Amarchand Mangaldas has completed 100 years. How has it progressed institutionally and what is the way forward?
It is an inflexion point in our journey. It gives us the moral authority and stature, as an organization, to reflect on the past and chart the future. It has been a truly rich and long history that started around 100 years ago. Along the way it has morphed a number of times during the journey to adjust to the changing times. If we just look back at the eras the firm has lived through starting from the great depression, the world war, India’s freedom struggle, independence, writing of the Constitution, formation of the Supreme Court, Nehru’s economic policy, so many different prime ministers, so many changes in capital markets and corporate law, the firm has so much experience behind it. If you have stayed around for so long and stayed relevant there is something right you are doing and it is all due to our core values.
You need to be nimble and open to change; for instance, none of the people are the same, none of the clients are the same. We have always changed any adversity into opportunity. So in a sense for us it has been series of new beginnings. Accepting changes is the DNA of Amarchand. Anyone who is not nimble enough to accept changes won’t survive and that is true for every business, not just law firms.
The legal sphere has changed in every era, particularly in the past 20-25 years. This is an era where the idea of a modern law firm really took birth. And it was the Amarchand legacy which invented modern firms—modern structure, campus recruitment, smart offices.
Where do you think the next wave of changes will come for Indian law firms?
Technology will be a big part of the change. Even today we are about 625 lawyers. Such a workforce requires a lot of management in terms of your resources, technology deployment and outreach to clients. The next big challenge would be how to make best use of technology and how to motivate human resources.
In terms of the digital age and technology firms, enforcement of contracts and (intellectual property) rights is a virgin area. A lot of conversation is on privacy and rights. Part of our business plan is to look at the most relevant new industries and almost all of them are based in technology. This is a new practice area and may become huge in coming years.
For instance, the issue is around taxation, competition law, human rights—these are the issues for these new-age businesses. It is fascinating. We are on the verge of a fourth industrial revolution and the old-world offerings and laws are a mismatch with new challenges and opportunities presenting themselves in this digital system.
Our clients are changing all the time due to the churn in the corporate sector and so are the practice areas. For instance, the new bankruptcy code…we are tailoring our practice accordingly. What is needed is a pragmatic interpretation of the business scenario and adaptation to achieve policy goals. Overhauling of old regulations is too disruptive.
Like Indian companies, Indian law firms are largely family operated. Do you see some changes happening there?
This is a historical fact; better to say that there are founders who are still in control of firms. But, equally they have come a long way in sharing power. It’s the pace of change that is a little uncertain. It would be incorrect to say that they are only founder-owned. Firms have a strong founder influence but they also have a lot of professionals who have a say in running the firm, including ours.
What are your views on entry of foreign firms? Will it lead to consolidation?
I think entry of foreign firms should be allowed as soon as possible so long it is done properly by keeping all stakeholders on board. This has been a lingering idea for so long and keeping this in a limbo for so long is not a good idea. At some stage it has to happen. It will enable the market to move to the next level in terms of sophistication, economics… because currently fee levels are in a free fall; there is hyper competition, fees are going down, costs are going up, particularly for talent. There is need for a trigger to resolve the current situation and I think entry of foreign firms is going to be that trigger. Indian firms merging with foreign firms may not happen. India has not seen too many law firm mergers. There may be team acquisitions but big firm mergers may not happen.
Recent corporate battles such as the Tata-Mistry spat have raised concerns about family control, corporate governance. What are your larger views on these issues?
I do not comment on specific cases. But more generally, if we look at the corporate governance scenario and debate in India, we are dealing with a version 2.0. There is far more awareness about conflicts, what are the roles of different stakeholders—minority shareholders, independent directors, responsibility of promoters, institutional investors, proxy advisers. Everyone is taking their roles much more seriously and we have moved by leaps and bounds. Our firm has a separate division that is a corporate governance advisory, which is advising companies on governance issues. Most of the companies are facing issues such as managing conflicts such as related party transactions, succession, role of founders and promoters. India is the only country which has a concept of promoters. What is a promoter—is it just a label, liability, does it give you extra power, all of this is being discovered on a case-by-case basis.
There is this whole issue of promoters getting extra information that other investors don’t. How does one resolve this?
Promoters carry a lot of burden. Because they carry extra burden and are in control of the company, I see a rationale in them getting privileged information. What is ambiguous is that what is the boundary surrounding that—so that is evolving. The foundation of higher governance standards was laid with the Companies Act, 2013, and then Sebi (Securities and Exchange Board of India) amending the listing and disclosure requirements. But nothing happens with just regulations now, the laws are being tested with real-life examples.
There is no regulator for law firms, does the Bar Council need changes?
India has always operated under the idea that practising law is a privilege and this is a noble profession. So there are, for instance, restrictions on advertising. Unfortunately, globally practising law has become a business. Overseas regulations have evolved in terms of how you regulate a service and a business—provider of the service and consumer of the service. We are still dealing with the first concept and that is the reason for the disconnect. There is a lack of understanding on business model; the law profession, it has now morphed itself into a business and a service. We still believe it to be a noble profession but we are also a business, we have a profit and loss account, we have to pay salaries. That is why the regulations have not kept pace with changing dynamics.
But the flip side is that laws keep on changing and even flip-flopping.
No matter how clearly the law is drafted, it will always need to be amended to suit newer dynamics. It’s hard to cope with changes but actually we are happy that law is not static and it is evolving. Sebi does a good job of it and considers all the views, and that is the reason why the regulations come out looking much better.
What is your view on Indian tax policies? We have acquired a bad name due to flip-flops on the issue.
I won’t deny the fact that India has a bad reputation in terms of stability in tax regime for a variety of reasons. But if you look at the direction and the political intent being displayed by the government, it is towards political stability. It is intended to create ease of business. If you compare it with the period two-three years back, it has got a lot better. What I worry about the current economic thinking is that it has started moving or slanting towards the left. What started off as a more right-oriented policy has now shifted to the left. One of the things that I see happening is inheritance tax. This may happen in the current regime. It comes from the mindset that 1% of the population is controlling 60% of India’s wealth.
The broader theme is to move to a more stable tax regime. There are some aberrations such as the recent circular on FPIs (foreign portfolio investors). But the broader picture is to create a stable environment. I believe the government on that.
What are your observations on the merger and acquisition (M&A) climate in India?
I think the merger and acquisition climate is decent just now but a lot of underpinning of the market on the sell side is stressed asset pressure and for buy side or foreign investors, India continues to be a bright spot and an opportunity. Barring a few, most deals are local. In terms of deal execution, Indian acquirers are more flexible and can take much more risks than global acquirers. Global players take time in due diligence and paper work. And due to so much pressure of stressed assets, the sellers do not have patience to wait for global buyers or investors.
Deals being closed in the stressed asset area are quite small, right?
My take on this is that in the next couple of years, these stressed asset deals would be concluded bilaterally and not under bankruptcy code. Let’s take the Jaypee, UltraTech, Rosneft deal, for example. The motivation was to sell stressed assets but it was completely done bilaterally and in a complete conventional M&A fashion. If it had to take place under, say, a bankruptcy code or a CDR (corporate debt restructuring) case, then it would not have ever happened. So from the sell side it is going to be a resolution of stressed asset situation and implementation would be bilateral. I think this trend is going to continue, till such time the new bankruptcy code and things surrounding it are completely settled. Assets that have lost all value would go down effectively as a garage sale through the bankruptcy code and assets with some good equity would continue to be sold bilaterally.