Most professionals, and especially lawyers, are inherently hurried, impatient people. Typically ambitious, ‘type A’ personalities, they work in a world of client deadlines and personal productivity, where everything was due yesterday and where good enough is never just that.
Professionals like shortcuts because shortcuts save time. Whether it is a more effective administrative system or agreement to outsource human resources (HR), their hardwired orientation is to free up as much precious time as possible for current and potential clients. Usually, this behaviour is encouraged (improved utilisation) and rewarded (higher profit share) and reflects the ‘can do’ approach required to regularly succeed in the competitive arena. When it comes to a growth strategy for growing a partnership, however, taking a ‘shortcut’ can be very risky.
In terms of predicting how the legal landscape might look in five to 10 years’ time, commentators are increasingly aligned in their thinking. Consolidation will be the name of the game and mergers will accelerate, particularly in the high street and in the regions. Exploratory talks are taking place up and down the country, from Chancery Lane to Strathclyde, Exeter to Newcastle. For many, fear is driving this activity as much as opportunity. The fear of doing nothing and being left behind is forcing the issue onto managing partners’ desks. We are finding that these same managing partners, while prepared to engage in such exploratory talks, are often surprised to return home with more questions than answers. There is unlikely to be any shortcut solution to this one.
Mistaken mergers
The corporate graveyard is littered with examples of shareholder value being destroyed by mergers that, with hindsight, should not have taken place. We are reliably told by business schools that up to 75% of corporate mergers fail to meet either financial or strategic objectives.
Our own research into mergers by UK law firms shows that of eight mergers in recent years, only two have managed to lead to increases in the growth of both fee income and average partner remuneration significantly above the industry trend (Addleshaw Goddard and Berwin Leighton Paisner). In addition, one merger caused a very significant increase in fee income growth above what the constituent firms were achieving (Taylor Wessing). The remaining five mergers have so far under-achieved in growth in either fee income or average partner remuneration during the post-merger period.
In simple terms, two-plus-two will make five, but often becomes two-plus-two equals three. Despite lots of effort to achieve five – and often despite all the management time and expense – the resulting firm is weaker than the two firms if they had done nothing.
Financial comparisons demonstrate that a firm’s scale does not always correlate with its financial success. For example, it is not unusual to find niche firms enjoying twice the partner profits of larger firms with 10 to 20 times the turnover. Other sectors including accountancy, consulting and investment banking provide many examples to support this. Biggest is not always best.
