Case study: Expanding the global footprint

With some 70 per cent of its work cross-border and offices from Brussels to Beijing, top-30 UK firm Richards Butler has long held ambitions to extend its international presence even further. On 1 January 2007, the firm will merger with top-25 international firm Reed Smith to form a global legal powerhouse with around 1,400 lawyers.

By Michael Pollack, director of strategic planning, Reed Smith LLP, and Roger Parker, managing partner, Richards Butler LLP

Anyone surprised by the announcement of a merger between London-based Richards Butler and US-based Reed Smith in mid-June 2006, really shouldn’t have been.

Since 2001, Reed Smith has successfully completed seven mergers, including combining with London-based Warner Cranston in 2001. Given both firms’ abilities to achieve organic growth, as well as expanding their reach through mergers, affiliations and combinations nationally and internationally, joining forces to achieve a larger international footprint made all the sense in the world to both sets of partners. The merger also matched the footprints of both firms’ clients, who conduct their business in Europe, the US and the Middle East.

Reed Smith brought a top-25 international law firm with nearly 1100 lawyers to the table; Richards Butler delivered a top-30 UK and international law firm with more than 250 lawyers. What became one of the key industry mergers of 2006 also makes the combined firm one of the 20 largest international law firms in the world, with 20 offices around the globe, the largest of which will be London.

The writer Somerset Maugham observed that common sense and good nature do much to make life easier. In individual due diligence processes before the merger was submitted to a vote and finalised, the firms were found to have ample quantities of both; qualities that were repeatedly called on in tackling the challenges associated with merging the firms across markets, continents and clients. These included managing internal uncertainty; harmonising structures, and realigning leadership roles and responsibilities.

Internal uncertainty

When the merger was announced there is little doubt that the primary question on the minds of those affiliated with both firms in all capacities – from partners and associates to secretaries, librarians and clerks – was ‘What will life be like for me in a combined firm?’

The Reed Smith staff wondered what it would be like to have the largest office of the 129-year-old firm located outside the US. After all, this is a firm whose identity was forged in service to such captains of American industry as Carnegie, Frick, Mellon, Heinz and Westinghouse. And though Reed Smith had successfully completed other significant mergers in the recent past – including a high-profile 2001 combination with UK-based Warner Cranston in London and Birmingham and with Crosby Heafey Roach & May in California in 2003 – the firm’s largest office had always been located in Pittsburgh, where the firm was founded 129 years ago.

For their part, Richards Butler lawyers wondered what it would be like to be part of a large US firm and what the ramifications would be of having some of the key decision-makers in a geographically distant location.

As soon as the merger was approved, an eight-member ‘Integration Committee’ – made up of four people from Reed Smith and four from Richards Butler – began meeting every two weeks to develop broad strategies and policies to guide the process of combining. The committee has proved invaluable and many day-to-day tactical decisions are being made by the members. The director's role is to try and understand what those decisions are and make sure everyone is working in the same direction while providing leadership for the overall integration effort.

An effort was made to anticipate the many manifestations of internal uncertainty whenever possible; to answer questions honestly as they arise; and to share each decision broadly with any individual affected.

Collaboration on key concerns

Recognising an early concern about practice group structures, for example, key assignments were made early. This ensured that lawyers knew as soon as possible the group they would be part of and who their practice group leaders would be.

Once they were familiar with the new practice structure, that aspect of the future was no longer an uncertainty. The practice group leaders’ roles then became about participating in planning for their groups’ futures, transforming themselves into active, engaged participants with responsibility for making the merger a success.

The firms quickly progressed from practice group assignments to promoting the development of strategic plans for each joint planning session, as well as stimulating the development of social and personal relationships; physically bringing people together from both firms to foster collaboration. These relationships are the backbone of most successful law firms, including Reed Smith and Richards Butler.

Another joint task faced was about defining the promotion track for attorneys in the combined firm in London and how this would function in a merged operation. As the promotion tracks were rather different from each other, uncertainty about how they would be melded to create a single system was pervasive. There were even some rumours circulating that Richards Butler junior personnel would be frozen in their current positions and locked out of promotions for two years. As that was certainly not the plan, the misconception was dealt with quickly; associates being assured there was no such freeze being contemplated. At the same time, a common promotion system was developed, with both firms sharing the system’s features widely. Another key decision lay in the process of developing the scheme for distributing bonuses to associates across the firm in the merged environment, including deciding whether that distribution should be discretionary or non-discretionary.

Prioritising clients

The underlying rationale for the combination of firms was a need to align them as closely as possible with clients – not least by servicing their rapidly globalising operations – and keeping those clients informed about the merger process has also been a critical part of integration activities. It was an article of faith that clients were contacted by their relationship attorneys well in advance of market announcements, rather than being left to learn about the details of the merger from the press. In the week leading up to the announcement, for instance, both firms undertook an intensive programme of client briefings and written notifications – explaining the benefits of the combination to clients and addressing any concerns they may have harboured about the impact of
the changes.

Since the initial merger announcement we have deliberately refrained from bombarding clients with updates on the minutiae of operational integration. Regular internal integration bulletins keep all members of the firm fully inform1ed though, so information is readily available should clients request it.

