In-depth: re-merger of law firms, or: from the umbrella brand to truly integrated law firms

Change experience in law firms

Traditional law firms, organised in partnership, always organise themselves at minimum cost. This is why they are so profitable, unlike other professions. This went well as long as the competition did not behave differently.

In the German market of commercial law firms, a completely different approach has been taken with the emergence of Anglo-Saxon law firms: targeted investments are being made in order to get a better starting position in competition. This becomes clear, among other things, when recruiting lateral entrants to the partnership: while traditional law firms focus on random access and use informal networks to approach potential partners in other law firms in order to round off their portfolio of services, Anglo-Saxon law firms take a targeted approach and invest money in recruitment, including in recruitment agencies. This usually costs 25-30% of a partner’s annual salary, i.e. usually almost the full profit that a partner earns in the first year. It is only a logical consequence to agree on a corresponding business plan, to check the references given and the “portable business” associated with them, and to consistently evaluate and classify them in the profit distribution system.

All of this has led to Anglo-Saxon law firms often being able to fill positions, win mandates and remove competencies more quickly. And speed is not an irrelevant factor in competition. Now, with Legal Tech, new competitors and service providers are entering the law firm market, and once again it is a question of investment behaviour and willingness to invest.

Traditional law firms in Germany (unlike in Austria, for example, or to some extent in Switzerland), on the other hand, have preferred to agree on an umbrella brand under which the old law firms have then gathered, often with only very weak management and sometimes even without a joint profit distribution system (after all, 6 of the national law firms are structured in this way, and 7 of the international law firms are among the top 100 law firms according to . These groups of law firms, or alliances, are called indiscriminately with the other firms in the market, but due to the lack of internal integration, their capacity to act is limited, access to resources for the individual partner outside his or her home firm is usually difficult, and investment reporting is low, as they judge all home firms on the basis of the pattern: what is in it for us, rather than: how can we become stronger together? They only keep fewer partners in the group segment thanks to excellent individual services (see study… Link to benchmark), serve local or regional clients, and experience neither the advantages of size (competencies, capacity) nor the relief that proper firm management can provide. Above all, however, the partners settle in their comfort zone, and the profitability of the individual law firms of origin remains too low, or even drifts even further apart, so that conflicts of interest are inevitable.

All this has to do with the understanding of cooperation that is cultivated in German law firms, which (unlike Switzerland or Norway, for example) has a fundamental aversion to management structures. Since legal education does not promote management skills either, too often partners are appointed to management who have not mastered the tools of the trade, which is leadership.

Now, for a few years now, this dilemma has become increasingly aware, especially since the market no longer tolerates these constructs either, and the ongoing improvisation of the partners costs too much time and nerves that management could save them. Whether lawyers or auditors, national or international law firms, the ability to act and invest quickly and decisively in a competitive environment is becoming increasingly important.

But change is much more difficult and requires a completely different process than is the case before a merger. When law firms enter into cooperation, classical negotiation becomes possible, with a clear process of breaking off if the interests of the parties are not taken into account. After many years of cooperation under a common brand umbrella, relationship patterns have developed which are useful to individual partners across the original law firms. The simple separation between us and them is no longer possible, so there are no longer any clear lines of negotiation. The negotiating mass has become much more complex, and simple coordination in the law firms of origin is no longer secure.  There are also many who are reluctant to pursue the quest for greater unity, either because they know that their business case is not enough or because they do not want to miss the comfort of a small unit where their vote counts more than in the larger group.

Thus, these law firms (in the segment of the 50 largest law firms by turnover in Germany alone, we count x) face a dilemma: as partnerships, they have no means of asserting themselves against the partners, and at the same time there is pressure to act.

This is where our consulting methodology comes into play: with the “Real Time Change approach,” we succeed in redefining the consensus of the partners in each workshop and adopting completely new perspectives. Based on the insight that those affected must be made participants in the change, and with our tools from systemic consulting, we help partnerships to rediscover themselves and to see the opportunities of change positively, instead of just looking at the risks.

Thus we have

  • Supporting a large auditing company in its reorientation after connection to an international network
  • Helped a law firm reflect on the decision-making process and understand how to reorganize itself
  • Helped an accounting firm that had been working under one roof for 10 years to rethink its firm and discover the potential for cooperation, including the introduction of a management board and thus rules of procedure
  • Helped national law firms to change their internal corporate culture so that the organisation could be managed in terms of HR, IT and profitability.

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