33 - Ark Group Law Books, Legal Publications & Legal ... · business. They understand that in a law firm culture, the building of a strong consensus is key to success. Such dialogue

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Chapter 4: The central role of vision and leadership in the merger process

TO MAXIMISE the chances of merger success, a clear strategic vision combined with determined leadership is required. To be credible both internally and to the outside world, a vision for the future of the firm is needed which has been tested across a range of scenarios, is stretching, yet has an achievable route map for its realisation.

The importance of a clear, fair, objective, and determined leadership team is also key to success. Through inspiring others and painting a compelling picture of future opportunity, backed by strong analytics, the law firm leader is able to carry others on what will be, at times, an arduous and uncertain journey.

This section of the report explores the key aspects of leadership which will be needed to drive a merger both to initial completion but then, most importantly, through full implementation.

The role of leadership in building the visionIn a strategy which is merger- based, it is important that there is a clear vision of the future which is easily understandable and which provides a strong rationale as to why merger is the best option – illustrating both the opportunities that will be created as well as the threats and risks which will be reduced or eliminated. The development of this vision is at the core of the leader’s role, but research shows that it is the process by which the vision is created and agreed that is likely to be fundamental to its successful realisation.

Since merger will be regarded by many within the firm as a high- risk approach (especially so if the firm is prepared to be the junior party in any transaction), it will be vital that any vision for a merged business has high levels of buy- in if disaffection and possible desertion of important personnel is to be avoided. It is through the creation of a powerful shared vision that people within the business are given a better understanding of how a proposal for merger sits – both within the wider context of what the firm is trying to achieve in the longer term, and why this is the best option available.

Leadership, vision, and change are inextricably intertwined. Many would argue that the role of the leader is to come up with a vision for the firm and then be in the vanguard of the change process required to deliver it. But is it that straightforward? To what extent should a leader’s vision for the future be their own and how much should it reflect the view of the people they lead?

In a Harvard Business Review article, ‘To Lead, Create a Shared Vision’,1 compelling research was presented which indicates that those visions which gain the most traction are ones which are shared. In many respects, this is common sense – how can one expect to gain full commitment to a vision for the future unless that vision has been built up from a common base of understanding and reflects the aspirations of the wider firm? Emotional intelligence is to the fore in building this strong consensus, which is also at the core of change management best practice.


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That is not to say that a leader should not have ambition, or should simply be a passive reflection of the current status quo. Indeed, in the same article, the research showed that the attribute most desired by team members of their leader (after honesty) is that they be ‘forward- looking’. The desire and expectation is that the effective leader will look to the future in ways which others cannot, but the crucial nuance lies in the way in which they go about developing their forward- looking capabilities.

What is clear is that the best way to develop this competency to understand the future, and so have a clear picture of the best options open to the firm, is not to rely on one’s own soothsaying capabilities and personal prescience. The most effective leaders undertake deep and ongoing analyses of the market, to better understand both the current and future conditions which the firm will face, using some of the tools and frameworks that were discussed already. They also participate in an ongoing basis in considered discussion, both within and outside the business, to test what they have learned and to weigh alternative views. Very importantly, they consult widely across their firm in order to get a good grasp of the views and opinions of others, seeking to explore concerns and consider alternative options and scenarios. Whilst they have a broad vision, they are open to input and to minor modification or more fundamental change if this is in the best long- term interests of the business. They understand that in a law firm culture, the building of a strong consensus is key to success.

Such dialogue will usually begin within the leadership team – depending on the size of the firm this group will vary from all of the partners (in a smaller entity) to a management or strategy board (in a larger organisation). By outlining and developing a vision with these stakeholders the seed is planted. It can then be developed and tested, amended and

refined until it is something which is sufficiently shaped to be suitable for sharing more widely. It is then possible for this group to begin the process of comprehensive consultation. Consensus building, rather like the layers of an onion, can be developed incrementally, accepting that valid inputs may be received which feed into the creation of a more granular vision and strategy to achieve it.

Any vision must resonate with its constituency if it is to gain commitment. Particularly in a law firm, without high levels of commitment, no vision, no matter how articulately expressed, can be realised in practice. It is incumbent on the leader to build this commitment if a merger process is to have the best potential of a successful outcome.

The nature of consensus and the role of the leaderThere is much talk about the importance of achieving partner consensus on the big decisions which will define a firm’s future direction. Consensus is a worthy objective and one which, as research shows unequivocally, is likely to lead to a more cohesive firm. There is less clarity, however, over what consensus means in practice and how it should be reached.

What is clear is that consensus should not be a synonym for unanimity. Firms have, for too long, been forced to the point of making the ‘decision of least offence’ or to take the lowest common denominator option by this misconception. Consensus is perhaps best viewed as reaching a state of acceptance that a particular decision represents the best option for the business, albeit it may have negative implications for some including, perhaps, oneself.

What consensus means in practice differs according to the nature of the firm, but what is clear is that endorsement by the key stakeholders is essential for any

The Law Firm Merger: A Leader’s Guide to Strategy and Realisation

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merger to have a fighting chance of success. In a ten partner firm this may mean that consensus requires all to be comfortable with the direction that the firm is taking – even if the result is a dilution of its efficacy. In a 300 partner firm, the dynamic is quite different. Most partners in large firms are operating in something much closer to an employee- shareholder relationship that an owner- manager one. Consensus in this context is much more a political construct – securing the majority needed to carry sway and ensuring that the key power- brokers are engaged and committed.

