Shortly after the first law firm was formed, the first law firm merger likely took place. Firms have been getting together ever since. These unions occur between firms large and small, regional and national; firms with different practice areas as well as between firms of similar size and scope.
But just as marriage is not something to be entered into lightly, neither is a law firm merger. It's a process that takes months or longer to complete, affecting attorneys and clients alike. For partners considering a merger, it's important to carefully review the pros and cons of such a grand undertaking before moving forward with the project. The first question: What are some reasons to merge and what are some reasons to stay single?
Peter Zeughauser, attorney, consultant, and managing partner of Zeughauser Group LLC, explains that many of today's clients need service around the world. "Many law firms have concluded that to serve the clients, they need more lawyers or a national or global geographic footprint," he says. "Not all law firms can build [their practice] quickly enough by hiring more associates to bring through the ranks, so they need to go out and find a merger partner," says Zeughauser.
According to Zeughauser, firms also may merge to strengthen their brand or broaden their practice areas. While law firms sometimes find each other through mutual acquaintances or a firm's reputation, they often hire a third-party consultant to find them a partner. Factors to Consider Before considering a merger, firm management should keep in mind a variety of issues, says Zeughauser. "We advise firms to look at a number of different factors and criteria," he explains, including:
- mix of the practice areas;
- mix of clients;
- financial structure;
- off-balance-sheet factors such as retirement plans, which can be a significant hidden liability;
- cultural issues such as governance and management structure; and
- values similarity.
Firms should particularly note profitability. "It's a reflection of how hard the lawyers in the firm work, how successful at business the firm is," says Zeughauser. "The disparity in net income per equity partner is a telltale sign that one firm's work ethic is not as strong or successful as another. A merger of two firms with disparate work ethics would dilute the stronger firm's success, and most firms don't want to do that in a merger," says Zeughauser.
Client conflict is another major issue when evaluating a merger opportunity. "There are rules of professional conduct that prevent you from representing clients whose interests may conflict with one another," Zeughauser explains. "You don't want to merge with a firm that would cause you to have to stop working for a key client," Zeughauser elaborates.
Law firm mergers typically are treated as partnerships, he adds. "By nature, a partnership requires you share common values. Firms that have dissonance over values are typically not successful [in a merger situation] and can't survive. So it's very important you have common values and spend some time on that," says Zeughauser.
How can firms find out each others' values? "It requires sitting down, working together, developing plans to develop business for your combined entity, and developing a written statement of values as a combined entity," Zeughauser recommends.
The Value of Diversity
Diversity is one such value. While increasing diversity may be important to a firm, it is not usually a top issue addressed during merger discussions. "A small number of firms use diversity as a factor in deciding who to merge with. There aren't enough firms that have achieved significant diversity that it would be a factor to other firms who want to merge with them," says Zeughauser. Sometimes a merger provides an opportunity for firms to revisit their strategic plan and values, including diversity. "A merger provides a window of opportunity to go back and examine where you stand on diversity and incorporate it as a more significant priority," says Zeughauser.
Epstein, Becker & Green, a large national general practice firm based in Brooklyn, N.Y., merged with Wickliff & Hall, a small, minority- and woman-owned firm based in Houston, in June 2002 to become Epstein, Becker, Green, Wickliff & Hall. Outside Texas, the firm's name is Epstein Becker & Green. While diversity did not drive their merger, it did play a role. Both firms had similar attitudes about diversity, agreeing that fostering a diverse culture was as much the "right thing to do" as it was good for business. "We wanted to serve the interests of the global business community before it became fashionable," says Ron Green, a partner from the Epstein, Becker side of the firm. "Everyone had been becoming more aware of the benefits of diversity—it makes sense on so many levels," says Green.
Epstein Becker/Wickliff & Hall: Equal Partners
The two firms began talking about merging in the fall of 2001. "Our pattern of growth has been that we try to find offices that work in tandem in particular regions of the country," Green explains. After Epstein Becker heard about a strong firm in Texas (Wickliff & Hall), a consultant later told partners that Wickliff & Hall had begun thinking of aligning itself with a national firm. The partners jumped at the opportunity to negotiate, Green recalls.
