Driving Growth and Sustenance in Competitive Economies

Higher Brand Loyalty, Stronger Client Relationships and Brand Positioning for Better Sustenance and Growth

The Indian legal Industry is going through a phase of re-organization. With growth rates dropping to single digits across the globe (Including India), most firms have recognized that a larger market share, consolidation, deepening client relationships and enhancing loyalties are the way forward for a better growth.

The legal departments at the same time are expanding their teams (handpicked from law firms) to reduce dependency on external lawyers and are being very selective in using assistance from law firms.

All of the above, along with growing competition, is pushing law firms to be competitive, proactive, efficient and value-driven. Hence, sustenance is becoming a major challenge for most law firms in India. The firms with higher loyalties and stronger client relationships are drawing better purchase.

Higher loyalties and stronger client relationships are the result of steady investment in building relationships, understanding what the client wants, correct brand positioning, and ensuring quality delivery consistently and efficiently. Therefore, it is important to learn more about the client, its business and competition, and the market in which it operates.

Regrettably, not many firms undertake the effort to understand more about their clients; the ones that do couple it up with innovation and promptness to create a differentiation. Knowing one’s client is also important to understanding whether their loyalties are transaction-based or relationship-based.

A transactional client is looking for best value and best deal. Their decision-making is based on services, convenience and price. They contribute to the bottom line but cannot be relied upon for sustenance and, most importantly, building one’s brand. Most clients will happily to go competitive firms for better deals. However, this is not to say that they can never be converted into a relationship-driven client. Once they start finding value beyond price consistently, it can pretty much become a relationship-driven client – which is exactly what any firm would want, as they value the trust, loyalty, and commitment to a specific brand more so than finding a great deal.

These types of consumers are more likely to stick with a specific brand that they have been using and have built trust in and are exactly the kind of clientele every business wants to have.

As routine legal work becomes more commoditized, what law firms offer is becoming less important to legal buyers. The clients are looking for law firms whose partnership helps them shape strategy and assists in achieving business objectives. This is where a strong, differentiated brand comes into play.

A brand with stronger brand positioning can build and sustain goodwill, providing the extra edge over the competition during evaluation and keeping the relationship strong during rough patches. When you have the right brand position, it becomes the driving force behind the firm. Conversely, the firm struggles with a weak brand positioning.

The India Story

The Indian legal marketplace has been more volatile over the past few years with senior partners leaving for independent chamber practice, partner movements, and more firms mushrooming – all of these, thereby, adding to the competition and reducing revenues for firms.

Therefore, it is all the more important to remain differentiated in a competitive market like India to ensure consistent growth as “me-too” firms may have a seat at the table but only the distinguished ones get the winning hand.

Talent Retention: A Big Conundrum

With the rise of the new East, emerging economies of Asia are undergoing a tremendous transformation. With the continued inflow of foreign direct investment and major policy changes, businesses are flocking to capture the opportunities presented by increased customer base.

This is intensifying the competition for talent and leadership – a trend that is cutting across all sectors including legal.

With shorter career progressions (associates getting promoted to partnership in just six to seven years), expectations are growing higher. This coupled with unclear growth path for seniors – post becoming partners – is making it increasingly difficult for the mid-sized and small law firms to retain their performing assets (lawyers). The buoyant legal-talent market is just adding to it. All these factors are seriously affecting the competitiveness, sustainability and growth of the mid-sized and smaller law firms in India.

While almost every firm identifies retention as a major challenge for them, only a few have started addressing this issue. There is a huge gap in managing expectations and aligning them towards the interest of the firm.

Realizing this gap, some firms have started engaging professionals to coach their lawyers and partners in a bid to retain their talent pool by helping them realize their progression and role in the growth of the firm. However, the focus is more on pressing and tactical priorities – immediate talent retention – and much less on long-term solutions.

Pinpointing a problem is only the first step to finding solutions. Some firms have started taking steps including reduced-hour schedules, alternative work arrangements, mentorship programs, steering committees, etc.  However, most firms that have implemented such programmes feel that changing the firm’s culture has yielded better results than changing business models or billing requirements.

