Law People : Law Practice Management, Organizational and Personal Dynamics; Talent Management : Ronda Muir of Law People Management, Inc.

The reports are in for 2011 on mergers and acquisitions in the law firm biz-- the pace is picking up-- and the prospects for 2012 look to be the same.  

US Mergers

Hildebrandt reports that 45 mergers that involved U.S. firms were completed last year, a 67% increase over 2010, with the Midwest being a locus of activity,  With 11 U.S. mergers already announced by the first week of 2012, almost double the number (6) announced at the same time a year ago, "merger activity appears to be heading back towards pre-recessionary levels which typically saw 55+ mergers per year... [W]e predict this trend will continue in 2012." Hildebrandt notes that by their tally mergers outside the U.S. jumped to 54 in 2011 compared to 44 and 48 in 2010 and 2009, respectively.

Altman Weil counts 60 law firm mergers and acquisitions announced in the United States in 2011, up 54% from 2010 and at the highest level since 2008, according to Altman Weil MergerLine, while the number of cross-border mergers involving US firms declined in 2011 after increases in 2009 and 2010.  “We think the trend toward larger deals will continue and the pace of mergers could accelerate in 2012.” 

The largest merger in 2011 between two U.S.-based firms was the combination of Kilpatrick Stockton and Townsend Townsend and Crew to create Kilpatrick Townsend & Stockton, followed by the acquisition by Edwards Angell Palmer & Dodge, a 500-lawyer Boston-based firm, of Wildman, Harrold, Allen & Dixon, a 160-lawyer Chicago firm, creating Edwards Wildman Palmer effective October 1. 

Faegre & Benson, headquartered in Minneapolis, merged with Indianapolis-based Baker & Daniels to form nearly-800-lawyer Faegre Baker Daniels on January 1.  Bryan Cave, a 900-lawyer firm based in St. Louis, acquired 59-lawyer Denver-based Holme Roberts & Owen as of January 1.  Ice Miller in Indianapolis also combined with Schottenstein Zox & Dunn in Columbus, Ohio effective January 1. Bingham McHale, an Indianapolis-based law firm, merged with Louisville-based Greenebaum Doll & McDonald to form 250-lawyer Bingham Greenebaum Doll effective January 2. 

So the industry must be starting to take off again, right? 

What is not always apparent from the data is why those mergers are taking place. In some cases,  the acquisitions are of law firms that were in deep trouble. For example,  Bryan Cave acquired Holme Roberts & Owen after it suffered a string of partner defections and staff layoffs, while Arnold & Porter merged with San Francisco’s Howard Rice after Howard Rice had lost nearly half its lawyers over the preceding decade. The negotiation of the Edwards Wildman Palmer merger has been scrutinized recently for having been tainted by the personal agenda of a managing partner, since replaced, rather than having been executed with the best interest of the firm in mind.

So when the predictions are for more mergers in 2012, one has to wonder if that is an indication of further distress as much as growth in the industry. Dissolutions of law firms took place throughout 2011, starting with Howrey LLP and continuing with smaller and midsize firms throughout the year. Clearly a lot of firms are having a tough time adjusting to the new marketplace, with some firms not even making it to the acquisition stage.

Asia Arising

Perhaps the greatest event in the law firm merger market recently is one that has largely gone unheralded-- the announcement of the merger of China’s King & Wood and Australia’s Mallesons to be effective March 1. Becoming the largest law firm based in the Asia-Pacific region, with more than 1,800 lawyers, King & Wood Mallesons will be a combination of one of China's largest law firms with one of Australia’s biggest, most innovative firms. But that is not where the Chinese are stopping. The two largest law firms in China, Dacheng and Yingke, are opening offices in London and a small Chinese firm, Broad & Bright,  is in merger discussions with Clifford Chance. Has the rest of the international legal world taken note of this wave of Chinese competition starting to lap at its shores in this year of the Dragon, the most auspicious of all of the Chinese years to start a business or execute a strategy?

Where does all that leave us?  As Patrick Lamb of the Valorem Law Group reminds clients: "The turmoil in law firms created by merger talk, rumors of merger talks, rumors of departures, rumors of de-equitization or personnel reductions DOES affect the work on your matters.  Don’t be naive enough to think your work is immune!"

Where we are is in a quickly expanding legal services universe that no longer revolves around the pyramid that you grew up with.  It is a universe that requires innovative, forward-thinking strategies to first identify your market, build an effective delivery system to keep and expand your client list and finally adapt your practice to the ever-changing future.

