Roger Parker: Riding the tidal wave of consolidation
Legal Week Reports
June 28, 2006 at 08:03 PM
4 minute read
At Richards Butler, we have never compromised on quality or commitment to client service. Such laudable professional mantras do not however provide a mechanism against the tidal wave of consolidation and globalisation. Research that we evaluated established that over a 10-year period the impact of rationalisation by industry sector had been dramatic. In the banking sector, 28 major institutions reduced to eight, in pharmaceuticals 33 to 13 and among mid-tier law firms in London 16 to 11. Consolidation of clients and legal services providers has happened, is happening and will continue to happen. Three years ago we decided to embrace, not contest, what appears to be an inevitable and exciting trend.
This was exciting for Richards Butler because our goal is to secure a position at the top table of international law firms with genuine resource and capability to service multi-jurisdictional clients in the major markets of the world. That has driven our top-line thinking and action for three years. We moulded a business towards a deal: focusing on improved cashflow and lawyer administration with continual monitoring of costs to ensure the retention of a clean balance sheet.
This approach has obvious advantages but can distract management from the priority of top-line growth, an issue of real importance in the mid-market where management and business winning have to compete for the same resource and are constantly under strain due to lack of scale. The converse is of course rapid revenue growth without focus on strategic positioning of the firm and indeed the quality of earnings, potentially a long-term issue.
There are doubters in any large business organisation. Management of a law firm has no monopoly on strategic thinking. Any division of view must be continually monitored by the partnership.
We embrace debate but it must not be the seed of discontent and distrust. Management has a duty to lay out its thinking and plans and to answer questions. Abuse or shorten this process and debate becomes a harbinger for division. Division turns into rift.
But debate must be managed. A major international merger is, for any business, a seismic shift. As such, there is a movement into new ground which can affect the delicate balance of a partner-ship that has evolved over generations. Business concepts can become clouded by subjective thought – merger can represent 'loss of control'; a business combination 'loss of independence'; and a folding of a smaller business into a larger one, a 'takeover'. All these labels can fuel fear, resistance and instability if they are not properly considered as part of a consultation process.
Our partners progressed through these phases without real division. But is there risk in embarking on this process? Of course, the risk/reward equation is high and the ultimate success of a merger is judged in the future not the present. The path towards a positive vote to merge is arduous and there are many roadblocks which discourage some, no doubt, from embarking on the process.
Possible amber or red lights for firms to consider could be fundamental disagreements over the future landscape of the legal marketplace or strategic direction, lack of confidence in the resolve or judgement of management, errors in the research of the marketplace and law firms within it, overreliance on anecdote and market intelligence, and a rushing of the consultation and communication process. It is easy for management to become too close to such projects and to stray too far away from the genuine will of the partnership. Disagreements over the assessment of the positioning of the firm can be mishandled and perhaps most importantly there can be a non-acceptance of the danger that faces organisations that do not have a secure market position.
We did not run into these issues and our voting percentages were 98%, reflecting the overriding advantage that flows from the Reed Smith deal.
Be in no doubt: the game is worth the candle. We have chosen to partner with a dynamic and well-led organisation that shares a common vision of the impact of the globalisation of legal services, is culturally compatible, has a track record of making mergers work and gives us reach and investment resource to fuel our global ambition.
Most important of all, we create opportunity for our people and our clients. Human spirit desires to grow and embrace change and the uncertainty and challenge that it creates. As one of our paralegals commented: "We can work with new ideas and new people."
Roger Parker is managing partner of Richards Butler.
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