Volume 18, Number 5
July/August 2001

The Business of Law

Technology Challenges in Law Firm Mergers

By Edward Poll

We seem to read more and more about law firms merging with one another, about larger firms gobbling up mid-sized and boutique law firms. These mergers, both large and small, raise many challenges along the road to success, and most of these challenges are people related. When these mergers occur, one of the more significant front-line questions is, "Which firm's technology will survive?" When there is a merger between a large firm and a much smaller one, the answer seems obvious. But when there is a merger of equals, or of larger firms, even if not equal in size, the answer is not so clear. And, where there is a merger of small firms, things get murkier still. Frequently, the question is not even considered until it is too late to make a smooth transition.

Law firm leaders and management should consider the following 11 critical factors during the discussion and transition phases of a merger.

1. Look at the firm culture. How involved is the technology department with the management committee? If the technology department is well connected with the managing partner, with the management committee, or with the goal-setters and directors of the firm, the technology department will help the merger succeed.

The technology department should be involved even before the merger is announced. A technology representative should be on the acquisition committee, on the due diligence committee, and, of course, on the conflicts committee.

2. Have the firms prepare white papers. Each firm should create a technology team for the transition if it doesn't already have one. Each team should create a "white paper" detailing the firm's existing technology, technology "on order," technology that was being considered seriously for near-term purchase, the future vision of the department had the firms remained separate, and its vision of the technology department after the merger.

3. Create a team to develop and implement a technology plan. A consolidated technology team will emerge during and after the merger. It should include representatives from each of the firm's practice areas, staff, and perhaps clients with a special interest in the firm's technology. This team will need to consolidate the white papers into a written plan outlining how the technology of the two firms will be consolidated and modified, the impact on the two technology departments, and a vision of how the firm's technology will enable its success. The consolidated team will need to evaluate both systems, determine which approach will better meet the needs of the combined firm, purchase equipment as necessary to bring both firms into parity, and combine accounting systems.

In the merger of equals, the negotiating team will usually divvy up areas of technology responsibility and make assignments to each firm, or appoint one person from each firm to act as co-leaders. In a merger of firms with unequal power, the head of the larger firm's technology department will usually be asked to be the new technology leader.

Before the merger transition begins, and after news of the prospective merger is "leaked" internally, the likely leader of the technology area should gather a team to begin thinking about the prospective change and the combined firm's needs. The smaller firm may also want to create its own team to develop a vision and strategy for the future. If the larger firm drops the ball, the plan created by the smaller firm may become the de facto technology plan for the combined firm.

Soon after the merger is announced, the technology team should be expanded to include members of both firms, which will help keep the channels of communication open and will enable a timely rollout of the "merged technology." Failure to involve members of the technology groups of both firms immediately after the announcement of the merger will undercut the basic goal of clear and direct communication without hidden agendas. Buy-in from the senior management of both law firm organizations is essential.

4. Create a "client" survey. Client surveys are critical to knowing what clients want and developing strategies to meet their needs or desires. The same can be said about the merger of technology platforms. Think of the firm lawyers and staff as the clients or customers of the new technology department. Consider surveying the combined firm's actual clients as well to find out what they want in the way of technology services. These two surveys will guide future technology efforts.

5. Place all purchase decisions on hold until after the merger takes place, to avoid duplication of expenditures and equipment. In a merger of equals, no one really knows at the early stage which technology system is going to survive the merger, so you'll want to avoid the purchase of anything but absolutely necessary hardware and software. The surviving technology will be obvious only if the sizes of the merging firms vary dramatically. Even if the smaller firm has better technology, it's not likely to be used, unless that firm has a charismatic leader or is being acquired because of its technology "smarts."

6. Anticipate post-merger "downtime." With mergers, people tend to be optimistic and forget about how much downtime there really might be. When implementing new technology, keep the old system in place until you are sure the new one is bug-free.

7. Think about how you are going to merge your accounting policies. Depending on the policies, this can be a significant challenge. Because the output of the billing system is the first tangible sign of a merger for the clients, the technology department should tackle it first.

8. Integrate the financial data of the acquired firm into the new system. Most lawyers do not really know how much it costs to perform their services. But as the profession moves away from hourly billing to a new system (which many people believe will happen), costing information will become critical. Without this information, it is impossible to create a fee projection for the client.

9. Carefully review the compensation issue. The merging firms' pay schedules must be reconciled. Compensation equity must be reviewed and confirmed, or you will have a mutiny on your hands. Firms take different approaches to compensation. Some look to local standards and the cost of living in each branch office; others offer a uniform standard compensation policy and pay scale, regardless of office location or cost-of-living differences. Which path the combined firm takes will depend on the firm culture and its previous experience in such mergers.

10. Consider the importance of training and education. Too few firms pay attention to the idea of educating and training their attorneys and staff. This is particularly true when new technology is introduced into a merged environment. One of the carrots that attracts and retains lawyers is education and training. In addition, firms that devote significant resources to education and training increase the skill level of the attorneys and thereby increase revenues.

11. Focus on knowledge management. This is one area that will set apart the OK merger from the wildly successful merger. One quality that differentiates one lawyer from another is his or her ability to coordinate knowledge, information, and data; and then to use those results to the benefit of clients. In most firms, the concept of knowledge management is only given lip service, without real implementation. A different term for this underlying concept is "knowledge sharing." That is what we are really talking about: sharing one lawyer's knowledge to the benefit of others in the firm and the firm's clients. When two firms merge, there is a very dynamic opportunity to implement that philosophy of sharing knowledge among the various offices, and among all the lawyers within the firm and in the different practice groups.

It is important to institutionalize the knowledge available to the firm. Failure to do so will result in maintaining the status quo where each lawyer believes that he or she has control over certain clients and work, and that the firm exists merely to help the lawyer support his or her individual quest for fame and money. After the merger, the firm may be larger, but the realities of turf and individualism will not have changed without a distinct and concerted effort by the new management.

The new firm has the opportunity to develop a new institution and to create the platform for seeing a second and third generation come into the firm. This is an issue of firm culture, and the technology department has the ability to be the leader in developing this new attitude. Coincidentally, the value of each individual's share also increases. So, there is not only an organizational reason for knowledge sharing to occur but a vested self-interest as well.

Edward Poll, J.D., M.B.A., CMC, is a certified management consultant in Los Angeles who advises attorneys and law firms on how to be more profitable. He is the author of Secrets of the Business of Law: Successful Practices for Increasing Your Profits! He can be reached via e-mail at edpoll@lawbiz.com

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