Much of the pre-merger due diligence also examined how and where the combined firm could offer additional value to clients. As a result, clients are already exploiting the firm’s greater geographical scope, deeper industry sector experience and legal expertise in a range of complex cross-border matters by allocating assignments that neither firm would have received before the announcement of the merger.

Harmonising operations

As the combination originated as a merger of two law firms with highly compatible cultures, it was possible to move swiftly to achieving alignment at the operational level, where the focus was on more mundane but equally essential aspects such as physical space requirements, technological infrastructures, accounting approaches, staffing needs and human resource functions. The Integration Committee played a key role in harmonising operations at the same time as it accomplished the yeoman’s work of rapidly identifying the key differences between Richards Butler and Reed Smith and negotiating workable solutions.

For example, Richards Butler conducted its business on an accrual basis while Reed Smith used a cash basis. In the course of the merger discussions it was decided that the cash basis of accounting would be used for the combined firm. Structures and processes were also created in the integration phase, ensuring the transition could be a smooth one. Time was devoted to educating Richards Butler’s lawyers about the requirements of cash-based accounting, including re-focusing energy not only on getting an invoice out but also of getting it paid. The firm’s partners attended partnership meetings where financial information was reported and discussed to facilitate the changeover, and separate sessions on the accounting intricacies unique to cash accounting were provided. The Richards Butler partners also receive regular scheduled emails about cash accounting for as long as necessary.

Meetings of minds

These learning processes have not been a one-way street, however. Many personnel from both firms found themselves stretched to understand and appreciate the many similarities and differences. And even though all employees of both firms speak English, there were still subtle language differences to address. Reed Smith’s personnel, for example, were surprised to learn that referring to a London colleague as ‘quite a good lawyer’ has a rather different meaning on the other side of the Atlantic.

The personnel from both firms also took full advantage of access to the offerings of Reed Smith University (RSU), through which members at all levels have participated in collaborative, structured experiences to acquire the skills to sell one another’s services and take advantage of shared opportunities in all markets. Formal programming also extended to leadership training for the personnel at Richards Butler, some of whom will have leadership roles in the combined firm. These leaders participated in the RSU leadership school at the Wharton School of Business at the University of Pennsylvania, along with their similarly situated Reed Smith peers. Not only did this session provide high-level leadership training, but it gave Reed Smith and Richards Butler partners another opportunity to get to know each other in a relaxed and intellectually stimulating environment. In addition, partners at Richards Butler attended and made presentations at Reed Smith’s partner meetings well in advance of the actual combination.

There has also been considerable traffic between the firm’s many offices, supporting a number of opportunities for face-to-face meetings between personnel. We now see more and more alignment in the way both firms are run – and in the way we think and talk about our shared future. As we’ve had the benefit of more than six months to achieve the transition, 1 January 2007 now looms as something of a non-event. Of course, there will be the obligatory pomp and circumstance before we get back to the process of moving forwards and working to capitalise on efforts over the past half year.

Realigning leadership roles

As a veteran of many successful mergers in the recent past, Reed Smith was also well prepared to take the lead in developing new leadership structures that could take advantage of each firm’s demonstrated strengths. Within weeks of the June vote Michael Pollack moved to London to provide direction for merger preparations and the January launch, while Roger Parker joined the Reed Smith senior management team, shifting his attention to providing leadership for the European and Middle East operations of the merged firm in Munich, Paris, Birmingham, London, Piraeus, Abu Dhabi and Dubai. Other Richards Butler and Reed Smith personnel were immediately integrated into the roles of leadership and responsibility that will now shape the firm’s future.

Gregory Jordan will continue in his key role as firm-wide managing partner, while Tim Foster, the current managing partner of Reed Smith’s UK offices, will continue in that role, overseeing the expanded offices of Reed Smith Richards Butler in London and Birmingham. Paul Johnston, chairman of Richards Butler, will join Reed Smith’s Ian Fagelson as a European representative on the combined firm’s Executive Committee. As has often been the case with Reed Smith mergers, other key personnel will also move to the recently added offices to help achieve maximum integration.

Joint meetings were held in Paris and London – the two markets where both firms already had offices – in an effort to decide leadership arrangements that would afford the best competitive advantage moving forwards. One of these decisions was to create some transatlanticpractice groups, for example in financial services litigation, financial services and real estate and many others. The aim was to ensure sharing of responsibilities and a high level of integration among practices to take advantage of the many skills of attorneys in the combined firm.

A confident stance

On January 1 2007, the overall combined firm Reed Smith will have 1400 lawyers focused on the single goal of meeting all client needs. Confidence of success is so high that preparations have also begun for a planned merger with Chicago-based Sachnoff & Weaver in March 2007. The combination will also provide a presence in this key business hub in the Midwest and offices in 21 markets worldwide. In the legal services sector, that’s a strong hand.

Michael Pollack is director of strategic planning at Reed Smith LLP. He can be contacted at mvpollack@reedsmith.com. Roger Parker is managing partner of Richards Butler LLP. He can be contacted at rjp@richardsbutler.com.