This Forbes article references a KPMG study which indicated that 83% of mergers fail to yield a favorable return to stockholders while a separate A. T. Kearney study determined that mergers overall yield a negative return to owners. The KPMG study indicated that nearly 70% of business combinations are negative to neutral in terms of value created.
These studies look at business combinations in general and may not have included any law firms. But, if you were to guess, do you believe law firm leaders have a better track record in creating net positive value through mergers than career business professionals?
I would guess not.
With the torrid pace of law firm mergers, the question is what will it take to improve the probability of success for law firms.
Based on our experience, the two most critical factors in order to realize a merger’s highest value are:
- choosing the right merger partner; and,
- developing and executing a high-quality integration plan
Both topics are critical; however, the focus of this post is integration, and what is required for successful integration when firms combine.
Six keys to successful integration
- Leadership and decision-making
You should count on the fact that integration will give rise to some tough questions that only the leadership of the emerging entity can answer. So firm leadership, decision making processes and the identification of “where the buck stops” — on both legal and administrative sides of the house — are orders of business that should be dealt with before integration begins.. Size and complexity of the combined firm will dictate specific positions; but don’t fool yourself — the management team should be identified and agreed upon early.
This process should include the clear designation of an individual or team charged with responsibility of a successful integration. Those decisions should be communicated to all personnel with contact information.
Moving from two systems to one impacts almost everyone involved in the combination. Individuals who know the pieces involved should have a hand in the creation of a detailed plan. Typical platforms to be considered include:
- Client intake, conflict checking and acceptance
- Human resources
- Technology & security
- Marketing, business development & competitive intelligence
- Knowledge management
In some cases, the transition may take months. We know of one combination that saw a single firm operating with three separate accounting systems for more than a year. Whatever the reality, the plan and its timing should be communicated to all personnel with additional information as to who to contact regarding any transition process..
Everyone talks about it; but there is no more important integration issue than timely, clear and concise communication. In short, merger related communication must start early, be frequent and continue until the two firms are effectively integrated. Separate communication plans should be developed for clients, the public and the various members of the firm.
Attempt to foster an environment in which everyone feels free to ask questions, express concerns, frustrations and criticisms and suggest solutions. Allow an environment of distrust to develop…permit issues to go unaddressed, and be prepared for a turbulent transition. Fear leads to poor integration and unwanted turnover.
- Culture, policy, standards and expectations
For two firms to become one they must operate with one playbook — one set of rules, values standards and expectations. Take the time to develop the playbook and deliver it as early in the process as possible.
Consistent with developing one culture, plan on frequent get-togethers during which individuals can grow to know, understand and trust one another. Create an environment in which wins and progress are a product of the new whole, and challenges are jointly addressed.
Clients are (or should be) at the core of any operational decision a firm makes — including the rationale for a combination. Be certain that clients are advised of the value your transaction brings to them. Develop a plan to integrate members from both sides of the combination into as many client relationships as possible.
- Integration team
The integration effort should include a formal and recognized integration team. It is wise to staff that team, to the greatest extent possible, with administrative personnel, minimizing disruption to client service and revenue generation.
The chair of the integration team should report frequently to the firm’s senior leadership regarding successes and challenges associated with the integration.
A quality integration plan will devote plenty of time and attention to these six basic areas — and will dramatically decrease the odds that your merger ends up being one of the poor statistics.