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According to Steve Davis, it all went pretty smoothly and quickly: negotiations in July and August, a preliminary agreement the last week of August, votes last Wednesday, September 26, and on Monday of this week, he became chairman of Dewey & LeBoeuf, the newest megafirm in the global law firm firmament, with 1300 lawyers, 26 offices in 12 countries, and a billion dollars in revenue.

So what accounts for this dramatically better outcome, compared to the Dewey/Orrick debacle-in-the-making that first hit the press last year this time? 

For starters, Davis credits the two firms’ long-standing familiarity with each other. No East Coast/West Coast mystique to decipher and reconcile in this case: the two firms were only two floors apart at 140 Broadway for years and had dealt with each other on myriad matters. With good relationships long established, people at both firms, Davis contends, “quickly understood the underlying strategic rationale” for a combination. 

Davis also believes Dewey & LeBoeuf enjoys another advantage that other recent megamergers did not. Both Dewey and LeBoeuf had high concentrations of lawyers in the same key markets—New York, London and Washington D.C. That’s an advantage? The beauty of the Dewey/Orrick merger was thought to have been little overlap, promising to produce that far-flung “globalness” instantly. Overlap, Davis contends, works in the firm’s favor. Unlike the “Noah’s Ark” that some combinations are left with—two of everything, with 1 in LA and 1 in Boston--Dewey & LeBoeuf’s geography is more likely to force the people and cultures at each key location to mesh.

D&L's executive committee of 22 is composed of 11 partners from each firm, and includes Morton Pierce, Dewey’s Managing Partner, with Davis in the chairman’s seat. After the Dewey/Orrick talks failed, Pierce’s management style was the subject of some bruising commentary, with particular notice given to the fact that he billed 3300 hours that year. See our February 7, 2007 entry “Talking to the Troops.” 

So what will management at Dewey & LeBoeuf be like? Davis is often described as managing “like a CEO,” a role which, perhaps in a reflection on the famous independence of lawyers, one LeBoeuf partner characterized as an “elected dictator.” 

Davis points to firms like Linklaters, highlighted in a recent American Lawyer article on Magic Circle firms, as being notably well-run while also decidedly not a democracy. “What other billion dollar business is run like a democracy?” he asks.

Once the chair of LeBoeuf’s prized energy department, Davis cut his client time in half when he became LeBoeuf’s co-chairman in 1999. After becoming chairman in 2004, Davis devoted full-time to management. “That is a fundamental difference,” he acknowledges, between LeBoeuf’s management philosophy and Dewey’s, which he diplomatically declines to characterize as either “right or wrong.” 

The full-time focus is conscious and necessary, Davis says, to effectively manage firms as large and complex as his, which are presented with issues, at least in terms of proportion, that a firm like Cravath, with 95% of its lawyers in one office, is not. 

Davis anticipates that he will be the only full-time manager at D&L. "At LeBoeuf, we moved away from partners doing administration," Davis says, finding that keeping partners focused on clients while relying on professional administrators, often with law degrees, made for better results.

Whatever discussion there may be about style, one thing you can’t quarrel with is Davis’s results. In the five years from 2001 –2006, LeBoeuf’s profits per partner doubled amid an influx of star talent.

One result of that influx was that by 2006, a fifth of LeBoeuf’s equity partners had been at the firm less than two years. What has Davis learned about integrating laterals that may help now in his efforts to integrate the two cultures and their lawyers? “Treat people with respect and dignity, which often means really listening to them, giving them a fair hearing even if you don’t decide in the end to do what they want.”

What are his biggest challenges ahead? Organizationally, Davis is working on the firm’s practice structure and plotting future growth. Now the 5^th largest firm in NY, D&L has 550 lawyers in NYC and 180 in London, making it also the 5^th largest firm in London. Davis intends to grow that London office, where he sees the greatest potential payoff, anticipating soon spending two weeks a month there.

But his biggest challenge is, he says, an old one: how to give people in the firm a sense of ownership. “Law firms are pure personal services organizations-- it’s all about people and motivating them, so that they feel that they matter, because they do.” And his concern is that the bigger the firm, the harder that may be to do.

An article by Lucy Kellaway entitled "Just Say No to the New Managerial Cult of Yes" in the July 23, 2007 Financial Times pointed out that a lot of the job of management involves saying “no,” but the critical part, according to Davis, is "saying 'no' in a way that respects people’s dignity. How the person feels when they walk away is what’s important.”

And Davis admits he’s not immune to needing some reinforcement himself. A recent talk he gave to the Boston office produced an email from a college intern that he returns to when he could use a boost: “I have a very important job—it’s the only job I have, and you made me feel appreciated.”  

Any question that Steve Davis is one of the more enlightened of the law firmus managementus species? No question.

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