De-Merger Can Induce Firm Demise
By Adam Radzik
Consultant to Professional Firms

It is quite common for merger negotiations to be drawn out and exhausting. Those who do forge ahead are convinced that there are special advantages to be gained, and some even believe that if it doesn’t work out, “We can always de-merge.” And de-mergers do occur more often than most professionals realize.

Why do de-mergers occur? Expectations were not met. Perceived promises were not fulfilled. Financial projections did not coincide with actual monetary realities. Partners felt as if they were not treated fairly or not treated with respect. Cultural differences became obstacles that could not be overcome. Communication was inadequate. Problems did not have a platform for resolution, or when they did, there was no resolution. To make things worse, when there was resolution, there was no implementation. Finally the level of unhappiness reaches a fever pitch, and upon their return to work on Monday morning, the merged firm finds themselves confronted with eighteen empty offices and a terse e-mail announcing the departure.

The potential impact on both firms can be mortal. Why?

1. Clients do not like to deal with attorneys who are squabbling. Clients believe, and rightly so, if you are fighting with your ex-partners, you are not paying 100% of your attention to the important work you are doing for your clients. Many clients begin to withdraw old matters and quietly give new matters to other law firms. The loss of business becomes a very serious matter.

2. Competitors of the beleaguered firm are quick to point out to potential clients that they certainly shouldn’t shift any of their work to the conflict-ridden firm, as “They are fighting like cats and dogs over there!”

3. While the battle rages, with dozens of hallway conversations centered on the conflict, the quality and speed of the work deteriorates. This causes a whole new set of problems.

4. The merged firm has the same rent and administrative expenses it had before but now is faced with an alarming loss of income.

5. The conflict and shock to everyone tends to create a sense of being overwhelmed, and very little actually gets done in any realm of firm life.

Having been involved in this field for over twenty-four years, I have seen the destruction that has resulted from the de-merger phenomenon. What is especially unfortunate is that a good number of them could have been avoided. What was missing in those situations?

Partners who participate in mergers were not always as forthcoming as they should have been in sharing their concerns with their new partners. Often, when they did share unhappiness with the other side, they perceived that the responses they received were totally inappropriate. The partners, who responded to the problems, believed that the concerns had been resolved and had no idea that their well-intentioned responses had actually created a tidal wave of resentment and hostility. What is the answer?

An outside consultant must be brought in who has the skill and experience to negotiate rationally with all the players. The consultant assists the parties to resolve conflicts, solve problems, improve the integration process and ultimately ensure that reasonable expectations are consistently met.

There are no human relationships that do not experience rough sailing. It is the job of the consultant to assist the firm in bringing the ship into calmer waters. It cannot always be accomplished, but as the price of failure is so expensive, it is an option that should always be considered.

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