Merging firms must heed age-old industry cautions

 Edward Poll, The Daily Record Newswire

Lawyers are special. Principles of economics do not apply to us.

Mantras like that come and go decade by decade. Small is beautiful, big is better. Big is bad, unless you’re too big to fail. Which do you prefer? What is the flavor of the month?

If you have lived through more than one business cycle, you’ve heard variations on those mantras many times.

The Wall Street Journal recently wrote, “Big Law Mergers Questioned.” The article is simply a rehashing of the same arguments corporate America cyclically puts forth, both pro and con, about mergers and acquisitions. In other words, Big Law is reflecting and following the paths of its clients.

We saw that in the 1930s and 1940s, and later when unions became larger in order to do battle with management. Today, law firms are combining in order to be more respected, better received and perceived players in the world again.

A small vendor (yes, even a law firm) has a great deal of difficulty being respected in the same ballpark as a very large customer like corporate America. However, the managing partner of a big law firm very easily can sit at the same table as the chairman of the board of a major corporation.

The arguments put forth in the article for favoring a merger include: increased geographic reach; increased revenue; new clients; increased ability to cross sell services; enhanced depth of skill within a particular subject area such as technology or energy; savings of expenses and consolidating duplicate offices; trimming of staff and elimination of unproductive partners; and increased opportunity to be the firm selected in an environment in which corporate America is reducing the number of legal suppliers.

But there are cons, too. A larger firm may face more serious conflicts of interest, as it’s likely that a new prospective client will be in an industry in which the law firm currently operates. Law firms must have more sophisticated conflict techniques to make sure they don’t simultaneously represent opposing views.

“Global behemoths occupy most of the top-20 slots” among law firms, the Journal reported, and “most on that list grew through mergers.” Do mergers make bigger firms better for clients? Typically the answer is “yes,” when the parties have thought through what they want to accomplish and what synergies exist between them.

Do mergers benefit lawyers? Most surveys demonstrate that the attorneys at larger law firms take home larger paychecks.

As in the industrial world, two issues seem to stand out.

One, the compensation methodologies and amounts of the firms need to be reasonably consistent or the individuals involved will not be willing to move forward. That’s the equivalent of the price-per-share of stock and price-earnings ratio of any corporate enterprise.

Another factor involves firm culture — a feel-good, laid-back business is unlikely to mesh with an eat-what-you-kill, aggressive enterprise.

Compensation and culture are standard merger concerns. Curiously, the Journal believes that they are something new when it comes to law firms. In fact, they constitute the “same old, same old” experienced in industrial America many times over.

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Edward Poll is the principal of LawBiz Management. He coaches lawyers to greater profits with less stress and is the creator of the new “Life After Law” coaching program, which enables lawyers to plan for profitable exits. He can be contacted at edpoll@lawbiz.com. Also visit www.lawbiz.com.