If you asked us to name one seminal development that "changed
everything" in terms of law firm economics between the stasis model
of the 1950’s and the dynamic model of the 1990’s, we’d say it
was the creation of a market for lateral partner mobility. I’ve
talked about this before,
but now the redoubtable Leigh Jones of The National Law Journal has
a piece reflecting upon the "tectonic shift due to law firm megamergers,"
which concludes, among other things, that:
- lawyers surveying the new landscape who may doubt there firm
will exist in its current form three to five years down the road
are more open to overtures by other firms; - there may be a certain Fortune magazine "best places
to work for" envy at work as particular firms seem to systematically
acquire powerful laterals and practice groups; and - firms that have grown more sizable and powerful are increasingly
willing to "buy" rather than "build" expertise in practice areas
they desire.
When you think about it, acquiring a lateral partner or a lateral
practice group is essentially a mini-merger, and all the considerations
that befall the (poor) success rate of mergers therefore obtain. Pertinent
is this observation:
For William O’Connell, Buchanan Ingersoll’s managing shareholder, bringing in a boutique firm is preferable to cherry-picking groups of attorneys from larger firms because the acquirer has full access to the boutique’s financials and can get a clear picture of how those attorneys are performing.
He said that having access to financial records avoids having to rely on attorneys looking for a new firm to provide that information. “The first wife knows something that second wife hasn’t figured out yet,” he said.
Indeed.
On top of the possible murkiness of past performance record is
the risk of overpaying upfront for the acquired group. Even
if information is perfect, a possible market outcome is that the
acquired group would fully capture in the "takeover premium" paid
to them the capitalized value of their future supra-normal earnings
stream. So if they depart a few years later, or even if they
don’t, the acquiring firm is no richer on the bottom line.
But success
or failure in acquiring laterals is also an exercise in Management
101: Support them, integrate them, blend them in, introduce
them to and inculcate them with the culture.
Under no circumstances do this:
“The firms that do the poorest job of integration basically give them a
desk and say, ‘Here’s a copier. Tell us where you are at the end of the
year,’ ” [said a recruiter].
Even Carly Fiorina did more with the late lamented HP/Compaq merger. Acquiring
laterals is, again, a "mini-merger." Treat it with
all the care, attention, seriousness of purpose, and innate skepticism,
it deserves.
