Mergers: You need to reduce levels of uncertainty when facing major change
Mergers of law firms are “not a time for consensus because decisions must be made” and the fact partners may have to cede control “must be debated and not hidden”, a report has warned.
Firms were advised to “not let lawyers get involved in the detail because they will argue about the detail not the principle” and remember that lawyers and other staff “do not like change”.
The report Mergers with the benefit of hindsight, by merger integration specialists Jonson Beaumont Core, was based on interviews with over 50 firms, all but one of them with a turnover of between £10m and £150m.
Researchers took the knowledge gained from the firms and turned it into step-by-step advice on how to achieve a successful merger.
In a section on ‘challenges’, they advised against letting lawyers get involved in the detail of a deal, “because they will argue about the detail not the principle”.
The report explained: “Merger is not a time for consensus because decisions must be made. Show them what it is you want to achieve with the merger. Remind partners of their duty to the partnership above their personal interests.”
Partners must “know what it is they are voting for with the merger”, since they were “often concerned about giving up autonomy and being less involved” in decisions.
“They will agree and then walk out and sabotage the deal if their concerns have not been met.”
Law firms were advised to listen to issues brought up by partners at the start of the process and deal with them, discussing billable time targets, profit, and margin targets at an early stage to avoid future conflicts.
“Put in effort early to stop people being disgruntled. You must have clarity and inclusiveness. Power players can derail the process if they feel they are being treated poorly.”
In terms of planning, firms were advised: “Do not underestimate the inevitable difficulties and period of destabilisation that accompanies a merger.
“Lawyers or operational staff do not like change and any merger brings huge change, with new colleagues, changed responsibilities, a change of office involving new systems and processes.
“To be successful a merger or acquisition needs a significant investment in management time. Integration will give rise to tough questions and they must be dealt with not avoided. Do not assume you will be able to deal with them once the deal has been brokered.”
On communication, one law firm held an “integration retreat” for key lawyers and operational staff and “on the day of the launch had videos, prepared by staff to talk about what was happening”.
Researchers went on: “It is difficult to listen to positive messages no matter how well-intentioned or inspiring when your all-encompassing thoughts are fear that your role will change beyond recognition or be lost.
“People can sense change and they gossip, which starts suspicion and negativity. You need to reduce levels of uncertainty when facing major change.
“Partners will be concerned about giving up autonomy and being less involved in decisions. How you inform people about change is critical.”
Every law firm “inevitably” said they had a “collegiate culture”, which was “nice to say” but not reality.
“We have first-hand experience of working with two firms who both said this. The reality was very different because their decision-making style was fundamentally different.
“One was in fact very collegiate, so no decisions were made and the other was a benevolent dictatorship, so the merger integration was not working.
“We had to work with them to identify a set of objectives and a vision for the new firm to buy into.”