The publication of The Law Consultancy Network’s research (July 2012) shows that the appetite for mergers continues unabated, with 80% of the firms surveyed having considered the possibility within the last six months.
And for firms heading down the merger path, the spotlight tends to be on matters financial. But although finance may be at the forefront of negotiations, when you’re undertaking due diligence, what about other issues such as compliance culture, risk management and quality regimes?
It is vital to talk to insurers at the earliest stages to make sure that claims histories are fully reviewed and premiums can be calculated. Too often, failure to do this leads to the merger falling apart at the final stages, because the indemnity premium becomes the deal-breaker. And if your firm is taking over a smaller practice, then have you explored how to avoid becoming a successor practice?
Compliance cultures vary between firms and go from light touch - where fee-earners have autonomy to evaluate their own risks within the firm’s overall risk framework - to regimes where the compliance officers make all the decisions and there is a rigid system with no autonomy. Neither extreme is right or wrong; what matters is robust risk management, but any system must ensure that the risks within the firm are controlled and that the right culture is created within the new firm to ensure buy-in from everyone.
Otherwise, if the merging firms have different approaches to compliance and this is not tackled, it can cause serious relationship problems. Tension may be created between individuals and teams, if the approach to risk is seen as preventing fee income generation. So it is important to talk about your attitude and understand how compliance works in each of the merging firms.
Analyse the two firms’ systems and make sure that there can be a good fit. Look at the gaps and differences between them. Are there different quality systems? If so, how can these be reconciled? Identify any other differences that need to be reviewed, to ensure a common approach across the new firm. Looking at specific risk areas, it’s very important to look closely at client acceptance procedures. As well as having consistency in the type of client the merged firms will accept, most importantly everyone needs to understand what types of client are considered too high risk. Similarly, file closure procedures should be reviewed to ensure consistency.
What happens about file audits? A review of both firms’ procedures needs to take place and a system must be put in place which matches the requirements of the new firm. Training for the merged firm’s partners/managers/directors, fee-earners and staff is vital to ensure everyone is clear about the merged firms risk and compliance policy, its anti-money laundering procedures and who the compliance officers for legal practice and compliance officers for finance and administration are.
More than anything, it is crucial that the cultural, compliance and working practices of two merging firms are examined and designed to fit the new firm to ensure the success of any merger adventure.
Jeanette Lucy is the director for compliance, quality and learning with law firm network LawNet