Joining forces

In any business, it is essential to be clear about your strategy. When I am asked why, I can’t improve on what Seneca the Younger said almost 2,000 years ago: “Our plans miscarry because they have no aim. When a man does not know what harbour he is making for, no wind is the right wind.”

In other words, clarity of strategy enables clarity of execution. And, as business commentator Allan Leighton said: “Business is only about two things. Strategy and execution… the only thing that really works in an organisation is execution. If you look at the great businesses in this world, the reason that they are better than anybody else is because they execute better than anybody else.”

This idea is particularly pertinent in the context of mergers and acquisitions, because a merger or acquisition is not of itself a strategy; rather, it can be a method of executing a strategy – and there is a difference.

This short article confines itself to 10 practical tips to help law firms achieve the necessary clarity in merger planning and execution. They are by no means the only important stages to achieving successful mergers, but they ought to form a sound framework as a starting point for any firm.

1. Have a plan

A clear strategy is the top priority. One of the first pieces of work I did for one client was to help them develop the firm’s strategic plan. I have since heard the managing partner remark that this process was one of the most important things that his partnership had done because, once they had the strategic plan in place, it became so much more straightforward to evaluate opportunities and prioritise investment, by reference to their relevance to that plan.

Successful cultural integration isn’t just a task for ‘management’ or ‘boards’: every individual makes a difference, by how they behave and what they do

In my experience, professional services firms often don’t even have their strategic plan in written form. Debate it, agree it, and then write it down. That will ensure not only that your firm doesn’t fall into what might be called ‘Seneca’s trap’, but also that there is less risk down the line of squabbles between partners over what the plan is, or is not.

2. Be realistic

It is important to distinguish between a firm’s vision and its strategy because, to my mind, the latter is the route map to the achievement of the former.

In professional services firms, vision statements (all too often articulated as a variation of ‘to be the best’) rarely have partnerships made up of true visionaries who can design and deliver the strategies necessary to execute that vision. But then again, if they did, the vision might be overly ambitious. It is important to aspire realistically.

The ‘aspirationally realistic’ place between those two extremes is neither easy to identify nor maintain, but it is essential. If you aren’t ambitious enough, you risk falling behind your competitors. If you’re too ambitious, you risk underachieving on realistic potential. This also links back to strategy, in that no one – whether partners, clients or staff – will believe that it is possible to execute an unrealistic strategy focused upon an unattainable vision, so resources deployed in execution will be wasted.

3. Apply the 80:20 rule

Lorren Wyatt, director of HR at Birmingham Midshires Building Society, said: “Our goal is to be broadly right, not precisely wrong.”

This concept, in my experience, speaks more to lawyers than it does to other types of professional. Perhaps because lawyers are professionally trained to eliminate risk or mistakes, they often seek to craft the perfectly considered and worded strategy, and then debate the very best way to execute it. In the meantime, the rest of the world moves on and opportunities pass them by!

Winston Churchill made the same point a different way, when he said: “Do not let the better be the enemy of the good.” Professional services firms tend to be populated by really bright people. Any group of really bright people can always polish and improve a strategy or execution plan, but once a strategy or plan is ‘good enough’, what matters far more is that the firm moves on to execution – actually getting on with it. That’s the 80:20 rule: most of the time, 80% right – broadly right – is good enough; after that, just get on with execution.

4. Lead by example

Lip service is one of the most dangerous enemies of post-merger integration. In a newly merged firm, the staff will watch the partners very closely to see how they behave, in terms of both actions and body language, and will themselves behave accordingly. And so will the clients of the firm.

Successful cultural integration isn’t just a task for ‘management’ or ‘boards’: every individual makes a difference, by how they behave and what they do. After one merger, an individual partner was described to me by his departmental colleagues as a “brooding presence”. He thought he was “not interfering”, but the non-verbal messages he was ‘transmitting’ were loud and clear, and told a very different story. Never underestimate the power and effect of body language in leadership – for good and for bad.

5. Be positive

Very closely aligned to the 80:20 rule is the need to bring a positive attitude to the issues – because there will always be issues. ‘We don’t have enough money in the business development budget’, ‘we haven’t been trained for this’, ‘we don’t have enough resources’ – readers will no doubt have heard many of these issues and more being trotted out in times of change, including post-merger.

I have yet to meet a firm, whatever its size, sector or location, that did not have issues. The key to success in merger planning and execution is whether or not a firm brings a positive attitude to its own issues. Does it take one step forward, or does it give up and stop trying?

6. Be flexible

It is vitally important for all partners to truly accept and understand that the merged firm will not look the same as either firm pre-merger. One of the attractions of a merger of two firms is the opportunity to integrate, and benefit from, the different elements of the two cultures, so as to create a better whole.