Respect, transparency, and a fair playing field are important in any organization. With lawyers increasingly having options to practice law in a way that fits into their lives (whether in a traditional firm or in an alternative practice model), it is all the more important to ensure that they feel valued and are appreciated for their contribution and good work.

Talent management and leadership development have been pretty low on the priority list of executive committees at law firms. With the Indian legal market going through an important phase (as the talks of liberalisation gain grounds every passing day), the key to growth will be managing the turbulent tides of talent scarcity, employee expectations and leadership shortage. Hence, more than ever before, law firms of all sizes need strong, guiding hands to steer them through rolling waves of change.

Learning to Dance Backwards: What Successful Acquirers Know

Most law firms want to grow.  Whether to gain depth of capability or achieve the credibility among clients that comes with critical mass, growth in the number of attorneys is a strategic priority for the majority of law firms in the U.S.  Of course, firms have several growth options.  They can grow organically by hiring new lawyers as first year associates and move them through a developmental program.  But this takes a huge amount of patience and requires that the firm have the capability to generate enough leveragable work to keep these young lawyers busy.  They also have the option to engage in large lateral hiring programs.  But this requires a big expenditure in headhunter fees and could cause a cash flow hit that will have negative effects on profits.  Plus, for many firms, large scale lateral hiring has created a revolving door with as many lawyers leaving the firm as joining it.  And for firms in declining legal markets, their best growth opportunities may be through expansion to new geographic markets where they face the costs of opening and equipping a new office.

Not surprisingly, many firms consider mergers to be their most attractive growth option.  But there is one limiting factor.  Regardless of their size, profitability or strategic direction, most firms want to pursue mergers in which they will be the surviving entity.  Often the driving issue is their desire to maintain the firm’s culture or name.  In other cases it is a fear of losing control of their practices.  But, for whatever reason, there are a lot more law firms who see themselves as the “acquirer” rather than the “acquired” when considering consolidation with another firm.  In fact, some law firms’ entire strategies are built around serial acquisition.

First, it should be noted that, regardless of the relative sizes of firms involved, most law firm consolidations are technically mergers as opposed to acquisitions, i.e., there is no compensation paid for the assets of the smaller firm.  But regardless of the technicalities, when a consolidation occurs between two firms of substantially different size, often both parties and the business community tend to view it as an acquisition.
When you have a situation where everyone wants to be the surviving entity, you have a problem of supply and demand.  I remember when my son described his junior high school ballroom dancing class as a “big mess.”  Apparently, in this age of gender equality, everyone wanted to lead.  In his 13 year old wisdom, my son pointed out, “This isn’t going to work unless somebody is willing to dance backwards.”

Aside from the obvious need of law firms that are willing to be acquired, being the acquirer in a law firm merger is not as easy as some firms may think.  For firms that have had little success with integrating laterals or stemming the revolving door of former laterals leaving the firm, there is little reason to believe that upping the ante to take in an entire law firm will result in greater success.  However, as we observe larger law firms that have built their size primarily through a series of mergers with smaller firms, there are a number of actions that seem to enhance their potential for success.

Ten Things Successful Acquirers Do
1.  Know the vig.  From the start, an acquiring firm has to know what it wants to get out of the deal.  As acquirer, they may be seeking a variety of things ranging from a geographic location on which to build an office (which means location of office space and a functioning telephone system is worth more than the lawyers) to strength in a specific practice (e.g., firms coming into Las Vegas may be looking for a gaming practice; firms looking at Denver may want energy).  Sometimes the firm is simply looking for talent — the best lawyers available.  The point is that successful acquirers establish their objectives in advance, not as a backfilled justification after they start discussions with a firm.

