Is the Partner System an Obstacle to Successful M&A in the Legal Sphere?

The structure of law firms means that they face very specific challenges when a merger occurs. Below Chris Roberts, Practice Director at Accelerating Experience, explains how the role of a strong people strategy can be central to seeing through a successful M&A in the legal sector.

The recent merger between law firms Norton Rose Fulbright and Chadbourne & Parke has seen the global firm now reach a total of 4,000 lawyers in 33 countries. This is one of the latest in a long line of high profile mergers and acquisitions in the legal sector, following the likes of CMS Cameron McKenna Nabarro Olswang and Herbert Smith Freehills. Increased pressure to expand geographical reach, develop a strong sector presence, and improve market position has triggered a period of consolidation in the legal sector as firms look for inorganic ways to grow or build cost synergies.

However, when firms undergo a merger of this scale, there is no guarantee of a successful transition – especially in the legal sector. The nature and partnership structure of law firms offer unique hurdles, frequently preventing the leadership from creating a cohesive, high performing culture across the new firm. Only a strong people strategy will help mitigate some of these issues, allowing the leadership team to unlock the full potential of a merger or acquisition.

Industry hurdles and opportunities

Each sector has its own particular challenges when it comes to mergers, but when it comes to the legal sector, can the partner system be an obstacle to success?

There are a range of partnership structures used in the sector, each offering a slightly different challenge. But many partners in law firms run essentially small “independent” businesses in their practice areas, directly accountable to their clients, with their own particular specialism. Often with a narrow focus, individual partners can prove obstructive to a merger should they feel the deal does not materially benefit them.

Attitudes to only focusing on billable time can impact the motivation needed to focus on company-wide strategy, and the successful integration of a firm following an acquisition. If one firm values non-billable time more than the other, it makes it more difficult to engage colleagues to develop relationships with new colleagues beyond billable work, or engage with initiatives designed to create a new working culture. In fact, for partners whose bonus depends on reaching a minimum number of billable hours, focussing on company-wide or non-billable activity may be seen as a distraction. One of the issues to confront therefore, is how to build an understanding of the long-term personal benefit of a merger deal to partners, and assist detail orientated specialists to see the bigger picture for the firm.

However, the typical skill-set of lawyers can prove highly useful in times of a merger. They are extremely organised and flexible – able to manage clients’ changing needs in a world of rapidly changing legislation and regulation. It is through a collaborative approach that lawyers are able to develop high degrees of trust with their clients, demonstrating their value as reliable and trusted consultants. These strengths in the leadership are hugely beneficial during the often highly changeable times of a merger. However, to create a high performing team, it is vital that the leadership also bring out this collaborative approach across the business, and articulate the need for, and benefit of, cohesion.

Communication

Defining a common purpose for the new firm is paramount to driving it forward. However, clearly communicating this purpose to employees is equally important. Too often the communication around the strategy driving the merger is clouded by rhetoric and nonspecific language, with a frustrating lack of clarity about the benefits of the firms coming together.

In order to maintain and improve business performance, the leadership team need to communicate regularly and clearly with all employees about the merger, as well as setting out very specifically how to measure its success. This is often missing and the leaks are the only part people see.

Partners in particular will have their own personal requirements and fears, as well as ambitions and aims that they expect to achieve in the new environment. It is important that they feel that these are heard and understood by the leadership team. Moreover, people throughout the firm will be at varying stages of understanding about the process. Some will be only just hearing the message, others will be resistant to the plans, and some may be struggling to understand their role within the new firm. There will also be a group that are fully supportive and excited about the possibilities of the new organisation. This means there can be no ‘one-size-fits all’ approach to engagement throughout the new business.

Leaders in law firms are faced with significant management challenges constantly, often expected to work 24/7 and navigate a global network of lawyers where team members are working across several time zones. The partners need to create a sense of trust, purpose and transparency when working in this exciting but challenging environment.

Failure to take these factors on board may lead to teams becoming dysfunctional and creating barriers to achieving the optimal business outcome, thereby reducing the success of the transaction. A clear common purpose firmwide needs to be adopted and fully supported.

With this trend of consolidation continuing, there are likely to be further opportunities for law firms to come together, find synergies to reduce costs, and capture certain markets. However, it would be a wasted opportunity if the lack of a clear people strategy prevented the optimal result of a merger. The key is understanding the concerns and ambitions of employees, addressing them, then shaping the internal communication to ensure they feel trusted, heard, and valued. Law firms need to be fully transparent in a negotiation process and make a positive effort to ensure that both parties are fairly represented in the new environment.