For Wickliff & Hall founder Marty Wickliff, the most immediate concern as the two firms began discussions was comfort. Considered a unique firm in Texas—as it was both minority- and woman-owned—the 31-attorney practice "had a lot to offer to whomever we merged with," says Wickliff. It was imperative that the eight partners of Wickliff & Hall get to know the New York firm. At the end of 2001, Epstein Becker's labor and litigation team invited Wickliff & Hall attorneys to its retreat, which resulted in both groups becoming comfortable with each other.
"We needed to feel that the values at Epstein Becker mirrored our values, that they practiced the way we did, they put the client first," says Wickliff. "Those were the values we had, and the more we talked [with Epstein Becker attorneys], we realized that we felt comfortable. We would not become lost in a larger firm, but become partners with them."
As soon as the merger went through on June 1, 2002, Epstein Becker invited Wickliff to join its board of directors. "That made me feel good and gave the Wickliff partners an immediate presence," remembers Wickliff, who, along with Green, represents exclusively management in labor and employment litigation and trials. "We could offer a lot of value to the firm because we would increase the number of minority and women lawyers, but we didn't want to become part of an organization that would just pay us lip service, but one that would bring us into the fold," Wickliff stresses.
Diversity was important to both firms: Wickliff with its status and Epstein Becker with its many attorneys who had worked in the civil rights movement, and had held leadership positions with the Equal Employment Opportunity Commission (EEOC) and the federal government. But it was the quality of the firm that drew Epstein Becker to Wickliff & Hall, Green explains. "A lot of us were committed to diversity as a philosophy and practice anyway, and were delighted when we found out about Wickliff's minority status. But we were unaware of that initially. We knew these folks to be terrific people and lawyers, and that's what drew us to them," says Green.
Wickliff is proud of that. "We'd established ourselves as performing the same top-quality work as our counterparts. Then they learned we were minority-owned," he says. "I felt really good that we had established that reputation to the point that it got the attention of a national firm," says Wickliff.
As indicated by Wickliff, when the merger went through, Wickliff & Hall attorneys stayed in Houston and Dallas, though its San Antonio and Austin offices decided not to join the merger. While Wickliff & Hall lost its minority status when it joined the larger law firm, Epstein Becker's Dallas office had been separately incorporated, so when Wickliff & Hall attorneys joined that practice, that portion of the firm was able to retain its minority- and woman-owned status under the firm name of Epstein, Becker, Green, Wickliff & Hall.
Epstein Becker, a first-generation firm of more than 300 attorneys, did not have a formal diversity policy, but a policy of equality, says Green. "We share here—we are all equal partners, all 90-plus of us, in this business," he adds. "We were looking for people who would take an interest in the entire firm and work to build something we could create a legacy with. The principal focus was on people with wonderful reputations as people and as lawyers," says Green.
After the merger, Wickliff made a point of speaking with other minority attorneys and partners about increasing diversity and retaining women and lawyers of color. "I felt, from talking with other partners, the firm was going in the right direction," he says, citing the joint firm's new diversity committee's mentoring programs, law firm recruitment, and other initiatives. "Based on early discussions with minority lawyers [at Epstein Becker] and with Ron, who was very open and sincere with what the firm was doing in that arena, I felt that merging these cultures and having the same views about diversity was not going to be an issue," says Wickliff.
Green calls the merger virtually seamless. "We were very fortunate from our side. Our instincts were correct— these were really good people. That's what this business is really about."
O'Melveny & Myers/O'Sullivan: Values Driven
The merger of O'Melveny & Myers and O'Sullivan LLP in September 2002 was a marriage that benefited both sides. The two firms had complementary practices: O'Melveny's in global litigation and transactions, and O'Sullivan in private equity and corporate and business litigation practices. While O'Sullivan, with approximately 100 attorneys, was in New York, O'Melveny, with approximately 800 lawyers, had offices across the globe, including 100 in New York. But the firms had similar cultures. In a written values statement drafted by the firms together post-merger, O'Melveny identifies itself as a "values-driven law firm guided by principles of excellence, leadership and citizenship." Kathryn Sanders, a partner in the L.A. office and co-chair of the firm's diversity task force, says that both firms placed a high value on professionalism, personal interaction, and respect. "We enjoyed being in one another's company, but all in the context of doing the best-quality work," says Sanders.
