Law firm mergers have continued this year and are approaching last year’s record. For law firms, any number of motivations can lead to merger, but the common denominator is the perception that merger serves the greater good. Despite the onslaught of mergers, a vast number of mergers are less than perfect. And while a merger may be for the “greater good,” its imperfections prevent it from being for the “universal good.”
Lawyers are the ultimate free agents. At any point in time, a lawyer can decide that his current firm is not suitable and decide to leave. In times of transition, especially in the face of an imperfect and impending merger, the declaration of free agency can be at its loudest. The experience of Patton Boggs (before and after the closing) and Bingham McCutchen, among others, prove this to be true. Conflicts, compensation issues, cultural differences and underwhelming opportunity can compel a merging firm’s lawyers to consider an alternative course. For those lawyers, strategic reasons typically drive the decision to go a different direction. If a lawyer reaches that point, there are at least five things to keep in mind:
A Clean and Amicable Break is Best. Like any divorce, separation is best for all parties if it is clean and amicable. A clean and amicable break will assist in transitioning client files, understanding which relationships are off limits to raiding and how the separation is to be announced. For that reason, negotiations over departure should employ objective and rational reasoning instead of emotions. Because emotions sometimes can’t help but surface, rationality and traction towards an amicable split are helped by using a third party to negotiate the break.
Departure is Involuntary. In many ways, the departure is an involuntary act since it is preceded by a commitment to merge made by the firm, not the lawyer. That being the case, the decision to not join in the merger is not a sign of disloyalty but should be recognized as a difference in strategies. Because an individual lawyer cannot match the firm’s control over the firm’s destiny and the destination can be harmful to the lawyer, his or her decision to leave is, for the most part, involuntary.
Deferrals and Punitive Provisions Are Inapplicable. Because the proposed merger, not sought by the individual lawyer, is strategically unsound for him or her, the departure can be viewed as a forced one, similar to a constructive termination. For that reason, it can be argued that muniments of partnership status (capital, loan repayments, property) should be returned without delay and any punitive partnership agreement provisions should not apply.
Good Future Relations Benefit Both Sides. While having an amicable split is critically important in the short-term, thinking about how relations will be in the future can be very important for the long-term. Future referrals, sharing of information, joining in the representation of select clients are issues that should be explored as the impending departure is negotiated.
Numbers Matter. Some partnership agreements are onerous towards departing partners but the severity of the negative provisions is only appreciated when applied to real life financial numbers. Getting the “numbers” from the firm is step one. Vetting the numbers is step two. And negotiating from “agreed” numbers is step three-and the most important step. Like other aspects of negotiating a departure, outside help may prove useful in translating the issues into plain English. Anything less than a full understanding of the numbers and how they work leaves the individual lawyer at a distinct disadvantage.
Law firm mergers almost always stimulate fall-out. A lawyer realizing that he or she does not want to join in the merger can make a gracious exit that benefits everyone. If your firm sought a merger, would you be ready to not follow?