Cyril Shroff cuts a diminutive figure, and his gentle manner sits oddly with his reputation as one of India’s legal titans. But as co-head of the country’s largest and most influential law firm, Amarchand & Mangaldas & Suresh A Shroff & Co, he is the first port of call for tycoons and captains of industry in need of advice. “Can I offer you some tea?” he asks softly, in his suite at the Crowne Plaza Hotel in London.
Amarchand was founded by Shroff ’s grandfather in 1917 and its ownership has stayed in the family ever since. In the last decade, as India’s economy has boomed while foreign law firms remain banned, his firm has enjoyed phenomenal success. “Luck sometimes has a part to play,” Shroff admits, pouring a cup of chai masala.
In recent years, his firm’s dominance has been challenged. AZB & Partners, Amarchand’s closest rival, was only formed in 2004. But most analysis – including Chambers & Partners’ own research – puts the two firms way ahead of the competition.
The two market leaders often sit across the table from each other on India’s biggest deals, yet they have chosen contrasting strategies to compete in the global arena. AZB signed a ‘best friends’ deal with Clifford Chance last January, anticipating a possible merger when regulations allow. “We feel it gives us a unique selling point over our peers,” says Zia Mody, AZB’s charismatic senior partner, on the phone from Mumbai a few days later.
But Amarchand, despite plenty of overtures, has opted to remain defiantly independent. “It’s not something every firm is able to do,” Shroff says, “but we’re convinced we can pull it off.” The two rivals have chosen very different paths. “The jury is still out on which of us is right,” Mody says.
Family and tradition
India may be the seventh-largest country in the world when measured by landmass but it is often referred to as the world’s smallest village when it comes to wealth and power. Many of India’s biggest blue chips, like many of its law firms, are family owned, and passed from generation to generation. Some of Cyril Shroff ’s more treasured client relationships go back to the days of his father and grandfather. “To this day, some clients say, ‘It would be nice if your son advised my son,’” Shroff says.
By the 1980s, under the leadership of Cyril’s father Suresh, Amarchand had developed into a prosperous firm with a solid client base. But established litigation firms, such as Mulla & Mulla and Crawford Bayley, dominated the topend of the market. “They belonged to another age,” says a former Amarchand partner. “If a client came and knocked on your door at 5pm on Friday, they’d be told to come back on Monday morning.”
Suresh Shroff passed away in 1994 leaving control of the firm – which by this stage had offices in Mumbai, Delhi, Bangalore and Calcutta – to his sons, Cyril and his elder brother Shardul.
The handover came at an opportune time. The Indian economy, previously characterised by extensive regulation and trade restrictions, was opening up. Investment flooded into the country and the number of mergers and acquisitions soared. The Shroff brothers took full advantage, providing companies with round-the-clock advice and up-to-the-minute legal acumen.
The firm’s international client base grew, while domestic clients, like Reliance and ICICI Bank, prospered. By the early 2000s, Amarchand was regarded as the best law firm in India.
“A one-person legal tornado”
If Amarchand’s success was built around the family, AZB’s was built around one person: Zia Mody. The daughter of a former attorney general and a graduate of Cambridge and Harvard, Mody worked at Baker & McKenzie in New York, before returning to India in the mid-1980s to launch her own practice. Her first challenge was to overcome the prejudices of India’s male-dominated society. She did this by acquiring a reputation for diligence. “You just had to be better, more prepared, and make fewer mistakes,” she says.
Mody has maintained that level of dedication throughout her career. “I don’t go to sleep without reading what new regulatory developments have taken place that day, simply because I don’t know if the first call to my mobile in the morning is going to ask me about them,” she says. Mody’s talent and drive have turned AZB into a legal powerhouse. “Zia is a one-person tornado,” says a peer from a US law firm. “Her sheer charisma and legal acumen have allowed AZB to penetrate the Indian market in a way that nobody else could have.” Today, the firm has more than 200 lawyers and offices in Mumbai, Delhi, Bangalore, Pune, Chennai and Hyderabad.
AZB has outperformed its rival in big-ticket M&A. The firm worked on deals totalling US$27 billion – with an average deal size of $87 million – between January 2005 and June 2008, according to RSG Consulting. In comparison, Amarchand worked on deals totalling less than $7 billion, with an average deal size of $24 million. “The extraordinary dominance of AZB & Partners speaks for itself,” says RSG Consulting managing director Reena SenGupta.
Challenges and questions
In the face of Amarchand and AZB’s hold over the market, many domestic rivals have struck up alliances with global firms. In 2008, Trilegal – which today has 90 lawyers across four offices – agreed a referral deal with Allen & Overy. In 2007, Mumbai-based Talwar Thakore & Associates signed an official alliance with Linklaters.
Perhaps AZB feared its advantage would be lost. Nonetheless, its decision to sign a ‘best friends’ deal with Clifford Chance at the start of this year surprised many observers. Both parties deny any money has changed hands. But they have started exchanging training programmes, knowledge systems, and IT support. “It gives us an advantage to have a global firm on hand to help on issues we haven’t encountered before,” Mody says, “such as new laws, or new twists in financing and restructuring.”
AZB’s efforts to put itself at the forefront of know-how and technology make Amarchand’s domestic-focused, family-oriented structure look a little old fashioned.
Amarchand’s critics have long claimed that the family wields too much control over the business, and takes too much of the profits for itself. For most of Amarchand’s 90-year history, all of its profits went to the Shroffs. In 1995, the firm began letting non-family members into its profit pool when respected litigator MP Bharucha and his wife, corporate lawyer Alka Bharucha, joined the firm. The number of equity partners has slowly increased, and today numbers 17.