As the attorneys from both firms became familiar with each other, they recognized that as much as the business aspects of the merger clicked, those similar values also made them a good match. But was diversity one of those values? "When the two firms were getting together to talk about a combination of issues, the diversity of the populations [of the firms] was a consideration," says Sanders. But, like most firm-merger discussions, "The other business considerations were probably more important," Sanders emphasizes.
Once the merger went through, attorneys began discussing melding common goals and creating strategic plans. This process led to the formation of task forces on diversity and values. "We [both firms] were both doing things, but there was not a clear articulation of, ‘This is where we're going [with diversity],'" says Sanders. "What we did then was the right answer: bringing lots of folks together and using that to create a common vision."
The diversity group first focused on why the firm cared about diversity. "It was clear we all did, but we felt that it was important to break down the importance of diversity in an analytical framework so lawyers could understand it," says Phil Isom, a partner in the New York office and a member of the diversity task force. That framework included a discussion of how diversity is important to business, and why a diverse firm adds value to the practice of law.
At the meetings, Isom explains, it was important to get buy-in from all members and come up with a plan specific to O'Melveny's needs. Today, the about 20-member task force, which hosts a conference call every two weeks, "is a diversity task force that's very diverse," he says, in gender, geography, sexual orientation, ethnicity, and seniority. "Whenever we're talking about an issue, someone can add a different perspective," says Isom.
The diversity task force has created several programs, including a firm-wide annual diversity celebration day. Each office plans events for the day, which often includes ethnic food; presentations by clients, attorneys, and staff; and social interaction. O'Melveny's Los Angeles office celebration included an address by Cheryl Masin, who had been the first female African-American partner at the firm in the 1970s. "She talked about how O'Melveny was on the forefront of recruiting minorities out of law school back then," Sanders recalls.
The two task forces—diversity and values—gave attorneys and administrative staff at the respective firms opportunities to work on things that were important to the firm as a whole, says Isom. "That played a role in everyone getting on the same page together much more quickly than probably at other firms [merging]," Isom stresses. Many of the firms' policies, such as flexible work schedules and attorney appraisals, were rewritten "to make sure values directed the policies," he adds. The overlap in cultures and values has been crucial to the task forces' success. "That has made this something we could work through and develop, which has made the transition that much smoother."
Like in most law firms, clients also drove the process, at least when it came to diversity, says Sanders. "We have a number of clients who ask us to identify diverse lawyers who are staffed on their matters," she explains. "The fact that clients were focused on it gave us added impetus. But from our perspective, the number-one reason to be focused on improving diversity is it's the ‘right thing to do,' but as a business objective, it's becoming more and more imperative," Sanders adds.
Isom agrees. "If you don't have shared values beforehand, it's hard to create them afterwards," he adds. "You have to know you both believe in the same things or think the same things are important. The firm must understand what is important to its people before they begin the process [of merging]."
But Sanders cautions that it would be difficult for diversity to be a defining factor in a successful merger. "The hardest part of a merger is integrating after the merger happens," says Sanders. "If your motive is to do nothing but get the numbers [of minority and women attorneys] up, you are not paying attention to whether the business practices meld, the merger is going to fall apart."
Bingham/McCutchen: Shared Histories
Over the past decade, Bingham Dana LLP had created a strategy to become a strong regional law firm, then a national and international firm. "As we grew the business and practices organically, the firm leadership was very interested in merging with firms that had compatible practices and values that would be able to add to the breadth of the practice as well as geographic reach," says Ralph Martin, a partner in Boston and managing director of subsidiary business at the firm.
On July 1, 2002, the 500-attorney Bingham became Bingham McCutchen when it merged with McCutchen, Doyle, Brown & Enersen, a firm of 320 attorneys in California. Exactly one year later, the firm acquired a 60-lawyer practice in Los Angeles, Riordan & McKinzie, a corporate and private equity boutique.
From the beginning, the firms had similar histories, Martin explains. McCutchen had been noted in California for its pro bono work, involvement in bar activities, and its advances in diversity, such as recruiting and retaining minority attorneys. "It was a very commendable kind of culture any institution, let alone a law firm, would be proud to have as part of its history," Martin adds.
