Originally Published in Law360 | February 19, 2016 | By Paul Mandell
Mergers and acquisitions have yielded more frequent headlines recently than in years past. All of this deal activity provides an opportunity for companies to pursue their objectives more efficiently and generate a greater return for investors. However, integrating separate businesses is no easy task. And unfortunately, bumpy combinations of separate legal departments can have severe consequences on the successor company that can erode some of the anticipated benefits of a deal.
Among the biggest risks in any merger is poor cultural integration of the two companies’ teams. Poor legal department integration can occur when the different teams enter the transaction with disparate corporate visions, different leadership structures and varying priorities. As such, legal department leadership must take action before, during and after such transactions to ensure a positive outcome.
Fortunately, there are several steps that corporate legal executives can take to ensure a successful post-merger departmental culture. Here are four key strategies for in-house legal executives to ensure a productive post-transaction legal department environment:
1. Smooth out company positions, strategies and culture early.
Perhaps the most important short-term precaution to take in merging legal departments is mitigating inconsistency in the new company’s legal positions and overall strategy. The combined legal department should work quickly to understand in particular the arguments that both sides have made in various legal proceedings and work to avoid conflicts that could weaken the company’s legal efforts in the future.
Cultural integration should also be explored as soon as transaction negotiations begin. If anticipating a deal, general counsel of each of the merging entities should dedicate a team to researching and understanding the cultural differences between the two teams. Once the distinctions are clear, the in-house law department leadership should develop action plans that will smooth cultural integration between the two firms. In some instances, informing employees of a transaction early can help create an expectation of change, which typically makes integration easier. Working to bridge the cultural divide early will likely save the expanded company team from headaches in the future.
2. Create a new shared mission.
The combination of two legal departments can mean a significant change in the mission of the successor legal department. Legal executives may only see themselves as responsible for the paperwork governing the acquisition, but you should be front and center in defining and potentially spurring change in the legal department mission. Just be sure to receive input from all parties involved, new and old. Then, once you have received the input, take the time to ensure that the new team is fully informed and on board with this mission.
Be sure not to wait too long to examine or redefine the mission. Pursuing such an effort after the fact can exhaust both patience and corporate finances. Instead, give critical thought to the mission of this new legal department early to minimize post-acquisition culture issues. Doing so will improve the odds of a cohesive new legal department.
3. Encourage integration with training and group activities.
Executives can benefit from establishing a single corporate vision that includes ideals from both companies. It is equally important to educate the staff in both companies on the roles of their counterparts, allowing them to understand the function and value of each other in advance. In order to educate staff, consider training activities that permit participants to come up with their own ideas on how best they can work with their new employees. Retreats and other active integration measures can allow each side to get to know the other on a friendly basis first, resulting in easier professional integration. Perhaps most importantly, executives should seek to involve staff in designing this process, which will inevitably increase staff buy-in on integration efforts. Unfortunately, a lack of staff buy-in can make post-deal integration much more difficult, if not impossible.
4. Use metrics to evaluate the merger.
Once the merger is finalized and the two groups become one, it is important to use metrics to evaluate the success of cultural integration. Measuring the activities and perceptions of your team before and after the merger will allow you to know if your integration efforts worked.
One measure of legal department merger success is the minimization of duplication of work. When bringing together legal teams, there is plenty of risk of duplicative efforts — either by outside counsel or the in-house attorneys — on matters ranging from the drafting of briefs to document review. General counsel must work to avoid duplication of effort to ensure efficiency in this new legal team.
Other metrics of merger success include productivity and happiness of staff, volume of interaction among the teams, and impact on profitability. If these results are less than encouraging, identify the problems and make the necessary changes to get the integration on track. If results are positive, consider ways to continue building upon your momentum through additional training and activities. In addition, after the dust has settled, measure the new financials and determine how they compare to pre-deal data. If profitability has suffered, take a close look at whether cultural issues may be to blame, and if so, consider redoubling your efforts to bring the teams together.
The increasing volume of mergers and acquisitions offers great opportunity to companies in many different industries. However, great opportunity often includes navigating a certain degree of risk. And in the context of post-deal law department integration, risk abounds.
Fortunately, in-house legal departments can take a proactive approach to ensure that the resulting post-merger culture yields future success. Such steps include prioritizing cultural integration early, creating and communicating a new shared mission, fostering positive integration through education and group activities, and evaluating the success of such efforts.
By adopting these key strategies, corporate legal executives can help create the best possible post-merger departmental culture. And a strong departmental culture that is fully aligned and operating with consistent objectives and focus will be best positioned to provide strong support for achieving overall organizational goals and objectives.
—By Paul Mandell, Consero Group LLC
Paul Mandell is a founder and the chief executive officer of Consero Group, which specializes in organizing events for senior executives in the legal industry. He has practiced law at Arnold & Porter LLP and Sullivan & Cromwell LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
All Content © 2003-2016, Portfolio Media, Inc.