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Legal Marketplace

Practice Innovations: Seeking symbiosis — A business leader’s lens on law firm mergers

Shonette Gaston  Legal Executive

· 7 minute read

Shonette Gaston  Legal Executive

· 7 minute read

Law firm mergers are becoming a bigger factor within the legal industry, but there are many ways such deals can turn sour. Here are several steps firm leaders can take to keep that from happening.

Many, many years ago, while I was still cutting my teeth at the practice management table, a wise law firm leader (and later political appointee) accurately predicted that big law firms would get much bigger, leaving those with specialty and laser-focused skills to become boutique entities.

Today, large firms house thousands of lawyers and realize billions of dollars in revenue. Others have become the go-to firms for niche practices. This is a choice many Am Law Second-100 firms now face, and for those that choose to grow, the miracle of a law firm merger should not be taken lightly. The reasons for mergers not happening can often outweigh the explanation of why they do. Culture and conflicts alone can often be insurmountable hurdles.

For those mergers that proceed, after months or years of evaluating client transition, risk tolerance, office leases, retirement obligations, succession, capacity, and economics, leaders will refine the strategic business case for a more profitable, more sustainable, diversified firm. This is when the work really starts and when disciplined, intentional leadership is needed. The following are seven observations that I gleaned from more than 25 years in legal services.

1. Communication first

When firms acquire another firm or merge, they are often trying to solve a problem with the merger that they cannot or will not solve on their own. Sentiments run high and often the greater goal of a combination can be lost to the emotional responses aroused. Communication — how, to whom, in what order, and through which platform(s) the message is delivered, matters. Communication in this type of event should not just be about the new world order — the combined vision and strategy to get there and the objectives to be realized — but also about the impact on the day-to-day. Employees want to know how this merger will impact them, their work, their team, and how they contribute. Leaders should communicate strategically with all firm members and remind them of the shared vision.

2. Know your stars and keep them engaged

Do you really know who your key management team is? During a firm transition it’s imperative that you know and recognize your key managers. Law firms have a history of falling hard for the most visible management leader, not understanding there is often another employee or entire less-visible team that is feeding that manager, doing the work, and providing the platform on which that manager stands.

If you do not know who does what, you may not really know who your key players are until they are gone. Indeed, your truly talented managers will leave during this transition period more than any other employee. And remember, your most important employees may be tremendously loyal to the firm as it is today, but that may not necessarily translate to the new firm and leadership structure. This is where communication comes back around. If your key managers are not in the know, they may take your silence as a betrayal. When you truly know who they are and their role within the organization, you will include them and pursue them in the change process.

In a normal environment, the ability to separate political self-promoters from legitimate passionate leaders is tough; and very often the most important people will not push themselves into the spotlight because they (perhaps wrongly) assume leadership will know or understand their value. Worse, they may know their value outside the new firm, and simply wait to see what happens. During this period, they will assess the newly merged firm and ask the question, “Will the new firm and its leadership understand my worth? Or will the new firm give me a severance package to move on to a competitor who may pay more?”

3. Tap your business leaders

Law firms are businesses. And while they are unique in the fact that they do not make or sell widgets, firms do sell intellectual horsepower and solutions. While some lawyers have a keen business sense and understand their client’s business well, they are no longer the probable choice nor the best-qualified to lead the business of the institution. Lawyers may be shocked by this statement, but clients are not. Big business and clients are betting heavily on business- and finance-trained leadership to guide their law firms to be the analytical, tech-driven, and efficient business advisors they need.

4. Engage your top two levels of management early in the process

Engaging your chief roles early in the process is usually a given — they are the expertise and reliability needed during such a transition. However, you will get the most bang for your buck by engaging with the next two levels below that — your directors and managers. If you have strong directors and managers, they will grasp and understand any potential pitfalls you may not see from the 30,000-foot view. Their perspective will provide insight into the employee or staff side, and often reflect any unvoiced concerns of attorneys as well. Involving them can ensure less surprises and reinforce communication, which in turn will help ensure success, or at least better acceptance and understanding.

5. Plan the work, work the plan

Have a process, a plan with specific and easily understood steps. The process doesn’t have to be perfect. Processes that can be followed do not cost money or resources; they save them. Processes are needed to accomplish a task, and a good process will make the firm integration move more quickly. There will always be risks that have not been identified and will not be until the merger takes place. But while there is no need to be the proverbial bull in a China shop, breakage will happen, just keep moving forward with purpose and follow the plan.

6. Caution: the builder will not live in the new building

During a merger, there are lots of external participants involved. These participants are necessary; but remember, the consultant or financial advisor will not live in the new building. These parties have their own unique perspectives and interests but are not around forever. Firm leaders should capture their tremendous value, gather information, and listen closely to their insights. Then, they should shift focus to those who will live in the new building together; continuing to build, grow, and maintain the new space as a combined entity.

7. Take the opportunity to drive impactful change

Law firms are often criticized for lagging corporate innovation and staying true to what should have changed long ago. Firms may have worked with the same people and processes for years, but a merger creates an opportunity where everyone’s tolerance for change increases. Combining two firms will always reveal more efficient processes, better solutions, and more value to offer the new and existing clients. Listen to your new partners, associates, managers, and staff. Take the best parts and practices of each firm, reject the waste, and remember that this immediate innovation was part of your strategic business case for the combination in the first place.

Finally, as the merger unfolds, remember that patience is key. History shows that optimization and top-line revenue growth of the newly merged firm will take time. Intentional and laser focused action is required of the business leaders — in the famous words of Bob Sugar, “It’s not show friends, it’s show business.”

Leaders should continue to ask themselves, “What’s best for our clients and their business?” Successful firms meet or exceed client expectations by leveraging their strengths and investing in and inspiring their talent. Mergers are an opportunity to bring something new and better into the world. That must be your north star.