But Amarchand is not an equity partnership in the traditional sense. Until recently, about 10% of its overall profits were set aside for nonfamily equity partners. The other 90% went to the Shroffs. The family pool is split among Cyril and Shardul, their mother Bharati, and their wives, Vandana and Pallavi – who also practise law at the firm. Cyril Shroff earns about $10 million a year, observers estimate.
The family’s overwhelming influence is believed to be behind the departure of a number of Amarchand’s best partners in recent years. The Bharucha husband and wife team, the first non-family members to be let into the equity, quit Amarchand in Spring 2008. A few months later, one of its brightest stars, capital markets whiz Rahul Guptan, resigned to join Clifford Chance.
The family has also been accused of maintaining a tight hold over its key client relationships, to the detriment of the firm as a whole. “However much the family tries, they can’t make the transition from a proprietorial mindset to a professional mindset,” says one former partner.
Amarchand’s senior partners are held in very high esteem. But scratch beneath the surface, and there are niggling queries about the quality of some of the lawyers at the senior associate and junior partner level.
One associate general counsel at a Fortune 500 company says he was unhappy with the quality of the advice he received on a large M&A deal two years ago. “The partner who was overseeing things didn’t know what was going on and didn’t get involved enough. Then, when he did, he didn’t have the experience to handle the matter,” he says.
Amarchand’s quality problems stem from the firm’s aggressive hiring policy. The last two years have seen Amarchand increase its size by almost one third to about 440 lawyers. “The rate of expansion has been indiscriminate and quality has been sacrificed,” says a former Amarchand partner.
Amarchand’s modernisation drive
“There could be quality problems somewhere in the middle, but nothing very serious,” Cyril Shroff candidly admits. He acknowledges that the firm, with an estimated turnover of about $100 million, needs to modernise a number of areas of its business. But Shroff remains adamant that Amarchand does not need an alliance to stay up to date on changes in regulation, improve its management systems, or access the latest technology.
Over the last year, the firm has invested heavily in the latest document management software, hired a western COO, and introduced a seven-person management committee – comprised of four non-family and three family members – to preside over most operational matters. “The family is now consciously the minority,” Shroff says.
But the modernisation drive’s centrepiece is the reforms to Amarchand’s system of remuneration. The family’s profit pool has been cut down to about 75% in recent years, Shroff says. (The non-family share is distributed through a sevenstep lockstep process and top of the equity is about $2 million.)
The plan is for the profits to be split 50:50 between family and non-family in the next few years as more equity partners are promoted, Shroff adds. This will reduce the ratio of partners to associates to about 1:6.
“Our strategy is to move towards creating a more modern firm internally. Obviously one reason is retention, but it is really a move to make sure we create a more enduring institution.” But former partners claim that the Shroff family remains divided about the process of modernisation. “Despite all the noises they are making,” says a former Amarchand partner, “very little is likely to change.” And critics express doubt about the overhaul of its remuneration system. “The intention is there, but how much will happen is open to question,” one source says.
Shroff brushes aside such criticism. “There will always be cynics whatever you do. But I can assure you these are not easy changes to make.” He is unapologetic about the family’s influence on the firm. “For us it’s more than just a business, it’s an heirloom,” he explains. “We see this firm as a bicycle with two wheels. One of the wheels is the family and one of the wheels is the other partners. It’s about striking the right balance.”
Risks and pitfalls
AZB’s own attempts to move with the times have not been without their problems. Since the firm signed its alliance with Clifford Chance, it has suffered a bruising slump in global M&A mandates. This year the firm has worked on deals totalling $2 billion, according to Mergermarket figures ending September 30. The previous year saw AZB work in deals totalling $12 billion.
In contrast, Amarchand’s figures have remained broadly consistent. This year it has worked on deals totalling $3 billion – 50% more than its rival.
Slaughter and May – which has a close relationship with Amarchand – is one firm that will now send AZB less work. Slaughters often called on AZB’s services before its association. “It is likely that we will do less work with AZB over time because of their relationship with Clifford Chance,” says Slaughter and May’s Paul Olney.
Mody claims to be unperturbed by the dropoff. “The loss of referrals from other law firms was factored into our decision [to tie-up] and we hope that many of them will come back in the mid-to-long term,” she says. AZB has also seen a team of lawyers from its Bangalore office quit the firm after it signed the alliance because they felt their practices would lose out.
Although AZB’s system of remuneration is not as tightly controlled as Amarchand’s, it remains a long way from western lockstep systems and there is little indication that it’s going to change. The firm’s 15 equity partners are each assigned a percentage of the firm’s total profit pool by its partnership deed. But a tiny elite still receives the lion’s share of the profits.
Zia Mody declined to discuss her firm’s financials but she allegedly takes home more than 50% of the total. Observers estimate this figure is in excess of $10 million. Mody was one of the highest taxpayers in India in 2006-07, according to business website MapsofIndia.com.
If a merger is eventually allowed, Clifford Chance could find AZB, with its profit pool and client base so dominated by one person, a problematic beast to absorb. The London firm famously struggled to hold onto star partners in its merger with US firm Rogers and Wells ten years ago.
In the meantime, the big risk for AZB is that if the question of liberalisation drags on for years, the tie-up’s momentum stalls, leaving its partners frustrated at the number of referrals they are missing out on.
Ultimately, the two firms have different longterm objectives: Amarchand wants to build a firm it can hand down to the next generation of Shroffs. AZB’s leaders want to hand the firm over to the next generation of partners. But there is one vital difference: the success of Zia Mody’s operation depends to some extent on Clifford Chance and liberalisation. In contrast, Cyril Shroff ’s destiny is in his own hands, and depends on whether the family has the will to push through much-needed reforms.