which in turn is stifling their own career growth.

This problem is exacerbated because foreign law firms have already begun to circle the Indian market. Even though they are not allowed to practice in India, they have formed alliances with local firms and set up liaison offices. Over the last few years Amarchand has lost very senior people to these firms. In three to five years, a full-fledged entry of foreign firms is quite likely and a new generation of domestic firms would have come into their own. In other words, the time for solving the internal issues is now. Otherwise, just like it challenged and beat bigger firms in the past, Amarchand too will be overtaken by the new firms that are either more entrepreneurial or global.

Founded by Amarchand Shroff, Cyril’s and Shardul’s grandfather in 1917, the firm made huge leaps in the 1980s and 1990s under Suresh Shroff, the founder’s son. But then, it wasn’t the biggest. The market was dominated by giants such as Mulla & Mulla and Crawford Bayley.

“The deadwood in these firms had started to pile up around then. They were failing to keep up with the times whereas Amarchand had started to enter into new practice areas,” says a former Amarchand partner. Suresh made a number of shrewd moves and weaned business away from his competitors.

The relationship with Reliance Group is just one example of his successes. “Cyril’s father, Suresh, was on our board. He advised my father and helped us start Reliance, and now his son advises me,” says billionaire Mukesh Ambani. “I’ve had the good fortune of growing up with Cyril.”

In 1980, Suresh Shroff sent his elder son, Shardul, who had already qualified with his LLB (till then, Cyril hadn’t), to Delhi. Amarchand had taken over a firm there and that operation wasn’t yet doing well. “I had never appeared in a court [before that]. The day I landed in Delhi, I had 3,000 cases to argue. It was a baptism by fire,” says Shardul.

But it wasn’t until 1994 when Suresh Shroff died, that Shardul and Cyril formally took over the reins of management.

In the preceding years, Suresh Shroff had capitalised on the liberalisation of the Indian economy and expanded the business. ICICI Bank’s K.V. Kamath recalls those days. “They grew and so did we. A whole lot of new institutions got built in this country in the Nineties and Amarchand was there guiding us and holding our hand,” he says. ”Every new business we built we relied on them to provide us that stamp that this is what we could do, and how to do it.”

By the time Cyril took over at Mumbai in 1995, Amarchand had offices Bangalore and Hyderabad (Kolkata would be added later). While Shardul had fought his way up, Cyril had the benefit of having worked under his father for nearly 14 years. And this perhaps explains the different ways they look at the business. “What I have been through and what he (Cyril) has been through has been a totally different style of functioning,” says Shardul.

Their colleagues didn’t fail to see the distinction. “They are two very different types of people. One fought and maintained the office on his own, and one had the office bequeathed to him. So of course their inter-personal relationships and personalities are different,” says a former partner at Amarchand.
Some who know the brothers closely say the situation between the two has not always been rosy. Sometimes, it was compared to the feud between the Ambani brothers especially when their mother came in for the mediation. When asked about it, Cyril laughs dismissively and says he has also heard this comparison.

Shardul Shroff won’t entertain any such talk. He can be reticent and guarded  it took this magazine three months to obtain an interview. He is a dreamer, an astrologist, emotional and by his own admission moody, and is a believer in Satya Sai Baba. He is currently finishing a book of poetry due for release in September. He loves buying jewelry and has over 70,000 books in his personal collection. Former employees say he isn’t very expressive and that could hamper his ability to emotionally connect with his partners.

The younger sibling, on the other hand, is slightly more irreverent; loves to sketch frequently; enjoys MAD magazine; watches every newly released Bollywood film, often back to back over weekends; is a master at SMSing. He is detail-oriented. And he is known for his legal brilliance. “He can draft an agreement by dictating from start to finish, to a steno, about 60-70 pages,” says a former employee at Amarchand.

The personality differences, over time, have also come to represent the respective characters of the Mumbai and Delhi offices. They have even led to internal competition between the two offices in going after big nation-wide clients.

