Learning from global law firms
Despite their huge annual turnover, large management committees and external consultants, global law firms still make expensive mistakes when it comes to mergers. Some of the most costly mistakes are those that arise from insufficient planning for, and investment in, managing change.
In this article, I have identified some of the common problems for large firms that have not implemented effective strategies for managing change before, during and after a merger. I have also identified ways to avoid these problems. For large law firms, developing and implementing strategies for managing change can be a costly and time intensive process. However, given the much reduced scale, for small to medium-sized firms, avoiding the problems that arise from lack of planning for change can be relatively simple and cost effective.
For most large law firm mergers, the vast majority of the time and resources of senior management staff are dedicated toward ensuring that the money side of the merger has been fully fleshed out. On the execution of the documents, every senior partner will be fully apprised of every nuance of the costs involved and the profit sharing arrangements of the newly merged entity.
However, few staff members will understand the best ways to take full advantage of the benefits that the merger brings including how to take advantage of the new expertise, support, contacts, cross selling and economies of scale. In fact, these processes may not have even been planned for or discussed in any serious way.
Taking advantage of the potential efficiencies of the merger will often be left to an organic process whereby individuals will develop their own processes, if they are so inclined. Without something more than a token investment in helping staff understand, and take full advantage of, the benefits of the merger, the newly merged entity cannot achieve its full potential.
In my experience, the three most common results of large law firm mergers in which only a token effort has been made to genuinely merge the firms are that:
- both firms end up working alongside one another under a single brand, rather than genuinely together;
- disaffected and demoralised staff actively block the potential benefits of the merger and, in some cases, generate negative publicity;
- disaffected and demoralised staff begin to leave the newly merged entity, sometimes resulting in loss of the very expertise and relationships that may have been a factor in motivating the merger; with the associated negative publicity.
Signs of working separately under one brand include:
- each firm maintaining both sets of staff; professional support, IT and fee earners whether or not it is necessary;
- senior management not allowing time and resources to investigate and adopt the most effective practices and procedures in place in either firm;
- each firm maintaining its own established practices and procedures, whether or not new ones have been introduced;
- staff actively protecting, or only passively giving access to, their contacts and relationships; and
- staff not taking full advantage or, or actively resisting, the new expertise or cross selling opportunities.
Depending on the motivating factors for the merger, any of the above outcomes may be acceptable to senior management. If, however, the merger is motivated by a genuine desire to take advantage of the best of both firms, then these outcomes are not in keeping with that aim.
The most effective change management plans must be designed for the particular circumstances of each merger. However, all successful merger change management plans will have at least some of the following features:
- clear, transparent and regular joint communication to all staff at both firms about at least:
- the timing;
- the progress, including open, frank and respectful mention of any sticking points;
- the process;
- the reasons for the merger; and
- any possible redundancies including clear information about the open, fair and compassionate manner in which redundancies will be carried out and the support provided to those who will be made redundant,
- structured and active discussions between both sets of employees (often grouped by practice or sector);
- giving employees at the same level in both firms the opportunity to meet in person and to voice in a safe space (often invigilated by an external third party who will provide an anonymised summary to senior management), their suggestions, hopes and fears in relation to the merger;
- opportunities for all levels of staff to provide presentations to their counterparts on aspects of their firm that they are most proud of; and
- opportunities for all levels of staff to have active input into the way their roles/working practices can change for the better as a result of the merger.
The level of open and transparent communication suggested above may go against the grain for many law firm senior staff. In my experience, however, a communication vacuum creates gossip, whether accurate or not. This gossip inevitably filters through the firm in relation to the progress of a merger, possibly ending up in social media. In short, a story will out. It is far more productive and better for morale to take control by being the author of that story than being the passive subject discussed in whispers around the water cooler and reported in social media.
Change for all
Many post-merger change management programmes allocate a significant amount of time to developing working relationships with the most senior staff while providing only token support to anyone under the decision making level.
In my view, a comprehensive change management programme must encompass at least all levels of fee earner, professional support and IT staff.
All levels of staff have many opportunities throughout the day to decide the manner in which they carry out their work. For example, a fee earner will independently decide how much time to record, whether to contribute to the know-how system, whether to report pertinent information about a client he or she has heard through contacts, whether to ask for help and from whom, whether to recommend particular individuals within a firm, whether to volunteer help to others, whether to use the firm’s support infrastructure in their work, etc.
All of these decisions can be made in ways that either support or hinder a law firm merger. The cumulative effects of decisions made by all levels of staff throughout the day that do not support the purpose of the merger can significantly hinder the realisation of the merger’s benefits.
A change management programme that acknowledges and plans for the positive contribution that all levels of staff can make toward supporting the merger will be more effective than one that only provides resources for senior decision making staff.
Compassion is not a word commonly associated with mergers. I have found, however, that particularly with firms that have had to make redundancies as a result of a merger, compassionate, transparent and decent treatment of redundant staff:
- motivates all staff and infuses a feeling of understanding and optimism throughout both firms;
- avoids embarrassing social media exposure from disgruntled and unfairly treated staff; and
- means that remaining staff are less likely to leave the newly merged entity.
My view is that the cost of generous redundancies packages and compassionate treatment is offset by savings made on recruitment agent fees to replace leaving demoralised staff and the potential loss of clients through embarrassing news stories. The benefit of having fully motivated staff working in support of the newly merged entity’s goals is not to be underestimated.
Most change management plans are developed and implemented once the senior management have decided that a merger should go ahead. Innovative firms will, however, use change management techniques to help them to choose a merger partner.
Carrying out structured and invigilated exercises exploring the changes involved with senior management in the context of premerger talks can reveal aspects of the merger that may not be accessible through research and investigation alone, including
- the realities of the cross selling opportunities and the people, processes and goodwill necessary to support it;
- the expectations and fears of staff on both sides and the effect this may have on their behaviour during and post-merger; and
- exposure to the decision making personalities and their leadership style.
Law firm mergers are an expression of optimism. To give the merged entity the very best chance of accessing all the benefits available from merging two law firms, care, attention and money needs to be allocated to supporting the changes across the merged entity.
Many of the savings from change management programmes come from avoiding the cost of resistance and setbacks. For the most part, these savings cannot be definitively quantified on a balance sheet. Consequently, it requires visionary senior staff to allocate the necessary resources in time and money to support a carefully planned and executed change management programme.