Combining firms to create a new enterprise

By Olivia Clarke

A successful merger can often be like a successful marriage.

It takes understanding, compromise, teamwork, and a belief that this new partnership will work for the betterment of everyone involved. Some firms make it look easy, and others have faced challenges along the way.

In the last 10 years a number of Chicago firms have merged with firms from outside the Midwest, and with firms in their own backyards.

Lawyers from Reed Smith, DLA Piper, Drinker Biddle & Reath, and Locke Lord Bissell & Liddell participated in a roundtable discussion about firm growth and law firm mergers. They talked about such topics as, what type of lawyer works best in a large firm, and how firms deal with client conflicts when two firms merge.

Here is a portion of the roundtable discussion, and here is who participated in the discussion:

Jennifer Kenedy (pictured), an equity partner at Locke Lord Bissell & Liddell. She has been on the combined firm’s board of directors since Oct. 2, 2007, when Locke Liddell & Sapp, and Lord, Bissell & Brook merged. She has also co-chaired the combined firm’s integration committee since the same date.

Michael A. LoVallo, Chicago office managing partner at Reed Smith. He has been in that position for over a year, and that was preceded by five years as co-managing partner at Sachnoff & Weaver. Reed Smith and Sachnoff & Weaver’s combination date was March 1, 2007.

David Matteson, managing partner of Drinker Biddle & Reath. He was on the 2006 management committee at Gardner Carton & Douglas, and has been managing partner since Gardner Carton & Douglas and Drinker Biddle & Reath combined Jan. 1, 2007.

William A. Rudnick, managing partner of DLA Piper’s Chicago office. He’s been in that position since January 2008. DLA Piper’s most recent merger was in 2005, and it was a three-way merger among Piper Rudnick, DLA, and Gray Cary.

What are some of the challenges in having a large firm, and the challenges involved in merging in Chicago?

Matteson: The challenge is to get everyone informed and stay informed about what a much larger group is doing. It’s easier when you are smaller, fewer people to understand and get to know their practices, their clients. As the enterprise gets larger the challenge is to find ways to communicate better and get informed.

LoVallo: The challenge is also the opportunity. The upside is all in having people have access and knowledge to the information and the people in the firm. Communication is always an issue in a law firm. I think it takes more direct attention the larger the firm is and the more offices it has to really develop systems and programs and follow them, in terms of communication. But the upside is so much greater as well. Once people see the upsides they’re willing to invest and participate in those practice group meetings or partner meetings, because that’s now how they’re accessing the good information instead of just trying to get it by osmosis in the hallways.

Kenedy: I would say firm culture — trying to have a cohesive, consistent firm culture when you’ve got as many as 12 offices nationwide. I would identify that as a big challenge.

Rudnick: The biggest challenge is the business case upfront. You’ve got to have a vision that makes sense from a business perspective on a stand-alone basis, and then makes sense for the people who are a part of the firm as well. I think the biggest failing that a lot of mergers face is that there isn’t an overwhelming business case to be made at the beginning. And you have two problems that result from that.

One is, if you can’t make the business case to your colleagues, they don’t buy into it and they don’t go along. Second, if you don’t make a business case, the transaction itself, if not doomed, faces serious challenges going forward.

How do you deal with the client conflicts when you are growing and merging?

Rudnick: We’ve dealt with that issue in three different respects. The first issue is, you’ve got to do your homework upfront and figure out what the conflicts are and whether or not you can even go through with the transaction. In all our mergers, we’ve done that and that’s been at times a challenge and we’ve had to, on a couple occasions, say good-bye to some clients.

The second piece of it is, you’ve got to be very, very careful and track the information and develop systems that work, and strike a balance between missing potential conflicts or actual conflicts on one hand and gumming up the works on the other hand. You need a system that can actually identify issues and address them.

I know I said three, but I actually have four.

The third one is, the bigger you are the more important it is to make industry bets. For example, are you going to represent big pharma, or are you going to represent the generics, because you can’t do both.

The last piece has been something that has been known as the international piece — where the conflict rules are entirely different. What we think of as a conflict they don’t think of as conflicts there at all. It’s something we have to educate our overseas colleagues on, because it’s just not something they’ve had the sort of intuitive understanding that we’ve all developed in the practice in the U.S.

Matteson: In our combination we threw a lot of resources at the conflict issue earlier on in the process, and the conflicts are not just client conflicts, but potential business conflicts. As Bill indicated, we may need to find a new home for a certain practice in order to make room for a larger practice. Knowing what those issues are early in the process is very helpful.

Kenedy: We did that as well beforehand. We actually, I think, looked at every single major matter we had between the two firms and tried to identify any conflicts ahead of time and resolve those that we could, and the ones that we couldn’t, decide whether we would be able to go forward, given the conflict.

But it is also equally important after the merger that we take care of conflicts. We used to just have a conflicts system where you plug in your client and figure out if there is a conflict. Now we sort of have levels, almost like a triage, where we have the traditional conflict search; we have daily conflict memorandums that go out, so that if people are opening a file in Houston, we know in Chicago to look and see if one of our clients is on the list. We also have people sending out e-mails for emergency matters, and that is something I think from the sheer size of a firm it’s become necessary to make sure we didn’t miss any business conflicts, and we didn’t miss any ethical conflicts just by our sheer size.

Matteson: As those conflicts are identified, and there always are conflicts. You can’t put two vibrant firms together without finding them. It’s interesting to me to see how our combination partner handled it.

Did they tell us that by definition their client was going to be the continuing client and ours wasn’t? We learned that it was all about the dialogue in deciding through a consensus what the best result was for the combined firm, and that taught us a lot about how other conflicts or issues would be addressed.

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