Merging teams: How to manage lawyers through a merger

Neil May, executive manager at Hogan Lovells, shares his insights and experiences in managing lawyers through a merger

 

Four things you will learn from this Masterclass:

1. How to recognise and tackle individuals’ primary motivations

2. How to approach the cultural integration of merging firms

3. How to manage lawyers through the combination processes

4. Which aspects of merger due diligence are often neglected

 

Not too dissimilar to partners, academics have a reputation for escalating minor intellectual discussions into civil wars. When Larry Summers, president of Harvard University, was appointed director of the White House’s National Economic Council in 2008, he remarked: “I was probably the first man in history who felt he was getting away from poisonous politics by going to Washington”.

A merger provides plenty of opportunity to create tribal battles between ‘them and us’, even if your partners are less egotistical and territorial than academics might sometimes be. Differences in style and assumptions can easily generate friction at all levels unless handled well and, as we all know, friction slows you down.

The fundamental truth is that a merger will only deliver full value if partners go out of their way to get to know each other, to help each other and to make sure the resources and expertise of the whole new firm are available to clients. Doing so is not easy.

American consultant and author Karl Albrecht suggests one of the challenges we face is that no one works for an organisation or manager. “Each person works for himself – that is, he works to achieve things which meet his own very personal needs. Only if he sees the organisation’s goals as congruent with his own will he work wholeheartedly towards organisational goals”.

Harvard academia might perhaps enjoy arguments over whether Albrecht is right, whether we need a better balance between the ego and a more worthy desire to contribute to others or, perhaps, philosophise about the individual’s place in the gaia-like greater whole. We need to be a little more practical: how do we get our people to work together effectively to build a successful future?

Guy Himsworth from Fairfax Associates puts the challenge in the context of professional service firms. “A Kantian and sensible, if idealised, view of partnership would require that partners strive to perfect themselves and to advance the interests of their fellow partners. Most partners will have experienced how frequently their colleagues take exactly the opposite approach!”

Yet, in spite of these statements, the strength of partnership must surely be in its collegiality and in making the whole greater than the individual parts.

Humans without doubt do not always behave logically. Or, at least, while they may be perfectly rational on an internal basis in terms of their own values and beliefs, they do not always do what management would like them to do!

Values and beliefs, of course, drive behaviour, both at the individual and organisational level.

A need for autonomy to find the best solution to a particular problem naturally means the kinds of people who become partners will be precisely those who want to be able to influence their own personal working environment and destiny. So how do we encourage them and make it easier for them to work together?

Maintaining motivation

If motivation provides the motive for high levels of engagement, discretionary effort and commitment, then you need to ensure it remains high. It will also provide the energy needed to pull you through the periods of difficulty you will undoubtedly face in any merger.

There are many personality profiles, psychometric tools, theories and research surveys into motivation, engagement and interaction with colleagues.

Human resource consultancy Chiumento carried out research into career motivation among UK workers and identified five primary motivational types that it estimates encompass around 93 per cent of UK employees under the age of 55 (the balance being a mix of the categories). It found the following. 

• 41 per cent (35 per cent men, 55 per cent women) are primarily concerned with the culture of an organisation and relationships with colleagues and managers. They are ‘socialisers’ who can also show a tendency to ‘work to live’ rather than ‘live to work’.

• 19 per cent are primarily concerned with certainty and security. They are ‘protectionists’, who face the risk of becoming lifelong institutional prisoners.

• 18 per cent (23 per cent men and 12 per cent women) seek achievement. They are ‘materialists’ who are also most at risk of leaving. Two thirds of these work in the private sector.

• Nine per cent are driven by personal and career growth and a need for recognition by colleagues. These are ‘achievers’ who are also highly sensitive to any signs their career might be slowing down.

• Six per cent have fully bought into the brand and purpose of their employer. They are ‘true believers’, who can be a powerful force for good, are at the highest risk of becoming lifers and are often in lower paid jobs.