So often over the years, both in my own firm and in firms I have advised, I have heard variations on ‘we did it this way’ (sometimes intended to connote good) or ‘they did it that way’ (sometimes intended to connote not as good) in relation to everything from culture and values to behaviour. But the crucial question is: what is the right way for the merged firm to do it? Sometimes, that may mean doing what one of the pre-merger firms did, but in other instances, it might be better to take a different approach, that is new to the merged firm. In either case, the vital piece of the jigsaw is an understanding that, in the words of LP Hartley in The Go-Between, “The past is a foreign country, they do things differently there”, and what now matters is what is right for the merged firm.

7. Avoid duplication

Napoleon Bonaparte said: “The inevitable end of multiple chiefs is that they fade and disappear for lack of unity.”

While I can think of a few exceptions to this ‘rule’, the adoption of ‘joint’ solutions in a merged firm is more often that not an indication of an unwillingness or inability to address issues. At best, it transmits a ‘weak’ and muddled message. At worst, it actually creates an environment in which confusion, contradiction, uncertainty and even conflict can prevail. And instead of one plus one equaling three, it makes it likely that one plus one will only equal one and a half.

And how many times have you read the words, usually uttered shortly after a merger, ‘we do not anticipate any redundancies’? And do you believe them? That the firm in question is planning to keep two finance departments, two HR departments, two IT departments? Perhaps more to the point, do you think that the people employed by those firms believe them? I appreciate that the words are often uttered with the best of intentions, but their effect is usually to create insecurity and concern – the opposite of what is needed or desired.

I also appreciate that those two paragraphs may well appear harsh, but, at heart, my point is that what clients and staff look for in a merged firm is clarity, honesty, common purpose and absence of duplication. The firm’s clients are likely to understand and engage with the business rationale for the merger. But the staff will, in my experience, respond far better to honesty and to the (credible) explanation of how the process of post-merger integration will be handled fairly and openly. The clients, staff and merged firm will all benefit as a result.

8. Be clear

In my experience, there are very few truly non-negotiable matters in any merger discussions – usually there are, if any, only one or two. I have never known there to be as many as five. Such a number would lead me to conclude either that they were not true non-negotiables, or that the two firms should not have considered merger in the first place.

It is not uncommon for merger negotiations to become tense, fraught or emotional. We are, after all, dealing with people businesses. It is therefore important to sit down at the very start of the process and identify what your true non-negotiables (if any) are. In the event of friction or tension, it will pay dividends to have your list already identified and understood. It is never a good idea to try to draw up your list when emotions are running high. It is far better to produce it in a calm and rational environment, not least because the quality of thought applied to the process is likely to be higher.

9. Find the right cultural fit

This is arguably the most important of these 10 guidelines. A professional services firm’s culture is, for want of a better word, its personality. The firm’s leaders – the partners – are the creators of its culture for a very straightforward reason: the culture of any given firm could be said to be nothing more than the aggregate of the way its partners choose to do business, the way they behave. It’s ‘the air that we breathe’, ‘the water that we swim in’, ‘how it feels to work here’.

No two firms will have identical cultures, because no two firms have the same people in their partnerships. Nor is this is a question of ‘right’ and ‘wrong’ cultures, or about ‘likes’ and ‘dislikes’. The task is not to find identical cultures, or ‘right’ cultures, but rather compatible cultures.

The partners in one firm I know make decisions by sitting down together round a table on a weekly basis. Those in another practice have what they describe as a ‘one man, one vote’ partnership when it comes to making decisions, and ‘the one man with the one vote’ is their managing partner. They make that observation with evident affection and respect for their managing partner.

Neither culture is ‘right’ or ‘wrong’, and neither is ‘better’ or ‘worse’. They are, however, very different. Trying to blend the decision-making styles of those two firms – one consensual and the other hierarchical – into one merged entity would be challenging. It is therefore really important to identify the cultures of two firms, and be satisfied that they are compatible, before trying to merge them.

10. Have fun

I make this as a serious point. I enjoy what I do and I want to be in business with people who enjoy what they do. Not least because, for a period now approaching 40 years, I have consistently found that a group of people who enjoy working together are more likely to achieve their common goals, even though they will sometimes face formidable challenges or a hostile environment.

This holds true in merger negotiations as well. In my experience, merger negotiations in which one, or both, sides adopt, for example, a ‘point-scoring’ approach rarely lead to success. If both parties have followed the guidelines set out above in coming to the negotiating table, they are likely to be there for the right reasons. And if they find that they can enjoy working with their ‘opposite party’, even though some of the negotiations may be fraught, it will augur well both for a positive outcome to the negotiations and a successful approach to integration, should the merger proceed.

Conclusion

If a firm has a written plan that is realistic and broadly right, and then applies a positive attitude to executing it, is flexible, avoids duplication, is clear on its non-negotiables and finds the right cultural fit, it will be well placed in planning for and negotiating a merger or acquisition, whatever the environment and challenges.

None of that is profound, and indeed all of it is really just applied common sense. Yet let me finish with a question: how many firms can genuinely say that they can put an unqualified tick against all of the 10 guidelines outlined in this article?

 This article is based on Mark Jones’ session at the Law Management Section’s annual conference in May 2014