2.  Understand motivations.  The collective ego of larger firms sometimes causes them to assume they understand the smaller firm’s motivation in a consolidation (“Who wouldn’t want to be a part of our firm?”).  But the real motivation may be a collection of individual partner’s needs and expectations.  For example, some partners may be expecting their acquirer to supply them with a pipeline of sophisticated work.  Others may be looking for a larger platform on which to expand their practice.  Some may assume they will get a big compensation increase.  Failing to appreciate the individual motivations of significant partners (especially if the acquiring firm is basing the justification for the merger on those partner’s practices) can be an expensive mistake if they are dissatisfied and leave soon after the merger.

3.  Define a win.  One of the reasons we rarely hear about unsuccessful mergers is that law firms set the bar of success too low, i.e., if the firm is still in existence and most of the lawyers haven’t left, it’s a success.  Law firms that are frequent acquirers establish financial objectives for the first 12, 24 and 36 months both so they can learn from mistakes and to demonstrate success to their partnerships.

4.  Forced stability.  In mergers of equals it is anticipated that neither of the predecessor firms’ procedures will take precedence and that the new firm will be created on best practices.  But for the acquiring firm, part of what it is selling is stable operating systems.  The instability of significant compensation system changes or new client acceptance procedures can destroy the benefit of an acquisition.  Plus, it opens the door for the acquired firm to open negotiations on everything the combined firm does.  Unless the internal problem is critical, acquirers avoid tinkering with systems during periods of significant acquisition.

5.  Managing cultural fringes.  Acquirers understand the impact that a deviant culture in an acquired firm can have on a larger firm.  At the median, most law firm cultures are very similar.  The differences come at the extremes, and in smaller firms cultures are often far less homogeneous than in larger firms.  Successful acquirers make a point of meeting every partner and the associates who are near partnership to understand what the cultural influence is likely to be.  The exodus of lawyers from a firm being acquired is not always as voluntary as those lawyers would have you believe.

6.  Start with relationships.  Law firms that are good at merging understand that, while the deal may be about numbers for the acquiring firm, the smaller firm is giving up its identify in a transaction that is irreversible.  This requires the development of a strong relationship early on.  In a merger of equals firms can start due diligence early in the discussions.  With acquisitions there must be some romance and a bit of courtship before the firms can get on with the details.

7.  The pre-mortem.  In mergers both sides deal with a vision of what they can create together.  Acquirers have to understand both the upside and the downside.  The most attractive pro formas can get slammed by mistakes in implementation and mistakes will happen.  Successful acquirers get their implementation team together and imagine what can go wrong in the process and preplan what they can do to fix it.

8.  Objective counsel.  Even an experienced acquirer can get too involved in a deal to look at it objectively.  Therefore, there should always be an objective party involved in finalizing the merger.  It can be a partner who was otherwise uninvolved in the discussion, a consultant or a retained outside legal counsel.  But last minute demands for “kickers” and other closing issues can’t be handled by the same people who did the “romancing.”

9.  Understand the brand.  We’ve all seen someone buy a successful restaurant and then change the menu and the décor.  Experienced acquirers precisely know their acquisition’s reputation.  If that reputation is of value to them, they don’t mess around with the features that constitute that brand, even if it results in a short term inconsistency within the overall firm.  On the other hand, if the acquisition doesn’t have a definitive brand, the acquirer will move quickly to brand it with their reputation.  This may sound like “marketing-speak” but early actions go a long way to determining whether an acquisition is known as “the Phoenix firm that was acquired by Smith & Jones,” or “Smith & Jones’s Phoenix office.”

10.  The golden rule.  Much of the above seems quite mercenary.  But, acquirers realize that, as of the effective date, the partners in the acquired firms are partners in the successor firm and will have to work together for many years into the future.  As the managing partner of a firm quite good at bringing in smaller firms said, “Remember the golden rule both ways: ‘do onto others as you would have them do onto you and ‘if I were them, what would I do to me’.”

The point of all this is that, while being the successor firm may seem more attractive than being acquired or participating in a merger of equals, the acquirer takes on a lot of responsibility and risk.  Sometimes dancing backwards isn’t all bad.