However, the traits underpinning a consensus- driven approach are the same in all firms. They include clear communication, a sense of engagement, and a feeling that one’s voice can be heard (even if ultimately the direction taken by their firm is not that which has been personally voiced). It is about respect and giving partners an opportunity to interact with the senior management team and inform its thinking.

Both academic research and anecdotal evidence suggests that law firms who adopt a consensual approach to making the big decisions tend to perform better in the longer term. That is not to say that, on occasion, the leadership team cannot act unilaterally in order to avert a crisis or capitalise on a time- sensitive opportunity, but rather that the overriding philosophy of the firm is centred on creating a common sense of purpose and direction.

Contrast this with a management style which is dictatorial, where partners are informed after the event, and where important developments are relayed by the media. Stated in these terms, it is clear which approach will deliver the longer term benefits, shared vision, and unified partner group which is so important to the development of a successful twenty- first century firm.

Engaging the wider partnership in the merger processThe manner in which the leadership team engages, communicates, and builds consensus with its wider partner group is one of the most important opportunities and challenges that must be faced. Without a strong collective will, focused on achieving a positive result and overcoming the inevitable challenges that will be encountered, any merger becomes significantly more difficult. But what does this mean in practice? How can leaders move their firm towards its longer term vision whilst building and maintaining strong consensus within the key partner group?

In most cases there will be a tension. There will be an urge to move quickly, to build momentum, and capitalise on opportunities. Set against this may be a strong desire to retain and build positive elements of culture, suggesting perhaps a more incremental, slower process.

Whilst a strategy based on merger allows for rapid business building, it runs the risk of disenfranchising existing partners if not handled correctly. This is because it generally requires clear, determined management combined with high- levels of devolved executive decision- making in order to maximise its chances of success.

Such devolution of executive power often creates stresses within a partnership culture. Whilst partners as a group must have high- levels of confidence in their management team this does not obviate a personal desire to be engaged in the process. This extends both to creating and understanding the firm’s overall strategic route map as well as the endorsement of key decisions relating to any merger.

Getting partner engagement right is therefore something which requires careful thought and planning, since it is of critical importance to both long and short- term


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success. It is paramount that the partner group receives appropriate communications and interactions if the management team is to avoid any accusations of side- lining or steam- rolling. Engagement, of course, also generates enthusiasm to capitalise on the opportunities which the merger will create. It is not enough for a leadership team to state at the outset of a strategy implementation that the pursuit of merger opportunities will form part of the firm’s growth plan and then, following a period of radio- silence, present partners with a fait accompli proposal. Even the most emotionally unintelligent will see that such tactics will make any partner vote challenging at best and impossible in many cases.

What this means in practice is that a strategy founded on merger- based growth needs to be framed within a broader approach to managing the partner base, setting expectations, and communicating openly and frequently. It should be expected, and quite logical, that partners will be brought into the inner- circle and introduced to a merger candidate on the basis of their own role. It would follow that those with senior management responsibility, key influencers, or those running practice groups most directly impacted by a merger, would have knowledge of discussions in advance of the wider partner base. They are part of the validation process.

The detailed framework adopted will also, quite naturally, differ according to the pre- existing culture of the firm and its number of partners. A large partnership presents quite different management and communication challenges to a small one. In the former case, there is likely to already be an accepted corporate style of management and partner expectations will be set accordingly. In contrast, a smaller partnership can be more challenging; partners may have high expectations which require individual

knowledge of everything which is being contemplated. In such an environment, for a potential merger to be kept confidential from some partners whilst involving others may prove difficult – if not impossible – to achieve. The risk of distraction and internecine conflict in such cases is high.

A structured approach would make clear to the partnership at which stages of any merger negotiation they would receive communications to notify them of a possible union, to update them on progress, likely next steps and projected timescales. Even with a strong desire for transparency, it would be neither prudent nor practical to recount every conversation, exploratory discussion, early stage negotiation, or piece of preliminary due diligence that a firm might enter into with a range of prospective merger candidates. Any potential union needs to reach an appropriate stage of gestation before it is communicated more widely.

It will also be quite natural for a number of partners to have personal concerns which transcend any firm strategy or compelling business case. These should be identifiable in advance and proactive steps should be taken either to allay personal fears or to explain the impact of change on that individual. Allowing a communications vacuum is never the correct approach; this creates unhelpful assumptions and a belief that the worst possible scenario that can be envisaged is that which is planned.

A robust plan should be put in place and a cascade developed for partner engagement and communication. Clear protocols, with well- defined trigger points and a range of scenarios, allow the leadership team to maintain good levels of management control whilst responding to the understandable information needs of the wider partnership, both as shareholders and workers in the firm.


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Creating something beyond a cost- saving rationaleThere is a danger that too much of the discussion around the merger negotiating table is focused on cost saving and not enough on future opportunity. Understandably, of course, negotiating teams are keen to present a failsafe proposal focused on the consolidatory aspects of the deal – squeezing the cost base, removing duplication, reshaping the partnership, finding economies of scale, and consolidating property.