Bingham also had a long history of pro bono work, including its involvement in local civil rights cases such as the court challenge to hiring practices of the Boston police department. Attorneys at the firm also worked on cases involving voting rights and redistricting. Even before merging, "Both firms knew that in order to effectively recruit the best talent as well as the best clients, we definitely had to increase our competencies in the area of diversity," Martin explains. "That's not to say the firms had not done well, but this is an effort that if you're serious about it, you're never finished."
McCutchen had been looking for an East Coast partner for several years, says Ray Marshall, a partner in the San Francisco office who had been with McCutchen for 25 years. "We hadn't found the proper fit in terms of culture and we thought that was a critical element," says Marshall.
When they found Bingham and the partners met, "It was a love affair," recalls Marshall, who took part in merger negotiations. "Not only could you make a business and geography case for it, but most importantly, it felt comfortable going in. The personalities and historical cultures fit."
When the firms came together, both wanted to harness the best of their existing cultures and, as they integrated, create "an even more advanced and evolved culture that would lead us to some degree of prominence in diversity on a national level," says Martin, who in March was tapped to head the firm's new diversity task force. A former district attorney, Martin was the first African American in Massachusetts elected to that position. He and his firm of 2.5 years recognize the importance of diversity. "Just as we aspire to be a highly competitive national firm, you can't effectively unbundle the diversity effort as something separate from that strategy," Martin explains.
So how did these two firms—from opposite coasts but with similar histories and principles—create that strategy? First, it was resolving structural differences, says Marshall: At McCutchen, diversity fell under the auspices of the firm's recruiting and associate committees, both of which included associate, counsel, and partner members. At Bingham, a diversity committee oversaw the entire firm, including partners. Therefore partners on both sides sat down formally and picked best practices from both firms to create a common diversity vision. This action initiated a diversity task force with Martin at the helm, and with a goal of "beefing up" minority and women attorneys across the board. Each practice area and committee also had a similar meeting to write up best practices, goals for the group, and hopes for the merger. "We discussed specific ideas all across the board," Marshall recalls. "There was a lot of give and take."
These meetings were challenging, he adds. "We had a strong sense of ourselves," Marshall recalls about McCutchen attorneys. "We had a West Coast bias in San Francisco—we thought we were second to none [in terms of diversity initiatives]. We were quite blunt as to who we were and our values and what we were willing to do and not do in terms of any merger."
But both sides agreed on what was truly important— creating diversity, retaining attorneys, doing good work, and respecting each other. McCutchen had finally met its merger match. "With any merger, there are compromises— it's like a marriage," Marshall explains. "But we agreed so we didn't have to compromise. The bottom line: Had we not shared the same values and believed in the same future, we wouldn't have done the deal."
Now that the deal is done, the work continues toward establishing a national law firm of almost 900 attorneys, says Martin. "The firm leadership spent a lot of time on the integration of the respective legacy firms. Once it got to the point where it's at more of an operational phase and not so much in design and implementation, the firm has begun to focus its attention on other things that enhance the experience and development of people here, such as mentoring, associate life, and diversity," Martin adds.
The diversity task force recently started an audit on diversity. The goal of the audit is to look at how well the firm is doing in its hiring, retention, and advancement of lawyers in a variety of "diversity" categories; the firm also intends to examine the various experiences and perceptions existing among firm members. Ultimately, Martin explains, Bingham sees this audit as the beginning of a longer effort to enhance the intensity of its commitment to diversity.
As indicated by Martin, the interest and action on diversity permeates the firm. "Just as we pay attention to the development of various practice groups and look for ways to link [the offices] and create more efficiencies and better communication, a diversity effort that's linked to how we recruit, retain, and nurture [diverse attorneys] is only going to enhance the ability of the firm to create reciprocity among all of its lawyers," he concludes.
Diversity does not happen overnight, no matter how much in sync firms are when they merge. For merging firms to hold fast to their values—whether written in formal statements or believed by attorneys and staff—leadership must pay attention to more than the numbers. "In the end," says Zeughauser, "the values drive the firm more than anything."
Melanie Lasoff Levs is a freelance writer based in Atlanta, Georgia.
From the September/October 2004 issue of Diversity & The Bar®