January 22, 2007
Slow Growth vs. Law Firm Mergers
Consistent measured growth wins the day for most midsized firms. All you have to do is look around to see the destruction that follows merger announcements. Even merger talks can prove disastrous for a law firm. The time-honored lateral hire, while a notch down on the risk meter, can still pack a jarring negative wallop. And unless it is done to advance a law firm’s strategy, lateral hires do little to benefit the existing partners in the firm. They create a bigger pie, but when the pie is divided, no one goes home with a bigger piece of that pie.
Unless a firm reaches a point of equilibrium in its size (something that isn’t easily achieved and doesn’t last), growth is necessary for sustainability. Room has to be created for upward moving of legal talent into the partner ranks—that takes a combination of growth and outgoing partners.
Mergers and (to a lesser extent) lateral hires at the partner level are “bet the farm” decisions, regardless of which end of the transaction you are on.
There is plenty of good evidence that size doesn’t mean higher per-partner income for midsized law firms. It’s not size, but doing the right things right that drives income. Likewise, achieving a large size through more diversification can cost a firm its brand image and its competitive edge. It does increase business risk, and increased diversification is likely to lower rather than increase a firm’s pricing power.
When it come to mergers and partner level lateral hires, don’t do them, or at least don’t do them without a darn good strategic reason. Even then, don’t do them without seeking the advice and help of experts like those in the major consulting firms working with law firms.
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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