For the UK, this records a rather high percentage of those who ‘work to live’, which affects our ability to create wildly energised and skilled workforces. In terms of law firms, we might assume achievers constitute the highest percentage and that a high percentage of partners are committed to and have bought into our firms.

The categorisations also reemphasise the well-know importance of achievement, acknowledgement and fair compensation. Recognition, competitive drive to beat others as well as reassurance in terms of job security are usually seen as typical ‘extrinsic’ motivational satisfiers.

The other side, the ‘intrinsic’ factors, are usually seen to include drive and ambition, commitment to goals (as long as they are seen to be achievable), support and respect, the freedom to make decisions, and finally challenge and variety. It is this whole ‘soft side’ that makes people businesses so stimulating to work in – and the life of leaders so difficult.

For many people, the environment in which they work is as important as the work itself. A merger can be destabilising because: 

• the addition of newcomers into established networks can change bases of power, and

• at least some individuals will be uncertain over expectations and the rules of play.

To take a simple example: is there a consistent view on what senior lawyers, counsel, consultants, non equity and equity partners are ‘for’? Are the criteria for membership of these groups explicit? How far through these various levels should information about the business be shared?

Management must make sure such processes and understanding are actively built. At the same time, it can be an ideal time to symbolically slay a few habits or rules that no longer serve you well.

Merging cultures

If the environment matters to people, then bringing together two firms with radically different cultures is certain to destroy much value.

A 2007 Hays Consulting survey into European corporate mergers and acquisitions  states “culture is not an HR issue – it is a business issue”. However, it reports only 27 per cent of firms analysed cultural compatibility when considering a merger or acquisition.

It goes on to note that 38 per cent of employees expressed dissatisfaction with the post-merger climate, with 22 per cent describing the early months as ‘culture shock’ and a further 16 per cent labelling them as ‘trench warfare’.

Cultural fit is particularly vital to a successful law firm combination: it was a critical part of our own due diligence and assessment leading to the combination of our predecessor firms, Hogan & Hartson and Lovells.

There are many tools for assessing culture and attempting to manage it. Even after nearly 20 years, Johnson & Scholes’ cultural web is a useful and simple framework, suggesting you consider organisational structures, power structures, organisational rituals and routines, symbols and stories and control systems.

The image of a web is a good one. Organisations are interrelated systems: systems thinking tells us that an organisation’s culture will ‘resist’ change and, rather as an elastic web, it will bounce back into its original shape as soon as pressure is removed.

This isn’t an encouragement to increase pressure because, if you exert too much pressure, the cultural glue that holds everything together may snap. However, it does mean you need to consider how best to play-in change.

Managing change

So who can help percolate this change throughout the organisation? Those in managerial positions are, by the nature of their roles, typically more integrated into the business than non-managers. That still holds true even when a partnership confers owner-manager status.

There is plenty of research to show that local managers have much more impact on the daily life of their people than senior management. Indeed, the CIPD goes as far as to suggest as many as 85 per cent of UK workers are wary of at least some of the information from higher up an organisation, a rather sad statistic.

In a law firm, that means practice area heads, group heads, office managing partners and line manager partners all have an important part to play. Integration is heavily influenced by local leadership, the enthusiasm such people show and the perceived openness of their communications.

It is always better to be open about challenges and progress rather than to allow rumours to be invented. Rumours circulate far more rapidly not only due to paranoia but also because they are generally far more exciting than the truth! This is why local project ‘champions’ are a standard element of any proper organisational change programme.

On top of everything will be the firm’s leaders. They have a huge responsibility because engagement, trust, commitment and a willingness to put up with the hassles of daily life are all heavily influenced by how people feel about their leaders.

The leader’s role is to ensure people feel connected to the vision of the new firm and confident in the steps or strategy that are being followed to achieve this. A leader must epitomise the behaviours others are being asked to demonstrate.

