Tag Archives: Fraser

ANOTHER BIG LAW FIRM COMBO?

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You might think that the leaders of SNR Denton would pause to take a breath after completing the firm’s March 2013 merger with Paris-based Salans and Canadian-based Fraser Milner Casgrain. But according to published reports, almost immediately after closing the Salans/FMC deal to become a 2,700-lawyer mega-verein, Dentons began discussions to add yet another contingent — McKenna Long & Aldridge and its more than 500 attorneys.

As I wrote almost a year ago, the leaders of what had been SNR Denton boasted that they had used no strategic legal consultants or advisers in the process that led to its French-Canadian three-way. But they did have “branding and advertising advisers” who recommended the entity’s new name, Dentons.

I don’t know if Dentons’ leadership is getting advice on its current potential merger, but if it goes through, the McKenna Long & Aldridge brand seems likely to disappear — as did Sonnenschein’s, Salans’, and Fraser Milner Casgrain’s. Then again, the Luce Forward Hamilton & Scripps brand disappeared after its 2012 merger with McKenna Long.

The venerable McKenna Long brand won’t be the only casualty. The combined firm would have two offices (each with a significant number of lawyers) in five cities: Washington, Los Angeles, San Francisco, New York, and Brussels. In touting the prospect of creating the world’s third’s largest law firm of more than 3,100 attorneys, no one is estimating the number of likely near-term departures.

Who is being served? Clients?

The rhetoric accompanying most big law firm combinations is usually the same. In response to inquiries about its discussions with McKenna Long, Dentons issued this statement: “Since creating Dentons earlier this year, we have been very clear in our determination to always deepen our capabilities to serve clients in the U.S. and around the world.”

But clients aren’t asking their outside law firms to join with other firms. In fact, most clients understand that no single firm (or collection of firms in a verein) could or should house every attorney most appropriate for their needs throughout the country, much less the world.

Who is being served? Partners of the merging firms?

Perhaps the prospect of financial gain for individual partners underlies the Dentons/McKenna Long discussions. For the Dentons partners who haven’t yet lived through a full year since the Salans/FMC combination, that suggestion seems like a triumph of hope over what is, at best, profound uncertainty.

Maybe the myth that economies of scale accompany the growth of law firms is driving this deal and others that have preceded it recently. But according to law firm management consultants Altman Weil, getting bigger doesn’t make law firms more efficient. It usually works the other way.

On the McKenna Long side, the financial motivation is even less evident. According to the 2013 Am Law rankings, the firm had 2012 average partner profits greater than SNR Denton’s ($930,000 for McKenna Long v. $785,000 for SNR Denton prior to the Salans/FMC merger), along with a better profit margin (26 percent v. 22 percent).

Maybe McKenna Long partners are relying on the verein structure of the combination to preserve their relatively superior economic position. After all, individual firms in a verein retain their financial independence. But as Edwin B. Reeser and Martin J. Foley suggest in their recent article on undisclosed fee-sharing agreements, that structure could also be creating thorny ethical complications when client referrals across member firms within a verein become factors in compensating partners.

Who is being served? Empire builders

For many big firm leaders, growth has become a stand-alone strategic objective. How many of them remember Steven Kumble’s similar view?

Kumble presided over an explosive expansion that, by 1986, made Finley Kumble the second largest firm in the world. As Kumble erected his firm’s global platform from 1977 to 1986, a fellow partner asked him why his goal wasn’t to create the best firm, rather than the biggest one.

Kumble replied, “When you’re the biggest, everyone will think we’re the best.”

He was wrong. As Finley Kumble became one of the biggest firms, no one ever thought it was the best. Through acquisitions of other firms and aggressive lateral hiring of rainmaker partners, Kumble promoted a culture in which money became the glue that held things together — until it didn’t.

In December 1987, Finley Kumble dissolved and its brand became a symbol of monumental law firm failure.

