There is general agreement that law firm mergers will continue on the upsurge.  So what?  This means that it is likely that at least one potential merger partner will come knocking at your door and, while you are talking to them, another firm will be stealing your crown jewels.  Yes, there are some things you can do to prepare for potential suitors and make your top practice groups poacher-proof.

First, a little background.  It certainly seems no surprise that each successive year seems to set a new record on both the number of law firm mergers and their size.  For a lot of firms in the 250 to 500 lawyer range, the spark and cultural shake-up that a large merger would bring could be the rejuvenating event needed to jump-start them out of their malaise.  We may even see the long awaited merger of two large firms in a city to shake up the local competitive marketplace.  Certainly Atlanta, Minneapolis, Dallas and Los Angeles seem ripe for such a combination.

At the same time, many firms are eager to grow but have been unsuccessful in finding a realistic merger opportunity (this is especially true of firms with significant barriers to merger such as lockstep compensation systems and unfunded partner pension plans).  For them, the opportunity to pick up a significant portion of a practice group represents a very attractive opportunity, even if they have to pull out their checkbook and drastically overpay the lateral partners.  While the cost in terms of negative cash flow and excessive compensation may be substantial, many firms would argue that being able to grow without disrupting their culture, changing their name and taking on the deadwood lawyers that come with a merger, justifies the cost of a group acquisition.

Reacting to a Merger
How do you respond if another firm calls to say, “Let’s talk.”?  Say yes.  Even if you have no intention of considering a merger and you consider the initiating firm to be the demon progeny of Finley Kumble, devote a lunch to a conversation – but just a lunch.  The firm will eventually merge with someone and will be a competitor.  The more information you can obtain now the better.

Here are three rules for a first merger meeting:

1.  Only one person from your firm goes and it is a meeting over breakfast or lunch.  A meal defines the expected length of the meeting and provides an excuse to cut things off (“I have to be back at the office by 2:00.”).  By the same token, if the stars align, you have the option of continuing the discussion.  It makes little difference whether you meet in a conference room or in a public restaurant, although small private rooms in dinning clubs seem to work perfectly.  With only one person attending it remains informal, doesn’t get local gossips talking and minimizes the time expended.

2.  Be prepared with information about four topics:
Your revenue per lawyer and profit per partner (if you lied about it to the American Lawyer this would be a good time to get the real figures in your mind);  Your key clients – not the one-time litigation matter or transaction that brought in a lot of money last year – the real core clients that would be a body blow if you lost them (mergers rarely fail because of minor conflicts, so let’s look for the deal breakers up front);
The practice and industries in which your firm has a position of dominance in your marketplace (what are your real competitive strengths); and
Your current strategy summed up in a couple of sentences (where do you see your firm going).

The simple act of reviewing this information will make you more confident and allow you to better react to what they say about their firm.

3.  Make a “go or no-go” recommendation immediately after the meeting.  In most successful mergers the business case seems to create itself.  The test is, if you can explain why a merger might make good sense to your spouse in less than 30 seconds, you may want to pursue this further.  Either way, when the person representing the firm gets back to the office, he or she should send a brief email either outlining the business case or just saying the deal doesn’t make sense – no equivocating, thumbs up or thumbs down.  This is the point where law firms get involved in protracted merger discussions that take up huge amounts of non-billable time and sap management energy from more productive projects.  If it doesn’t make sense now, no amount of conversation is going to improve the situation.  Call the other firm and politely say, “No, thank you.”

Protecting Your Stars
A couple of years ago we did a survey of law firm partners who had moved laterally and asked them what their primary motivation was.  I don’t think the top five answers have changed much since then:
1.  Lack of recognition and appreciation from firm leadership
2.  Lack of resources to grow their practice
3.  Lack of national/international platform on which to grow their practice
4.  Personality dispute
5.  Conflicts that limit practice growth

Please note that money is not on the list.  It’s almost never about money because the small amount of the after tax increase doesn’t justify the risk of losing a key client in the move.  Even when lawyers say it is about money, it is more often the recognition and appreciation aspects of what they are being paid compared to others.

Here are some suggestions for tactics we have seen firms successfully use to keep their practice groups on board:

Give stars special access to firm leadership.  Stop by their office just to see how things are going.  Seek their advice on a management issue, even if it doesn’t directly involve them.  Invite the star and key members of his or her practice group out to dinner to celebrate a new client or a big fee and stroke the star’s ego.

Monitor associate usage and subtly make sure no associate is 100% devoted to the star.  Often associates move with a partner because they are afraid they won’t have any work to do if they stay.  At the same time, it makes it tougher for a partner to move if his team doesn’t come along.

Keep the bureaucracy off the star’s back.  In our survey, one of the most frequent complaints – as viewed by the stars – was petty rules and approvals required by marketing department staff.  One example was the denial of a $1,500 bill for a cocktail party at an industry conference in honor of the star’s $3 million a year in fees client because it was not approved in advance.  The star paid the bill herself and left the firm three months later.

Go out of your way to understand how the star develops business and what resources they need to do it.  Give the sincere impression that providing for their legitimate needs is among your highest priorities.

The bottom line is that successfully handling all sorts of personnel issues, be they attracting new lawyers or keeping the ones you have, involves personal leadership.  The days of leaders showing up at an occasional meeting, giving an inspiring speech and going back to their practice are pretty well gone.  This stuff gets tougher and tougher, and that usually means an increase in your attention and ingenuity.