These are proposals founded on a ‘sweat the assets’ approach which, combined with a politically saleable reduction in partner numbers, seek to elevate PEP to the levels enjoyed pre- recession. Discussions such as these are founded in a belief that being better at what we already do will be sufficient. This is a fundamentally erroneous starting point for such discussions. Firms need to be better at doing things differently, rather than just more efficient at doing things the same way.

That is not to say that efforts to improve the efficient utilisation of resources are not important (for they surely are), but rather that a merger founded on such a premise simply puts off the inevitable day when profit is once again eroded. Under such conditions, the impact of new competitors which are unencumbered by a historic operating model and the inevitable cost- increasing effects of inflation, the profit squeeze will continue unabated in the new firm as it had in the old. Perhaps one of the most striking (and worrying) manifestations of this myopic view of the opportunities afforded by a merger can be seen in the cursory way in which client opportunity is assessed, sensible revenue growth projections arrived at, and the delivery of client services shaped.

It is almost as though the combined client base of the new firm is incidental when set alongside the cost saving rationale. And yet

it is the client base, combined with the new firm’s ability to exploit it in way that neither antecedent firm could, which presents the real opportunity of any sensible deal.

While initial consolidation benefits are both important and necessary, it is through revenue growth and operational improvements that sustainable profit increases will come. This can come from a limited number of sources:

� Charge more for the current volume of work: This is challenging in today’s market, notwithstanding the fact that there are opportunities to be exploited in terms of pricing and negotiation which will be beneficial and which should be explored;

� Complete current work volumes more efficiently than downwards price pressure erodes margin (which is necessary but difficult); or

� Find ways of increasing sales volumes whilst not overlooking the need to simultaneously improve operational efficiency.

In any merger, the easiest way to increase sales volumes is through the combined client base. Yet the quantification of this opportunity, the assessment of the business development activities that will be needed to realise it, and the confidence of the negotiating teams to present this to their partnerships as a series of scenarios (tested, sensible, and stretching) is often missing. It is a sad reflection on the complacency of the profession that a proposal based purely on cost reduction, combined with the presentation of an unchallenging operating model of ‘business as usual’ post- merger, trumps the more radical and ambitious scenario of improving both operational efficiency and effectiveness, together with client opportunity maximisation all too often.


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This is the real challenge in many merger negotiations. For the negotiating teams, the discussion should not be about maintaining ‘business as usual’, rather how to create a new client- centric model, for a new world, which provides a sustainable future instead of simply a staging post before the next crisis.

Putting the client at the centre of strategic thinkingIt has already been noted that any merger should seek to build sustainable competitive advantage. What this means in practice is that vision is needed to develop a client proposition which is more compelling than either firm could offer before and, crucially, is better than other firms competing for the same work.

A characteristic of the newly emerging legal services market is a simultaneous trend towards consolidation and specialisation. As well as getting larger, firms are also becoming much more focused in their objectives, strategies, and implementation. The market opportunities for the smaller, generalist practice are now very limited. There will still, of course, be a requirement for such firms in places which are geographically isolated, where the service has to be delivered face- to- face, and where the risks of using a generalist rather than a specialist are judged reasonable. However, this is a fast- shrinking world, presenting few options to firms with ambitions to grow.

A feature of successful mergers, when viewed through the eyes of the strategist, is a desire to dominate a specific market space. This market space may be defined by geography, by sector, by client type, by practice area, or a combination of these; but clarity is vital. As already discussed, simply getting bigger without an overriding strategic purpose is unlikely to deliver long- term commercial benefits and may well create significant difficulties.

One way of ensuring that any merger delivers sustainable competitive advantage is to view the deal through the eyes of the client and assess ways in which the new firm’s value proposition will be enhanced from this critical perspective. This means, of course, understanding which aspects of the firm’s service mix are most important to its target client groups.

It is by demonstrating that the merger offers specific advantages to these types of client that a step- change in market position can be realised. This will be achieved by enhancing the offer of both legacy firms and creating new areas of value which neither could historically offer. Through showing increased coverage, capabilities, and capacity that are relevant to the client, combined with an improvement in overall brand awareness, the new firm will be repositioned in the mind of the client.

It should also be possible to look more specifically at the small number of clients which will be of particular importance to the firm in the period immediately following merger. These will be the clients which present significant opportunities for revenue development. An excellent early stage initiative for any newly merged firm is a key client programme. This may serve a number of purposes. In some cases the new firm will be better able to meet a client’s existing requirements – a greater geographic footprint or because, with a greater depth of resource, the client feels comfortable allocating a larger share of work to the firm. In other instances opportunities will arise because the new firm is able to offer a broader range of services, creating the potential to service key clients across a wider set of practice areas.

It is also crucial that any post- merger key client initiative is used as a Trojan horse opportunity to promote integration. By assembling a team from across the firm, drawing on a broad collage of expertise,


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the new firm can ensure that collaboration and communication is encouraged at the earliest possible opportunity. By sharing knowledge, the combined team is better able to understand the current relationship and dissect the business mix. This will allow a plan to be developed which exploits the client development opportunities which are uncovered, through leveraging the capabilities of the new firm.

