Resistance to change is always a danger even in small projects and promising innovations. But when a whole company is about to change its shape, to transform itself into something entirely different through a merger, emotions can run rampant. —Rosabeth Moss Kanter (Supercorps)
Why do so many law firms select a merger as a sensible strategic move for growth, when studies show that five years after a merger is announced, 30% of firms experience a drop in gross revenue, 73% of gains are actually less than peer firms experience, and 93% of firms see an increase in cost-per-lawyer? These statistics are according to recent ALM research.
Mergers and acquisitions are supposed to increase efficiencies and reduce expenses. Generally, redundant professional staff and attorneys, who do not control a book of business that is significant enough, are “downsized,” reducing costs. With better planning, a merger can be more than a cost-reduction solution on the balance sheet. It also can be an opportunity to grow through acquisition of highly profitably partners and practice groups. Under ideal circumstances, it can also be an opportunity for additional organic growth through cross-selling.
When the financial analysis supports a decision for a merger or acquisition and the ongoing financial plan enhances financial stability, there is no reason for a merger to fail, yet they do. Disruption is commonly experienced following a merger. Resistance is an expected human response to significant change. Mergers do not happen on paper. They happened at the organization, group, and interpersonal levels or any organization. Without a plan to address the expected resistance to change, organizations become vulnerable and outcomes mirror the ALM statistics.
Case Study
Recently, I worked with a large firm on a post-merger integration project aimed at reducing resistance at the group level. The combination of two firms resulted in friction between the cultures of the legacy teams at the chiefs, directors, and managers level. The old ways of doing things were not working effectively in the new firm. This is a common experience in any organization after a merger.
My sponsor within the firm and I worked together to design a program to reduce resistance. Several months after our work, which culminated in a retreat program, she reflected on that work and said, “Teams are working more effectively than a couple of months ago. Whenever you can have folks communicate effectively and candidly about integration and discuss the concerns that people have, it reduces the anxiety that many may feel when firms initially merge.”
To achieve that goal for our program, we used what I call creative problem-solving. We first explored the current situation in detail before eliciting options and finally making a decision about the best structure and process to address the emotional aspects of the merger on the people most affected by this significant change. Research tells us that “[m]any mergers have been stifled when two management teams sitting across the table from each other after the close cannot understand how their reports, programs, commitments, and processes might fit together.” A lack of understanding appeared to be part of the problem facing our leaders. The additional piece was learning how to collaboratively fit legacy processes together, and create something new and useful for the operations of the combined firm.
In most combinations, success depended on people understanding what the combination means. How will the puzzle pieces fit together to create a new firm? Will their piece of the puzzle fit, and if so, how? It is not an overstatement to say that a merger is a significant change process. During the early stages of any significant change processes, namely for the first year after the event, anxiety is high and confusion abounds as people seek answers to these questions.
In my client’s situation, each legacy firm had its own way of doing things—its own culture. Culture isn’t something people talk about. In fact, they usually don’t notice it. Culture is the collection of behavioral norms that result from shared, yet hidden and undiscussed, assumptions and beliefs about how people should interact with each other and what is valued most and least.
Solution
When two cultures merge into something new and different, it’s a bumpy transition for many reasons. Some of those reasons are about the logistics, the actual organization dynamics of change. Other reasons are related to the psychology of change. One portion of our program explained the logistical and psychological impacts of a merger.
Logistically, in a successful merger, two sets of strategies (plans to achieve objectives), structures (how people are organized to work together in formal networks), processes (how the work gets done, including culture), resources (the allocation of assets), and people (different personalities, experiences, informal networks and expectations) must integrate. Some will remain, others will be discarded, and new dynamics will emerge.
Psychologically, the challenge in a merger is how human beings think and feel about change. A merger is a significant change that happens to the people in an organization. A successful merger depends on people adjusting to the merger and figuring out how to navigate their differences to work together effectively and efficiently.
In my client’s situation, many people affected by the merger were on the same team and yet had never met. Even among those who had communicated with each other, most did not know each other very well. They came from different organizations with different workplace cultures and had different work styles and processes. Superimposed over that, they had different, undiscussed assumptions of how they should be working together, until they met at a two-day retreat. Merging the organization dynamics was as important as merging the cultures. A considerable amount of critical workplace behavior was unknown, and until the retreat, undiscussed.
In a successful merger, different individuals, groups, and organizations with different identities and cultures become a unified whole. With the right post-merger integration work, the new organization develops into a fierce marketplace competitor. Done incorrectly, it may be a mistake from which the firm will never recover. Consider the firms that have undergone mergers and then imploded. To help avoid post-merger failures, the second part of our program was small-group work to use collaborative problem-solving tools to uncover differences and develop solutions to improve work-flow.
Key integration steps include the following.
- Select the right people, groups, and firms. The group selected for the initial project included chiefs, directors and managers. These individuals were responsible for working together and supporting the work of the overall firm and attorneys. The specific small working groups were designed with the “right” people: those who needed to figure out how to work together effectively and efficiently, and in turn lead their teams in working together.
- Demonstrate concern for people and respect for their feelings and situations. The two-day retreat created the time and space for people to talk about the merger and its effects. A significant component was devoted to explaining the logistics and psychology of the merger and providing time to discuss individual experiences of these effects. Additional time was given for small-group discussion about challenges faced and developing solutions that were agreeable to everyone in the group.
- Integrate while acknowledging different identities and by choosing inclusion. Encourage new ideas and ways of thinking. Encourage people to challenge old ways of doing things. The retreat was part of an ongoing effort to acknowledge the differences of the two legacy firms, while also developing shared ideals and co-creating a shared future. The retreat included time for these firm leaders to collaborate as problem-solvers. They learned about the different legacy cultures driving how work was done effectively and efficiently and then began co-creating a new culture with new ways to effectively and efficiently working together.
- Provide the space and time. Busy people need reasons and scheduled time to get to know and develop trust for one another. The two-day retreat did this. They were given a shared task to figure out how to improve their experience of working together, and were also given time for informal networking to get to know each other better.
Mergers and integrations have the potential to jumpstart a new growth cycle for your law firm when leaders plan in advance to address the resistance that inevitably follows. That means paying equal attention to the logistics and the people. When this is done well, the new firm can reduce costs and leverage efficiencies, experience the benefit of growth through acquisition, and also grow revenue through organic growth.
About the Author
Susan Letterman White is an attorney and an organization development/change management consultant. She is managing partner of Letterman White Consulting and a practice advisor with Mass LOMAP. Follow her on Twitter @susanletterman.