Another aspect of the line manager role is to help people deal with stress. A merger brings change and the extent of this will vary for different individuals. In day-to-day terms, some will be hardly affected at all, others moderately so, while others may find their world turned upside down. In terms of the psychological contract, you may find some people feel they have changed job and firm without having actively chosen to do so.

In high-pressure professional services firms that undertake complex work for demanding clients, a degree of stress is to be expected. Not everyone copes equally.

Research into social readjustment rating scales suggests that it is the cumulative total of ‘life change units’ that has the greatest impact, regardless of whether the changes themselves were seen as positive or negative.

We all know there is a limit to how many balls you can keep in the air at once, yet the finding that medically ‘good’ as well as ‘bad’ stress combine to affect performance often comes as a bit of a surprise.

The key point to note is that you should anticipate at least some impact on performance, may need to keep an eye out for individuals who are struggling and, in any event, use strong communication as a key mechanism for managing this and providing reassurance. Help people to keep focused externally on their clients.

Strategic issues

The people side of a successful merger is, of course, only one aspect, even if one historically given the least attention. The strategic rationale should have been rigorously challenged, the market and business drivers as they affect your firm examined honestly and, as a result, it should be clear to all why the proposal has been made. This isn’t always the case.

The Legal Services Act is expected to increase law firm consolidation in the UK. However, a recent survey by Baker Tilley has found that over a fifth of law firms are not changing their strategy, even though half of those expect it will change their business significantly.

Anticipating a big impact but not intending to do anything about it doesn’t sound like a great approach. As a leader, it is your job to make sure due thought has been given to the future of your firm.

A second side to planning relates to poor due diligence and information gathering. In some firms, you may need to resolve how to get big egos to work together. Deloitte estimates such ‘transaction errors’ cause nearly a third of the problems with mergers.

As regards our own combination, our leaders did indeed make sure we had debated and considered our future options across the partnership. When we then moved onto a specific proposition, the leadership positions, new organisational and management structures, approach to compensation and new brand were all laid out in detail within the voting proposal partners were asked to consider.

As part of your due diligence, you will need to deal with legal and commercial conflicts, not forgetting areas where your representation of groups on different sides of the fence can restrict your ability to cross sell. This can have a direct and painful impact on partners’ practices.

You will need to establish control systems for client intake, both to avoid conflicts and to ensure you take on the kinds of clients that are strategically most important for your new firm.

You will have to:

• prioritise which clients you should commit most discretionary resources to (your ‘strategic clients’);

• agree the role and accountability of the client partners (which may not be the same in legacy firms);

• resolve how practices, offices, client teams and industry teams best interlink and who has primacy in terms of client development; and

• ensure a consistency of message and service experience at all touch-points with the client as you create your new ‘brand’.

Operationally, the areas of greatest initial priority for us involved connecting IT systems (not forgetting creating and testing new firm templates), finance systems and dealing with office space. We moved over 700 people in ten offices for launch day.

People management

Let’s assume your proposal for a merger has been robustly tested and it is agreed it is the right strategy. Adding a few specific points relating to law firms to John Kotter’s recommendations on change management, the process can be summarised as follows.  

• Set the stage for the change and build a sense of urgency to gain momentum.

• Pull together the leadership team, including champions and key line managers.

• Clarify how the future will be better than the past, how you will protect and carry forward key aspects that really matter from the present, and how you will make the future a reality.

• Remove barriers that prevent people from doing their jobs.

• Set and report on milestones. That means making people accountable for delivery.

• Build structures so that creating the new firm is inescapable.

• Communicate. Reinforce why you agreed the merger is necessary, share your successes and acknowledge anxieties: openness underpins cohesion.

• Create and reinforce the new culture for the new firm.

And that’s all there is to it. As Anthony Hopkins put it to Tom Cruise in Mission Impossible II: “Well, this is not mission difficult, Mr Hunt, it’s mission impossible. Difficult should be a walk in the park for you.”

neil.may@hoganlovells.com

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