At the same time, it is important to ensure that enthusiasm is balanced with realism. It should never be forgotten that, even with a new array of resources and talent, the firm will almost certainly be attempting to displace a well- ensconced incumbent. How can a proposition be developed and communicated that will encourage the client to consider moving this work?

For any merger to succeed, the client should sit at the centre of the leadership team’s thinking – encompassing both clients that each firm has historically served and those on which the new firm wishes to focus in the future. Seeing the world through the eyes of the client and shaping the firm to deliver distinctive value in a way which is sustainable and profitable is vital. As outlined, the danger that must be avoided is that the merger is assembled solely on the basis of internal cost- efficiencies, overhead consolidation, and reduction of the partner base. Longer term success is achieved by adopting an external orientation which is client centric.

In simple terms, if there is nothing in the merger to excite and entice the client then there is little chance that growth will be achieved. Without growth, stagnation becomes inevitable. It therefore follows that a strong client- rationale, that can be clearly and succinctly articulated both within the firm and externally, must sit at the centre of any merger proposition.

Leadership and culture: Assessing cultural fit as part of a mergerThere is wide acceptance that a firm’s culture is both one of its core defining characteristics and, for better or for worse, a driver in its longer- term performance. Changing a deeply- embedded culture is both one of the most challenging and transformational opportunities for any leadership team. At a time of merger, it is one way in which real synergies can be realised. Yet when we assimilate and analyse the characteristics of a firm with whom we might merge, either as part of an initial disclosure exercise or more detailed due diligence, many things are evaluated but cultural issues are often ignored or given superficial treatment.

Why then is cultural alignment, in many cases, not even considered at an appropriate level of detail until after the deal is done? We already know that it is one of the most significant determinants of success in both the short and longer term for any merged firm.

Two common reasons are that the management teams have a more optimistic view of cultural fit than is found in reality, and that there is a deep- seated belief that it will be too difficult to make this assessment prior to merger. In some cases this will be because the discussions are at an early stage and not in the public domain, whilst in others it will relate to a reluctance to commit to an additional project stream in what is already a complex and time- bound process.

An over- optimistic negotiating teamTaking the first of these issues, it is likely that the respective management teams will be culturally closer to each other than the rank- and- file partner or the average lawyer, secretary, or business support person in each firm. After all, they are the ones who have put their heads above the parapet to accept management responsibilities, they


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have (regardless of how much they deny it!) a genuine interest in management and in building a firm which is more than simply a collection of individuals. They are clearly comfortable that they can work together – if they were not then their negotiations would have failed at an early stage.

The danger, of course, is that they project their own cultural fit onto the combined business. Whilst on occasion this will prove to be a sound judgement, they may often fail to appreciate how distinct the cultures which are about to be joined in the union of a merger actually are. Without proper appreciation of these differences and a plan to ensure that they integrate harmoniously, each giving something positive and each sacrificing negative aspects, the result will inevitably be a clash which can resonate through the business for years to come.

It’s all too difficult to do just nowTurning to the second reason for not addressing culture early, an assessment of likely fit can be made in a number of ways. At its most straightforward, a joint partners’ meeting provides an opportunity for both firms to answer the most fundamental question: ‘Can I imagine being in partnership with you?’ But, whilst helpful, this also is an inherently superficial exercise – it may ensure that significant differences are highlighted and resolved, but it will not pick up on the nuances of culture and behaviours which, if not dealt with early, can become pernicious.

This more detailed understanding can be gained through the use of assessment tools such as online surveys and face- to- face structured interviews. Building on research that has identified the key behaviours which drive profit in professional service firms, coupled with those that erode it, the insights can be invaluable in highlighting

both cultural dissonance and alignment. This is a valuable piece of research for any firm, regardless of a putative merger, since it provides the management team with the behavioural map that it needs to navigate change. Prior to any merger (even before discussions are in the public domain) each firm could, quite simply, conduct its own cultural assessment to a common model and set of assessment criteria. The results will then be directly comparable and so can be used to inform the merger negotiation. This is in the same way that financial analyses or client assessments (again produced to a common standard) are used to compare performance in other areas.

Of course alignment is not necessarily always a wholly positive attribute. One oft heard comment in negotiations is that the ‘biggest strength of the merger is our cultural similarities, but it’s also one of our biggest challenges’. What will be the catalysts to ignite change in bringing together two ‘sleepy’ cultures? What is important is that the new management team have a comprehensive understanding of both firms’ pre- existing cultures, mapped onto a common framework. They should also agree the core cultural attributes of the new firm and their relative importance. Armed with this understanding, a weighted gap analysis can be undertaken to produce a clear prioritisation of where culture change efforts need to be focused.

A merger should be an opportunity to bring about positive culture change. With a clear plan, the emergent culture can be both different and better than both its antecedents. Without such a considered approach there is a real danger of introspection and post- merger stagnation. Overcoming cultural obstacles and creating a culture which is fit for the future is fundamental to effective leadership at a time of merger.


