Five Keys to an Effective Law Firm Divorce - Being Smart When the Thrill is Gone

by Hayse LLC
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“A discord of personalities” sometimes describes the genesis for marital divorce.  It also can be an apt way to explain law firm break-ups when partners decide to go their separate ways.  Although law firm break-ups happen regularly, the low level of publicity surrounding most can be due to partners acting rationally even though they can’t continue together any longer.  Quiet separations and wind-downs occur when the splitting of the sheets is unemotional and professionally executed.  Publicized break-ups, with all their ugliness, arise when emotion and shortsightedness mix together to fuel what becomes an explosive process.

Successful break-ups (perhaps an oxymoron) universally share common strains.  They come about because tenets that auger in favor of conciliation and dispatch are followed.  Although the disappointment that leads to the break-up may make following these principles unnatural, adherence to them keeps unproductive behavior and tendencies to a minimum.

Historically, smoothly executed law firm wind-downs have five things in common.  These common traits are instructive to law firm leaders facing a law firm divorce.  In learning from what others have done, any law firm leader staring at law firm divorce would be wise to encourage the firm’s owners to act in the five following ways:

Agree on a Neutral Expert to Navigate the Course.  Winding down a firm is neither intuitive nor easy.  It is best accomplished if it is managed by an independent professional that has wound down law firms before.  An independent and dispassionate professional that has no agenda other than efficiently wrapping up the firm’s affairs serves all owners well. While some owners may argue for cost savings from a “Do it Yourself” approach, in-house people tasked with the DIY effort frequently have non-neutral agendas, are perceived to be non-neutral, and otherwise lack the trust of all owners.  A neutral expert can move the firm to a fruitful conclusion even while disputes between partners’ percolate and need to be resolved.

Retain Experienced Advisors.  Many law firm divorces involve anger, distrust or disappointment.  Diffusing that volatile mix is critical. Step one is to tamp down the emotions by getting the owners off the front lines.  Each identifiably different owner interest should retain an experienced representative that understands the vagaries of law firm liquidations and that has a track record of being solution oriented and collaborative.  While there is nothing to prevent the disparate interests from retaining as their representatives’ litigators quick to drop the cudgel, going that direction is neither smart nor cheap.  And as experience has shown, it seldom is quick.

Think About the Future as You Settle the Past.  If a law firm’s past was so great, there wouldn’t be any sentiment to shutter the firm.  Indeed, the decision to break up a law firm is driven by a view that a different future is better than the status quo.  If the past is not worth continuing, the future should be the focus on virtually all levels.  While every law firm wind-down necessarily involves a settling of accounts, the objective should be to settle quickly.  Rather than dwelling on past misdeeds and transgressions, the owners should wrap up the old firm expeditiously and economically.  In a world in which the maxim “time is money” encourages people to move smartly to the next goal, moving to the new day of a new firm allows the future to be realized.

Think About the Children.  Like matrimonial divorce, in law firm divorce peoples’ lives are impacted.  Taking care of the associates, contract attorneys and staff not only is the right thing to do but because non-owner cooperation is needed in wind-down, it also tends to make the process smoother.  An honorable end to the firm which fairly addresses severance, benefits, and outplacement tends to pay dividends over a long period of time.  In contrast, harsh or uncaring treatment to the non-owners is not only unfair, but can interminably impact owner reputations and pocket books.

Communicate (Talk it Out).  Like so many aspects of law firm transition, a clear and constant flow of communication serves a divorcing law firm well.  Advisors need to communicate with owners, owners need to communicate with each other, and non-owners need to be kept apprised until their interests are addressed.  In addition, as the wind-down progresses, clients, third-party vendors, banks and contract counter-parties (including landlords) must hear about and be engaged in the wind-down.  In law firm wind-down, silence is not golden.  Rather, it can become the spark that ignites an explosion.

When the thrill is gone, and a law firm calls it a day, risk to the firm’s owners can depend on their approach to winding-down their firm.  Would your firm and its owners be willing to do these five things that reduce their risk and make dissolution smooth?

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Hayse LLC
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