Ties that bind: Merger integration at global law firms

How should law firms address the immediate reality of merger? Two Asia-Pacific examples – King & Wood Mallesons (KWM) and Herbert Smith Freehills (HSF) – offer illustrations as to the processes to be followed by the next in line. Be it communications, branding, location or remuneration, the need for substance to follow the legal structure chosen is paramount.

In making integration happen, establishing the purpose of a merger ?is the first step, be it client demand, ?being better together, or presenting ?a global proposition.¹

Jason Ricketts, now Australian managing partner at Herbert Smith Freehills, remembers that, as a member of the Freehills board, the pre-merger process was “definitely very involved; ?we did speak to a few of our larger clients, to ask them their views, while also planning what needed to be done for the new firm to start on ‘day one’ of the merger, as well as thinking about where we wanted to be after the first 100 days.”

“That meant assessing and deciding what needed to happen in those 100 ?days, and getting the right processes in place so that the merged firm would reach those goals,” he recalls.

To verein or not?

A key consideration before even getting ?to the right processes in place, however, ?is deciding how the new global entity should be structured. KWM and HSF ?had different ideas about which approach was most suitable.

When China’s King & Wood and Australia’s Mallesons combined in March 2012, they did so under a Swiss verein structure. Being structured as a verein meant that the firms would remain ?distinct legal and financial entities, with separate partnerships in China, Hong ?Kong and Australia.

The same approach is being taken for KWM’s 1 November 2013 combination with SJ Berwin. Thus, while creating an almost 3,000-lawyer operation globally, SJ Berwin will retain the flexibility to manage ?its 165-odd partners within that structure.

David Bateson, co-head of KWM’s Hong Kong office, has noted that the verein model also allows the firm “flexibility and meets the conditions of the Chinese government”.

Vereins are not for everyone, however. Ricketts says that, in the case of the October 2012 merger between the international Herbert Smith and Australian Freehills, “both firms were determined to make sure that the merger was seen as a merger of equals – not a takeover of one by the other – and to fully integrate.”

He notes that is one of the reasons why the two firms decided to have a single profit pool. “Having a shared profit pool means that we have an incentive to create a global footprint.”

Operational integration

Operational integration is easier if the right strategic aim has been reached by the merging firms. Take, for example, reported client concerns over information security between the various arms of the KWM verein; a strict IT separation was consequently set up between the Chinese and other entities.

“Client confidentiality and information security is a key priority at the firm,” says KWM’s Bateson. “The China practice operates on a separate IT and document management system.”

The merged firm, he adds, will “continue to operate within the realms ?of the regulations laid out by the governments and regulators in each of the markets where it operates.” He stresses, however, that “our way of operating, client pursuits and the commercial advice we give are all driven by our client needs, and no one else’s”.

Hence this is why, in July, SJ Berwin’s senior partner Stephen Kon said: “Our practice will continue to operate as it has and it won’t change, except now we’re part of a much larger combination. Our day-to-day work will continue as it has done in the past.”

Merger will also provide SJ Berwin with a gateway to Asia and, for KWM, ?to Europe.

Cultural awareness

Stuart Fuller, KWM’s global managing partner (who retains his position post-merger), says the upcoming combination with SJ Berwin provides clients “with a first-class platform and an entrepreneurial spirit… which understands local cultures”.

That reflects an important truth about mergers: culturally one must treat everyone with equal weight.² Catastrophe can ?occur if common combined values are ?not connected on a sound basis. Such values influence behaviour and, in ?turn, the actions and perceptions of ?the firm’s partners.

Simon Yung, co-managing partner at KWM’s HK office, says that while both King & Wood and Mallesons did not know each other well at first, they took the time to get to know each other as a “genuine combination of equals”.

However, one Australian managing partner says that “there’s a feeling that the King & Wood merger was prioritised by Mallesons so as to capitalise on the opportunities in China; with an enormous economy, it was a huge attraction.

“Against that, there’s a real question as to the law firm’s ability to integrate the Chinese partners, given that only some will speak the English language fluently.”

Bateson has acknowledged previously that the cultural background of KWM is very different. “Mallesons is over 180 years old, while King & Wood is just 18 years old. But we share many things in common. Our values, our vision and our common desire to give our clients access to the best legal and commercial advice.”

Plus, he adds that “while about 80 per cent of the KWM partners in China speak English and are Western educated and Western trained, communication is about more than just language”.

To develop a deeper understanding ?of each culture, the firm has rolled out cross-cultural awareness toolkits and seminars. Around 50 partners undertook a special programme aimed at developing cultural awareness.

Importance of brand

Ricketts says the sense of culture and common values is what has helped to support HSF as a new firm, with new offices and a new brand.

For Bateson, the integration process has meant developing a new brand identity for the combined firm. He notes that both firms were “very focused on launching the brand in a very fresh and different way, reflecting the fact that our combination was the first of its type, [with] market impact.”

Fuller agrees that branding is an important driver of new business. “We put a considerable amount of work into developing a brand for KWM leading into the first combination in March 2012, to ensure that it reflected our values and aspiration as a law firm,” he recalls.