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Leadership and emotional intelligence in a mergerAnyone tasked with delivering a merger has a huge amount of leading, persuading, cajoling, and encouraging to do in order to realise their objective. Audiences which need to be considered are both internal and external. Within the firm, the leaders are responsible for understanding the mood of the wider partnership group and persuading others of the merits of the proposed action (along with the non- viability of the status quo). They then need to take partners, lawyers, and business support personnel on a journey with them – a journey which a number will approach with trepidation and resistance. Externally, there is a need to influence the leadership team of the prospective merger firm, interact with clients and explain the benefits of the merger from their perspective. There is also a need to engage with the media to ensure that any deal is positioned correctly in the public domain.

Success across such broad range of audiences requires not simply logic, structure, and a clear plan, but also a high level of social and emotional intelligence to read situations and react appropriately. This is vital in all stages of a merger in order to motivate, maintain momentum, and build confidence. So, what is emotional intelligence and can it be learned?

The term emotional intelligence was first proposed in 1990 by Peter Salovey and John D. Mayer, who described it as a form of social intelligence that involves the ability to monitor one’s own and others’ feeling and emotions, to discriminate among them, and to use this information to guide one’s thinking and action.2

It has been noted that, while important, pure cognitive ability (i.e. that which is measured by the traditional IQ test) appeared to play only a limited role in why some people were more personally successful than others.

Numerous research studies pointed to the importance of emotional and social factors.

Daniel Goleman whose work followed on from Salovey’s and Mayer’s, sets out five ‘domains’ of emotional intelligence3:

1. Knowing your own emotions (i.e. self- awareness);

2. Managing your own emotions (i.e. self- regulation);

3. Self- motivation;4. Recognising and understanding other

people’s emotions (i.e. empathy); and5. Managing the emotions of others (i.e.

social or relational skills).

Good leaders score highly in each of these domains. However, all leaders can actively work to improve their emotional intelligence, whether in a focused way to address specific areas or broadly across all of the domains.

It would be incorrect to assume that those with high levels of emotional intelligence are born, not made. While it is true that each of us possesses an innate level of emotional intelligence, it is possible to improve our abilities across all of the dimensions. This can then lead to improvements in personal effectiveness and performance. For example, someone wishing to focus on enhancing their empathy could actively consider other people’s positions in a methodical and structured way and carefully evaluate other perspectives rather than assume a collective position which is the same as their own. Similarly, an awareness of body language – both one’s own and that of others – can allow a better understanding of underlying feelings to be developed. Reading these non- verbal clues can be immensely powerful and ensure the response or approach that is given is most appropriate to the person and the situation.

This ability to stand in the shoes of others and to view the world from their perspective


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is a key attribute that can be employed both for people management within a firm and externally in negotiation, objection handling and practice development. Within a merger situation, empathy is crucial in allowing one to dig deeper than the pure logic of a particular point and to understand the personal, social, and cultural context of the firm. Through personal development across these areas, productivity can also be improved. This happens through a reduction in conflict and a consequential increase in stability, better understanding of business and personal relationships, improvements in teamwork, reduced stress, and better business continuity. In short, the likelihood of merger success is dramatically improved.

Enhanced emotional intelligence can deliver a range of benefits both for the leaders personally and for their firms. Within the context of a merger, being able to operate with high levels of emotional intelligence can result in better outcomes and improved probability of the new firm.

Emotional intelligence in the merger processAny merger has a number of well- established stages, within each of which emotional intelligence has a role to play alongside more traditional and logic- driven management processes. From the perspective of developing a deeper understanding of the role of emotional intelligence throughout the process, it is important to be aware of the guidance in the following sections.

Pre- merger reviewThe first stage of any merger is to assess one’s own position and consider whether a merger or acquisition strategy should be pursued. The decision to even embark on a merger process is one that is loaded with emotion. Fears may abound within the partner group ranging from the impact on them personally

to the wider implications for the culture and social fabric of the firm. ‘Things won’t ever be the same again if we merge’ is the underlying sentiment for many, regardless of whether or not this is verbalised. Of course, such feelings are generally expressed pejoratively, but that need not be the case at all. ‘Different’ need not (and should not) mean worse.

The emotionally- aware leader will paint a vision and develop a strategic narrative which describes a future that is better than the status quo and the likely scenarios which will arise from adopting a purely organic approach. It is clear that emotional intelligence has a role to play, even in getting a merger to be seen as a viable option.

In one situation on which I advised, a managing partner spent six months in active discussions to persuade his partners and bring them round to the realisation that merger was the best route to secure the firm’s future and that it offered real advantage over the other options available. With the backing of a strong consensus, he was then able to enter into the merger process with confidence.

Regardless of the strategic or management logic surrounding the merger option, it will only be through management of the firm’s culture that an approach will be able to make substantive progress. The ability to work closely and collaboratively with the partner group and the wider firm, to change attitudes and shape culture, is a cornerstone of successful leaders. Using the principles of emotional intelligence to navigate these cultural waters can be one of the most powerful tools at the disposal of the law firm leader.

Evaluating targetsHaving embarked on a merger- based strategy for growth, the next stage is to create a clear understanding of the characteristics of any prospective candidate firm. Such analysis will typically be built up from public domain


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sources, supplemented with any insights that can be gleaned from third- party sources such as intermediaries and the personal knowledge or networks of the partners.

