Law firms face same merger risks as their clients

November 16, 2012

By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Law firms aren’t immune from the merger risks their clients face. There may be perfectly sensible reasons for Britain’s Norton Rose and U.S.-based Fulbright & Jaworski to join forces and for SNR Denton, headquartered in London and Washington, to seek a three-way tie up with French and Canadian peers. Cross-border deals can help lawyers serve companies increasingly going global. But culture, pay and client conflicts are tough to manage. The danger is sacrificing quality for scale.

Fulbright says it wanted a bigger international presence, while Norton, with almost 3,000 lawyers worldwide, coveted the lucrative U.S. market. SNR Denton, meanwhile, sought to extend an already formidable energy practice into natural-resource rich Canada and elsewhere. In general, global expansion can help firms weather economic downturns, lure talented attorneys and keep multinational clients happy.

Acquisitions are notorious value destroyers and legal tie-ups can be costly, too. With more offices come increased chances for conflicts of interest between clients. And according to a 2012 survey of general counsels by legal consultant Edge International, many companies that welcome one-stop shopping at a global firm complain of miscommunications and inconsistent billing rates among lawyers in disparate locations.

What’s more, attorneys accustomed to being compensated based on the amount of business they bring in may rebel when forced into a firm that pays partners by seniority. Cultural differences of style and even quality can also make lawyers, a notoriously independent lot, more difficult to manage. Prominent firms like Hogan Lovells and K&L Gates, both the product of international mergers several years ago, are still working through such problems, and have lost partners in the process.

It’s not surprising, then, that some of the most successful law firms resist expansion. New York-based Paul, Weiss, Rifkind, Wharton & Garrison, for instance, has only 50 of 620 lawyers working outside the United States. It ranked number six last year among big U.S. firms in profits per partner, according to the American Lawyer magazine. And Wachtell, Lipton, Rosen & Katz has just one office, in New York, and ranked number one. A successful firm that specializes in merger advice but which eschews a tie-up for itself may be worth contemplating.

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