First generation law firm leaders find themselves confronted by a classic “good news-bad-news reality.” The good news is that they are nearing the end of what for many has been a rewarding career. The bad? Most have no clear path of succession— for client relationships or leadership responsibilities.
There are a host of reasons; but the reality for most is an unplanned career dilemma — remain active long enough to develop and execute a succession plan, or go ahead and step away and put equity (not to mention legacy) at risk post departure.
Faced with the dilemma, many law firm leaders find themselves entertaining a merger as a succession solution.
For those considering merger as a succession strategy, there are five compatibility issues to consider.
There is a lot of confusion about what culture really is. Simply put culture is what work life is like inside a firm day to day. What characterizes behaviors…what do conversations sound like…what topics and issues capture attention and imagination.
There is a strong correlation between a firm’s culture and what the firm most values. Not what it says about these things on the website or in recruiting materials; but where investments are made and stakes put in the ground. Eloquent copy describing a shared commitment to client service, community, collegiality, and collaboration are common. Too often there is a world of difference between what the website says and what the law firm is.
When entertaining a merger, combining with a firm with a compatible culture is essential to continued happiness and long-term retention of personnel at all levels.
Client profile compatibility
In addition to the obvious issue of legal conflicts of interest, compatibility of client/work profile is critical to executing a merger that will meet a firm’s succession goals. The more dissimilar the profile of clients in terms of sophistication of work, size of client companies and the related rate structure, the more difficult it is to achieve an effective integration of the two firms. A merger between a firm that represents large multinational companies on “bet the company” matters and a firm that does more routine work that yields a lower rate structure is problematic from the word “go,” no matter how much both parties want to believe otherwise.
Differences in the cornerstones of each firm’s compensation system — the degree of subjectivity in the system, the level of draws, the balance between draws and catch-up distributions, open vs. confidential, broad based participation in compensation setting vs. a small controlling body — all of these factors provide an opportunity for conflict. Finding a merger partner with similar compensation system values and function will help in achieving succession objectives.
Every firm is different in terms of financial performance and objectives. A lack of similarity in what is valued will yield dissatisfaction, a sense of us versus them and, over the long haul, a combination that will drive attrition from one side or the other.
Finally, the issue of compatible leadership is a critical consideration when a merger is considered as a solution to succession issues. A group of partners that have existed in an environment with a leader that routinely engaged partners, allowing them to actively participate in the decision making and policy-setting process will be unhappy in a new environment that doesn’t include such involvement.
A merger can be a solid, even dynamic solution to issues of succession; but a critical success factor is the honest evaluation of leadership styles on both sides of the equation.
The market for mergers has become very hot again. Law firm leaders looking to merger as a succession solution will likely find a number of options. It is easy to be seduced by the perceived upside. Leaders who devote appropriate attention to these five factors will be much more likely to engage in combinations that survive the test of time…and deliver succession solutions for clients and firm personnel alike.