At this stage, the focus will be on considering the ‘paper fit’, but it will also be important to consider, as far as possible, cultural issues. Some partners will be keen to give you the benefit of their opinion as to the suitability of potential candidate firms (whether based on their personal experience or what they have gleaned from the rumour mill).

At this stage it will be important to make value judgements about the opinions that are expressed, based on perceptions of the objectivity of the source and whether or not any self- interest is at play. While the clearly- expressed views of someone known to be fair and objective may carry more weight than the opinion of someone with clear self- interest and a bias towards (or against) a particular firm, most feedback will be more nuanced and the political position of the source less clear.

Interpreting the signals provided by tone of voice and body language, combined with a good understanding of the emotional drivers of the source, will be key in deciding how much weight to attribute to information provided.

Assessing cultural fitThere has been much written about the importance of cultural fit in merging firms. However, understanding what this means in practice, mapping culture and analysing how the coming together of two organisations will play out, is as much art as it is science.

In many cases, there is a danger of ‘group think’ (the phenomenon by which, in the absence of external input or challenge, a group of ostensibly rational and intelligent people can devise objectives and strategies which depart significantly from what it is realistic for their organisations to achieve)

influencing a combined negotiating team which has grown close and developed a rapport during their discussions. They may, because they have a strong alignment of personal views on so many issues and share common ground on the challenges facing their firms, assume a similarly high- level of cultural alignment between their wider organisations. The emotionally intelligent person will pick up clues that this misalignment is developing and take actions to re- centre the discussion.

The reverse can also be true, however, with some merger discussions failing to get past first base because the negotiation teams do not perceive that the two cultures will be able to integrate successfully. While the paper fit may be superb with potential synergies across clients, geographies, sectors, practices, and cost bases, it can be a lack of belief in the cultural fit that prevents the deal. Once again, such beliefs will often be based on a perceived lack of fit within the opposite side’s negotiating team rather than any objective analysis of cultural fit across the entirety of the key stakeholder groups of both firms

Such perceptions of cultural mismatch may be manifested in physical structures or processes (or the lack of them) or simply as a ‘gut feeling’. For example, a firm with a more delegated style of management may perceive inefficiencies and sluggishness in a merger partner that is more consensual in nature. Looked at through the other lens, the more authoritarian approach may be viewed as bullying, divisive, and ultimately self- destructive.

Both psychological responses may be valid, but the emotionally intelligent approach would be to examine the reality of each perspective and the entrenched position which has developed. In many situations, the biggest barriers will be those of language and perception rather than the day- to- day operating models of the firms. These will likely


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be very similar in many key areas, creating a new perspective for both parties and thus allowing compromises to be identified and progress made.

It is also crucial that due diligence needs to look beyond matters of finance and risk into operational management and the strength of the client franchise. Dig deeper than the stated policies and procedures to consider how effective they are in practice, how strongly they form part of the cultural web of the firm and how behaviours evidence them in practice.

Managing negotiationsIn any negotiation, some points become matters of principle or precedent carrying far greater weight than one would expect from any logical analysis of the situation. They are potential deal- breakers, so it is important to recognise them as early as possible in the negotiation process. The most obvious example is the naming of the merged firm; where the new name is to be some form of combination of the old, for example, which antecedent firm’s name appears first? Professional firm mergers are littered with the clumsy and often unpronounceable- in- a- single- breath consequences of compromise on this issue! Other examples might include the naming of practice groups – is it to be real estate or property, dispute resolution or litigation – which may be taken to indicate the dominance of one side over the other in some areas. Similar tensions can arise over job titles with the terms lawyer, solicitor, associate, and director all being used interchangeably by firms but with a need for consistency in a newly merged entity.

By having an awareness of potentially emotionally- charged issues and their context, it is possible to manage discussions, deal with misconceptions, and identify viable compromises at an early stage. Ignoring such matters until late in the process –

whether through a lack of awareness or an unwillingness to table them – represents a major risk to the overall success of the negotiation.

It is sadly the case that, in all too many merger negotiations, the elephant in the room is not confronted until late in the process, at which point discussions will often be in the public domain. Bringing these to an end without either or both firms suffering negative publicity is difficult to achieve. Emotionally astute leaders will not allow such situations to occur.

Post- merger integrationIntegration has, of course, its physical and operational aspects. The bringing together of premises, systems, IT, structures, and processes are potentially complex and require careful planning and good execution. These are, however, traditional challenges to which the integration project manager and wider combined management team should be able to rise.

More important for the longer term success of the business will be the alignment of cultures, ongoing communication, and engagement of people at all levels. This is where leaders with high emotional intelligence come into their own, their instinctive understanding of how it feels to be in the position of a range of people in the firm means that they are able to engage with empathy.

It is important to appreciate that, for many, a merger means an increase in stress and uncertainty. The concern on the ground is not with high- level strategy, but rather centres on more immediate and pragmatic issues such as job security and career opportunities. Being responsive to concerns such as these, without pretending that difficult decisions may not have to be made to deliver any merger dividend, builds confidence and trust in the leader.


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Understanding the possible reactions of the partnersThe personal circumstances, career stage, and ambition of partners in the firm will vary significantly. It should be no surprise therefore that their reactions to any merger proposal will also differ. The same communication can carry a very different message depending on the emotional position of the recipient. These could include:

� All I can see is opportunity, where do I sign up?