That process, he notes, “began with putting our client’s needs at the centre and developing our brand story – externally and internally – from there.”

In that respect, brand is a function of the work his lawyers do, and clients know what it is the expanded team of lawyers will do for them “as the only international firm that connects Asia to the world and the world to Asia”.

Jeff Berardi, chief marketing officer at K&L Gates, which in January 2013 merged with Australian firm Middletons, says branding within the context of a law firm merger is incredibly important.³

“Questions about the brand should ideally be broached in the early days of merger discussions. In some cases, merging firms agree to combine elements of the two brand names. In other cases, one firm takes on the name of another (typically larger) firm. And, finally, there are also situations when both firms decide to create an entirely new brand as a result of the combination.”

He adds: “Each of these scenarios has its own set of challenges and opportunities for law firm management and it is critical to fully understand the varying implications for lawyers and other firm personnel. If conversations about brand strategy don’t take place at the very start, this could cause major complications to ultimately being able to close the deal and gain internal support from partners.”

For SJ Berwin, the combination with KWM will mean dropping the SJ Berwin brand name in time. “We recognise that the right thing for our global firm is to end up with a common global brand,” managing partner Rob Day told the media. “We’ll ?use the transitional name, brand and ?logo as long as necessary to make sure that our strength and what we have to ?offer is recognised.”

Clear communication

Of course, it is not just enough to merge in pursuance of a strategy, or in spite of one. The process must be communicated and disparate practices integrated.

Both KWM and HSF suffered significant partner casualties prior to and just after their merger announcements. But, equally, both would argue that the necessity of creating global legal entities justified the costs of such exits.

At KWM, both Fuller and global chairman Wang Junfeng sent out a joint monthly email to keep everyone abreast of the integration progress.

Reflecting on the communications made for HSF’s merger, Ricketts says “there were those who knew about the merger proposal from the outset and others who were progressively brought in to the loop as the proposal developed.”

He adds “You can’t just blurt out that you’re thinking of doing something on ?this scale; people need to understand ?the details of a proposal of this sort and the process must be properly managed within the firm.

“Once we had agreed to merge, we were totally transparent. There was no double-speak, and we talked straight to staff and clients as to what this meant, having regard to their interests.”

Both firms also took time to focus on crystallising the values of the new global entities. At HSF, Ricketts wanted to agree a common set of values early on.

“We didn’t want to impose a set of values on staff,” he says. “Instead, we entered into a lot of dialogue with our ?staff globally and synthesised what ?we felt our values were based on the feedback we received from our staff during that consultation.”

“We agreed these and since then, they have been incredibly empowering; they help us connect and collaborate, and foster a culture that matters in supporting the relationships we have with our clients.”

At KWM, Fuller says that “from day one we have been on the same page,” adding that SJ Berwin’s values are “remarkably similar” to those of KWM.

“What we will do, over time is to continue to mould these into a ‘common language’ within KWM by engaging with the partners, lawyers and others from around the network.

“A clear and common vision to build our own firm for the future and create our own destiny has been a vital ingredient.”

However, the core message of the firm’s vision does require regular repetition. “The simple fact is that we need to say it repeatedly and consistently so that it is fully entrenched within and across KWM.”

This, Fuller feels, “becomes more important as our size increases, by a combination of ‘global’ communications ?by the firm and its leaders and then ?local communication by the partners ?and our staff”.

Ricketts also found that his experience of putting a big merger together in 2001, in merging the three state-based Freehills partnerships unilaterally, taught him “the value of communication”.

Ultimately, Fuller concludes, “we ?see every single person in KWM as ?being de-facto members of our BD ?and communications team, which is ?very powerful, particularly in the eyes ?of our clients”.

Effective integration

Ricketts advocates two key internal steps to effective merger integration. First, having an integration office is essential, he says, so that someone has a ‘helicopter view’ of the whole process.

“There needs to be someone to check that the integration plans are working and that the systems in place will do what they say they will do.”

That helps to keep implementation tight and also allows the executive team to focus on managing the firm as a whole.

Second, Ricketts says, “having a strong compliance team helps to iron out any issues in relation to issues that may arise,” noting that “in a merger of this size, there were plenty of questions”.

At KWM, the focus has been on developing a coordinated approach to clients, practice and business services, ?all overseen by common management. After its March 2012 merger, Bateson notes that one of the first priorities was amalgamating the two Hong Kong practices. This included physically integrated the two practice teams, so ?that corporate, banking and litigation groups in Hong Kong sat together.

“Operations, systems, IT, business development and marketing, at each level, have swiftly moved forward with integration,” he says.

Fuller admits the process has been beneficial, saying “we learnt a lot from the first integration, which is helping with the planning for SJ Berwin to join us on ?1 November.”⁴

Ben Rigby is a freelance legal journalist

Endnotes

1. See ‘Merger reverberations’, Ben Rigby, Managing Partner, May 2011

2. See ‘Seismic shift’, Ben Rigby, ?Managing Partner, February 2013

3. See ‘Countdown to launch’, Jeff Berardi and Debra Woodman, Managing Partner, October 2013

4. See ‘Profile: Stuart Fuller’, Manju Manglani, Managing Partner, October 2013