Sometimes, the firm was unable to put up a unified front for its clients. One former employee at Amarchand recalls a meeting with an ICICI division a few years ago when a junior partner from Delhi told the client that something was ‘not our view, but Bombay’s view.’ The clients were reportedly stunned.

In April this year, after the International Financial Law Review (IFLR) Awards ceremony in New Delhi, Cyril Shroff sent out a firm-wide email congratulating all employees.  Within 30 minutes, there was a ‘reply-all’ mail from Shardul’s wife Pallavi Shroff where she highlighted the awards won by the Delhi office out of the 10 that the firm won. One of the overall awards pertained to the subject of dispute resolution. And Pallavi wrote tongue in cheek, “Dispute resolution is not one of Amarchand’s best-kept secrets!!!”
Operationally, Amarchand is virtually two firms in one. While staffing policies and internal auditors are the same, Delhi and Mumbai also work out their individual profit & loss account in addition to the firm-wide P&L account. The Delhi office earns more revenue than the Mumbai office and has more lawyers. But the region that comprises Mumbai, Bangalore and Hyderabad brings in more revenues than the one comprising Delhi and Kolkata.

“Either they choose to coordinate. Or they split and go their separate ways,” says one industry observer. While the Shroffs admit they may not always see eye to eye, they say their differences do not fundamentally affect the firm. “Put us in separate rooms, we have totally different styles, but we’ll come to the same thought,” says Shardul Shroff. They say that both the internal competition and lack of coordination are systemic and natural in large firms spread across several locations.

But large firms do make sure that processes are standardised and variations do not upset employee orientation. At Amarchand that is not yet the case. There is disparity in how support functions are run under the two brothers. Shardul Shroff has a nine-headed hydra system, with different chiefs for everything from corporate communication to library management. Cyril, meanwhile, has a chief operating officer from London and seven administrative heads report to her. The COO in turn reports to Cyril who handles strategy. Delhi has hired Cliff Challon, an Australian HR consultant in change management and Mumbai is similarly advised by a professor of Indian origin from Harvard Law School. “Getting a transfer from Bombay to Delhi and vice-versa is practically impossible. It just doesn’t happen,” says an associate.

If having two cultures wasn’t complicated enough, there is also the two-engines of growth theory. Cyril Shroff uses many variations, including the “two pilot” theory and the “two-wheels-of-a -bicycle” theory. So one engine, pilot or wheel (take your pick) is the family: The Shroffs. The other is the professional lawyers working for the firm. On this, the two brothers agree completely. They believe that the family presence allows for a greater appetite for risk and clients feel a sense of stability and comfort in the perception of continuity. At the same time it is crucial to promote a managerial class of able professionals who also have a stake in the firm’s success.

Many employees, especially at the lower rungs, don’t buy the two-engine theory and feel there is a glass ceiling for non-family members. They say the firm is run by the Shroffs, for the Shroffs, and point to the fact that the Managing Partner’s son is in his early twenties, but has both his own cabin and a peon. The Shroffs explain Rishabh was removed from the associates’ area because it is fashionable to talk about your bosses and you can’t do that when the boss’s kid is right in front of you.

Recognising his employees might have a different perception of things, Shardul Shroff has done the opposite and made sure his daughters sit right in the pool of associates, he has deliberately held back their rise in the firm. “This is not a parachute; they have to earn the respect of people senior to them in the firm.” But both sets of Shroffs are clear however, that provided their children earn their stripes, “they’d be incredibly stupid not to make use of their legacy.” Members of the younger generation have frequented the office since they were young and celebrated their birthdays there. And this closeness can sometimes be a bit strange.
For instance, On Wednesday, April 24, 2008, at 6:02 p.m., the Mumbai lawyers of Amarchand, the country’s supreme corporate legal minds who routinely dispense advice to clients worth billions of dollars, received an unusual email in their inbox. Paridhi Shroff, at the time the 18-year-old daughter of managing partners Cyril Shroff and his wife Vandana, had put out a firm-wide alert, a desperate plea for help from the lawyers who worked for her father. Paridhi was looking for someone to do her homework.