� I was hoping for a quiet final few years to my career before retiring into the sunset, and this looks like turmoil.

� Worked there once. Hated it. Time for me to dust off the CV and hit the recruitment market.

� They are a good firm but we are better. Naturally I’ll be the head of the new department. (This is often a thought that occurs simultaneously across a number of partners in both firms!)

� They do not have a practice like mine, what an opportunity to expand my client base.

� They do not have a practice like mine, this means I’m ‘off- strategy’, surplus to requirements, and will be shown the door in due course.

� How much is this going to cost? What about my profit share? I’m not interested in building a firm and achieving the ‘vision for 2025’, I want to maximise my earning today.

� This sounds like years of tribal warfare and the death of the culture we have prized for so long. I can’t believe that the board is prepared to destroy everything we have worked so hard to build on an inherently risky move like a merger.

� I am sure this will work out well and allow us to address some of the underlying issues which we have been aware of for

ages. Let’s hope that strong management will prevail, and deal with some of the problem areas firmly but fairly so that we can all move forward.

By noting these different perspectives, it becomes apparent that the same aspect of a proposed merger will send completely different messages and be interpreted in quite different ways by different partners. Once again, the negotiating team need to avoid being overcome by group think and retain their ability to see the proposal through the eyes of individual key partners and important constituencies within the firm. By so doing, they give themselves the best chance of dealing with objections and securing approval to proceed.

Strategy development and the identification, pursuit, and delivery of a merger are activities which rely on strong leadership. Emotional intelligence has a central role to play in the merger process. By developing an approach which is centred on emotional intelligence, it is possible to increase a firm’s chances of both securing merger opportunities and delivering positive long- term outcomes for the business.

The importance of winning hearts and mindsAn interesting point is reached in any merger discussion when the negotiating teams must set aside issues of market dynamics, strategy, and positioning. Plans for operational change, efficiency improvements, and rationalisation must also be side- lined. Even the development of compelling propositions to attract new clients and expand existing relationships must pause in order to answer one question. This question is, when looked at through the eyes of the common partner, ‘what’s in it for me?’

For many in the rank- and- file of the partnership, with only limited involvement


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in the detailed merger negotiations, the attraction of any merger is not tied up in vision and strategy or opportunity in the brave new world. It is more concerned with a simpler question, which is rarely expressed straightforwardly but often evidenced by behaviours and hinted at in questions which circle the core issue: ‘Will I be better or worse off, in both the short and longer term, by voting for this move?’

Given the high levels of consent required by many partnership deeds and LLP agreements, it does not require a significant proportion of those with votes not to be convinced of the benefits of a deal or, more personally, security of their own tenure to scupper the proposal. For partners of both firms, any merger represents a significant and potentially risky life change. With this in mind, the leader should set to one side the issue of high- level strategy and business- cases, as this merger proposal has become very personal; in the mind of the partner it is about ‘me and my loved ones’, and no decision is more important.

There has been extensive research conducted into change and the factors which motivate it; numerous algorithms exist which explore the components influencing the propensity to change. However, stated simply, the stark fact is that people will only sign up to change if they believe that the pain of change will be less than the pain of staying where they are.

Of course these are relative states. The pain of the status quo can change significantly in the face of market conditions, firm performance, and personal career stage, whilst the challenge of change can be softened by the processes which are adopted to realise it and the promised benefits at the end of the journey. Fundamentally there is a risk- reward judgement to be made by each partner. The shrewd management team

appreciates this and manages its process and communications accordingly.

An approach which I have developed over the years, and which I term the Five Reasons model, is useful in setting a benefits framework for those wishing to ‘sell’ a merger to their fellow partners:

� Make more money: The first of these centres on a direct benefit – will this deal help me make more money, if not immediately then in the longer term? If I am not going to increase my personal profit share then where is the attraction for me?

� Save money, invest without dilution and free up cash- flow: The second is concerned with the other side of the accounting ledger – how might the move help to save money (so creating more profit for distribution or to allow additional investment without dilution of current earnings) or make my access to the profit I have earned easier? Will it require more capital in the firm, or will I be able to draw some down? Will profits be distributed more quickly or required to fund the increased cash flow requirements of a larger business?

� Less risk and more opportunities: The third and fourth factors look at each side of the risk- reward equation. Will this deal increase my opportunities or reduce my risks? These may be seen as career enhancing or career threatening. Risks may also relate to business stability, capital requirements, and a changed working environment with different, perhaps more demanding, obligations and requirements of partners.

� More support, less administration, and an easier life: Finally, will the move provide for an easier life? In the context of a merger this will often mean an improvement in business


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support, a reduction in non- client facing administration, and a more straightforward route to satisfying the increased burden of regulation and compliance.

A recipe for winning hearts and minds

The aim should be to demonstrate a well thought through and satisfactory set of outcomes across all five areas in the mind of the partner. Any proposal which does not should be supported with an explanation as to why the firm may need to accept some temporary downside, or increased risk, in order to achieve greater returns in the longer term. To be clear, there will often be some level of discomfort as a result of merger and such topics must not be avoided but rather put into the context of a wider vision and longer term plan for the business; which is stretching but can be seen to be achievable and compelling.