A BIG LAW FIRM THREE-WAY

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With Hurricane Sandy and the election dominating last week’s headlines, news of another blockbuster merger didn’t receive the attention that it deserved. Later this month, the combination of SNR Denton, the Canadian firm (Fraser, Milner & Casgrain – FMC), and Paris-based Salans will create a 2,500-attorney enterprise known as Dentons, assuming their respective partners approve the merger. The transaction merits a closer look.

Not so long ago

Twenty years ago, Elliott Portnoy graduated from Harvard Law School. In 2002, he joined Sonnenschein, Nath & Rosenthal. Prior to that, he’d headed the public policy group of Arent Fox, an Am Law 200 firm, in Washington, D.C.

In June 2006, at age 40, Portnoy became the youngest chairman in Sonnenschein’s history. At the same time, the firm released a new strategic plan whereby it would increase average equity partner profits from $800,000 to $1.4 million by 2008. That didn’t happen.

In 2007, Sonnenschein had 600 lawyers and average partner profits of $915,000, but since then it hasn’t seen profits numbers that high. Central components of its strategy have been the aggressive recruitment of lateral partners and the pruning away of others. In early 2008, 37 lawyers and 87 non-attorney employees received their walking papers. By year-end, average partner profits had dropped to $805,000. Of course, the onset of the Great Recession contributed to that decline, but many other firms weathered the storm with much less damage.

Time to merge

The 2008 drop in average partner profits didn’t seem to affect Sonnenschein’s strategic plan. Aggressive lateral hiring continued, including 100 lawyers from failing Thacher, Proffitt & Wood in December 2008. Average partner profits kept dropping — to $780,000 in 2009. The following year, 2010, brought the ultimate lateral hiring event: Sonnenschein’s merger with U.K.-based Denton, Wilde & Sapte to create a 1,200-lawyer firm.

As a Swiss verein, the two firms retained their independent financial status. But according to the Am Law Global 100, SNR Denton’s first full year as a combined entity produced overall average partner profits of $700,000 in 2011. The former Sonnenschein side of the firm reported $880,000 in average partner profits, so Portnoy heralded the merger a success and “not a destination, but a part of the journey.”

The journey continues

In 2011, SNR Denton was one of several firms exploring merger possibilities with Dewey & LeBoeuf as it careened toward disaster. According to the Wall Street Journal, Sonnenschein’s leadership had named its proposed deal “A Phoenix Rises from the Ashes” and contemplated a full-scale merger that combined all 1,000 Dewey & LeBoeuf attorneys with SNR Denton. Borrowed money would have financed the transaction — a tactic apparently drawn from the big law firm “lessons not learned” list.

Unexpected bad news may have saved SNR Denton from itself. According to the Journal, the deal was gaining momentum when it cratered after Dewey’s revelation that Manhattan district attorney Cyrus Vance, Jr. had opened a criminal investigation into Dewey.

Doubling down on a dubious approach

The journey has now led to the proposed combination of SNR Denton, FMC, and Salans. If consummated, the merger would double the size of the current SNR Denton. If the transaction goes through, what results won’t be a partnership. Whether it would become a profitable business venture for the participants is an open question.

To help answer that question, SNR Denton’s management got limited outside help. According to Portnoy and SNR Denton’s global chairman Joseph Andrew, “branding and advertising advisers” recommended a single-name moniker, Dentons. (Do they know that Dr. Dentons are children’s pajamas with feet?) But Andrew also noted that the firm used no strategic legal consultants or advisers in its process.

I don’t know if the other firms had advisers. Nor do I know if Salans had advisers in 1998, when it blazed a trail by becoming the first major law firm to complete a transatlantic merger, acquiring Christy & Viener. But that transaction didn’t turn out very well.

Maybe this time will be different. For the sake of many fine lawyers and even greater numbers of staff who are relying on management to chart a wise course for three law firms, let’s hope so. Among the most important lessons of Dewey & LeBoeuf are these: the margin for leadership error is slim and the consequences of missteps can be catastrophic.