“She ended with ‘I won’t forget this [help]’, and her parents were copied on the mail!” one Amarchand associate says with a chuckle. What if someone had actually helped her with her homework? “Will they remember at the time of our assessment?” Paridhi was pulled up by her parents. She promised to be careful in the future and says it was a lesson learned in separating home and office. “The law firm is home. I’ve been coming here since I was really small. And both my parents are working at the firm so you’re sort of hearing it day in and day out, it gets into your bloodstream.”

Disengaging the family from the professional environment is the biggest challenge Amarchand faces now. “If they are able to handle the transformation from a family firm to a broad based firm and encourage professionalisation, it will be very significant for the future of the firm,” says Uday Kotak, managing director, Kotak Mahindra Bank. An old college buddy of Cyril Shroff, he has observed the firm’s growth for the last 20 years.

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.”

The Shroffs have clearly decided to stay independent and not tie up with foreign firms as some of their competitors have done. Over the next few years, liberalisation will hit the legal sector. “Before foreign firms arrive, there is a window of opportunity for Indian firms to strengthen themselves. Other firms are looking to see how Amarchand does it,” says Ashish Nanda, professor at Harvard Law School, who is preparing a case study on premier Indian law firms including Amarchand.

The Shroffs understand the gravity of the situation. “This is a key phase for us,” says Cyril. “Now is the time to make that transition to becoming the national champion.” This independence is essentially a function of the talent in the house and the brothers have to make sure it doesn’t go away. Sharing the wealth the firm creates with its employees has thus become imperative.

Competency building

Clients from large industries often complain that at Amarchand, 80% of the work is done by 20% of the people. “When I go to Amarchand, I ask for this lawyer on this project — it is very personality driven. And that’s because I don’t feel comfortable unless it is being supervised,” says the general counsel for a leading corporate firm. For Mukesh Bhavnani, group president, legal at Essar group, one handicap that the profession currently faces is the inadequate availability of mature talent which puts enormous pressure on the senior partners because all clients would like the comfort of dealing with them.
The Shroffs are aware of that. In an attempt to create a leadership pipeline and to solve issues of quality dilution, they have invested a great deal in knowledge management and training. This year, they have created a formal career track whereby employees can opt out of transactional work and focus instead on knowledge creation for the firm.
The final frontier would be to integrate all the offices into a single organisation. For that BCG has been called in. Over the next 3-4 months, the consultancy will attempt to work out a broad roadmap for the firm. This is BCG’s second assignment. “We made specific recommendations for Amarchand’s path to institutionalisation,” says James Abraham, former director at Boston Consulting Group. Abraham was in charge of the first reconstruction the consulting firm did for Amarchand back in 1998. In 2000, a management committee was formed comprising four members in all: Three family members (the mother and the two brothers) and one non-family member, MP Bharucha. In 2008, the MC was expanded to a seven-member committee (three family members and two partners each from Delhi and Mumbai) to oversee governance and operational issues in the firm.

Now, different Indian law firms have tackled these issues differently and Amarchand will have to ensure that while it professionalises the operation, it doesn’t throw out all things family. Like the close, personal touch of Cyril’s wife Vandana.

She is often called Anna Wintour by her employees. One of the many reasons is because she regularly asks them about their relationships via text messages. “I always say, if I don’t know the love life of Amarchand, it’s time for me to step down, she says with a smile. Many employees have migrated from smaller cities to Mumbai and Delhi. “They miss that home touch. And I always believe unless you feel emotionally stable and happy you never can give your best to the workplace.”

In Delhi, a family oriented structure has meant each female employee receives a box of chocolate from their managing partner every Valentine’s Day. Cake smashing is a common pastime amongst the Delhi lawyers and they claim to be No. 1 when it comes to hosting the best parties “firm-wide.” There is even an anonymous blog about the firm online which was then turned into a book and released last year. The author miraculously, still works at Amarchand.

“My greatest source of comfort is that this family lives and breathes the firm. To choose between the firm and their own future - They would always choose firm over personal priorities,” says Rau.