In addition to the Five Reasons model, there are also, of course, emotional factors to consider – the most common of which relates to social status and how partners perceive their own firm in relation to their prospective merger candidate. The short and long-term impact of a merger on profit and, by extension, profit per equity partner (with all other things being equal) also means that those at different career stages will have quite different perspectives on the deal’s attractiveness.

It should be appreciated that a merger will generally be profit- diluting for at least the first year as restructuring costs are incurred and investment to align systems and processes made. The up- tick will come later in years two or, possibly, three. For partners at mid- career this is an investment in their future prosperity whilst for those in the last few years of their tenure such a move may not be quite as attractive as they seek to maximise their provisions for retirement.

There are, of course, ways in which PEP can be maintained or inflated immediately after a merger, primarily by reducing the number of equity partners sharing in the profit. However, this has the shortcoming of requiring pay- out of capital for retiring partners which may have the effect of either requiring increased contributions from those partners who remain or reducing the levels of profit available for distribution since this will now be needed to fund working capital. If the retiring partners remain in the business under a different arrangement, perhaps as a fixed share partner or under a consultancy agreement, there will also be this remuneration to be funded. It would be usual for there to be a reduction in equity partner numbers either at or immediately post- merger; but always with an eye to the potential for destabilisation in a newly created business and to avoid any sense that all of the pain is being borne by only one of the antecedent parties.

It is also important not to forget that any strategy is a bet on the future in terms of both market opportunities and the firm’s ability to exploit them. Nothing can be guaranteed, for this is the nature of business. Whilst risks can be ameliorated, and the realisation of opportunity planned through good management, there must also be a belief by the partners in their leaders to take the firm on this journey. Both the left and right hemispheres of the brain – the rational and the emotional – must be convinced in order for a merger to be consummated effectively.

It is interesting that we do not talk about ‘winning minds’ but rather ‘winning hearts and minds’. There is recognition that logic, in itself, is not enough to carry the day. There must also be belief and emotional commitment. Leaders need to create a narrative which builds this emotional commitment and which runs alongside robust analysis and ambitious planning.


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Leadership in governance and managementAn important question to consider at an early stage is how the new firm will be structured, governed, managed, and operated in a way that is different, and better, than the sum of its antecedent parts. These are the aspects of a merger which have the potential to take every partner outside their comfort zones.

Whilst a market perspective is crucial, it is but half of the challenge. It is enticing for the merger team to create a compelling external narrative but this should necessarily sit alongside what will often be a rather more difficult sermon about the need for internal change.

It is the job of the management team to capitalise on the opportunity for change that a merger presents to address longstanding internal issues and best position the new firm for anticipated future challenges; in other words to use the merger as a catalyst to ensure that the new firm is fit- for- the- future in a way that its predecessors could not be.

At the highest level, this should mean looking hard at both governance and management. The aim is to ensure that the firm can be run both efficiently and effectively whilst not losing the necessary checks and balances needed to give confidence to its owners. Given a larger operation post- merger this may well mean that a more corporate style of management is appropriate, with increasing levels of autonomy being delegated to a management team which refers back to the wider partnership only for significant strategic questions or for validation of plans and budgets.

This may mean that partners experience a sense of loss and detachment from the decision- making core for day- to- day issues. In truth, it should be regarded as a desirable by- product of a larger and more sophisticated business that partners’ personal obligations for operational management are ceded to

others, allowing them then to focus on client management and revenue generation as their primary responsibility. However, such changes are often resisted by those keen to maintain the old status quo.

It is also axiomatic that in creating a larger firm, there will also be a need to upgrade management systems, policies, and practices. A move to common working practices, coupled with the end of personal fiefdoms, will present challenges but is necessary if the new business is to realise any operational advantage. It is these operational improvements which will ultimately translate into the increased productivity that is desired; the lowering of costs and sustainably improved profits.

A merger should also ensure that the future ownership structure is appropriate, that performance is managed in a way that reflects a new commercial paradigm and that rewards are aligned with this.

Necessary changes to working practices must form part of any future operational plan – using technology as a means of creating competitive advantage and challenging long standing assumptions of how work is processed and at what level. It is an uncomfortable truth that the future practice of law will require fewer humans and more technology; how can a merger be a catalyst to set the new firm in the right direction at a pace which out- strips the competition?

A value judgement is needed from the leadership team as to the line that can be walked between the levels of change that are necessary in the business and how much discomfort partners are prepared to accept. It may be that compromise is necessary and that a more incremental approach to change management is required, albeit every opportunity available should be grasped to create momentum immediately post- merger. This process of partner engagement has already been discussed earlier in this report.


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References1. Kouzes, J.M. and Posner, B.Z., ‘To Lead,

Create a Shared Vision’, Harvard Business Review, January 2009. See: http://hbr.org/2009/01 /to- lead- create- a- shared- vision/ar/1.

2. Salovey, P. and Mayer, J., ‘Emotional intelligence’, Imagination, Cognition and Personality, 1990, 9(3), 185–211.

3. Goleman, D., Emotional Intelligence: Why it Can Matter More than IQ, London: Bloomsbury Publishing PLC, 1996.

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