For many law firms client expectations, increased competition (from traditional and non-traditional sources) and unreliable demand present formidable challenges. These challenges can be compounded as a firm’s senior lawyers age and succession gets added to a firm’s “to do” list.
Some firms have responded to these issues by growing through lateral hiring or merger initiatives. Hoped for market share gains and new blood can drive a firm towards a growth strategy.
The growth solution doesn’t always turn out well. Anecdotal evidence of lateral hiring or merger shortcomings is prevalent. Now, a study from ALM Legal Intelligence reports on survey results confirming suspicions that many firms do a poor job of executing on their lateral hiring strategies. Add to the ALM report the oft-cited statistic that only about fifty percent of mergers are “successful,” and one has to wonder whether pursuing law firm growth makes sense at all.
Done correctly and with discipline, law firm growth can leverage a firm to new heights. No doubt lateral hiring can be risky as the bidding gets out of hand and out-sized compensation guarantees and outsized expectations arrive. Merger likewise can prove inadequate for numerous reasons, including because “synergies” are overstated or otherwise can’t be realized. When lateral hiring and mergers go thud, it often can be traced to due diligence failure.
Using growth effectively to resolve transitional issues requires discipline. Five ways to achieve that discipline include:
Develop a Methodical Approach Prior to Getting Started. Careful pre-deal planning followed by meticulous execution can deliver a focus that is vital when laterals are considered or mergers pursued. ALM Legal Intelligence recommends a three-part process: develop a candidate profile, collect candidate data and use a scorecard. Whether following ALM’s suggestion or not, the key is to develop a plan untethered to emotion and stick to it.
Know Your “Choke-Point.” Part of being disciplined in lateral hiring and doing mergers is to know the point beyond which a deal no longer makes sense. Establishing that “choke point” prior to getting immersed in a deal is very important. Once reached in the deal give and take, go no further. If the deal does not come back around to acceptable terms, discipline says the deal should be dead.
Separate Functions. Lateral hiring and merger talks can be part sale job and part negotiation. The persons involved in those activities should be nowhere near the due diligence evaluation. Keeping the functions separate helps avoid judgment becoming cloudy or unduly influenced.
Use Experts. Think like a client and get the most talented and critical thinking person running due diligence. If that person is at the firm, he or she will be a huge asset. If a firm is new to doing deals or its bench does not include an expert at sniffing out puffed up candidates, it should venture outside the firm and find advisors that can critically test the proposed deal. A good law firm advisor familiar with deal due diligence can help a firm avoid a financial loss that can be many times the fees charged.
Don’t Be Afraid to Walk Away. The essence of discipline is to be willing to decline a deal even it deal momentum is pushing it to the finish line. A deal that does not meet all the criteria identified at the outset of the initiative is probably not worth doing. No matter the time and money invested in pursuing a prey be prepared to walk away.
Growing a law firm to address strategic imperatives can succeed if pursued with discipline. A lack of discipline risks bad results that can take years to correct. If your firm is thinking about pursuing lateral additions or even a merger, will it have the discipline to make it a success?