A marriage between accounting and
law - what we should know about their
fling in the past.
A Masters thesis by Willemijn van Bekkum (10475273) Amsterdam School of Business
Supervisor: Mr. Dr. M.J.O.M. de Haas
Preface
This thesis focuses on the key success and failure factors for multidisciplinary practices in large accounting firms. When I chose this subject I was working as an HR advisor in the international law firm. I had just finished reading “Tomorrow’s lawyers” by Richard Susskind and was particularly intrigued by his predictions about the changes in the legal market and I read into the threats to the legal market some more. After speaking to connoisseurs in the market, one specific threat kept coming up: the fact that some of the “Big-Four” firms were setting up or expanding legal teams. These legal teams were expected to take over an important part of the work currently given to law firms. When I spoke to the partners in my firm, most of them seemed to have quite a different view. They stated that a certain type of work would always be done by lawyers in law firms and couldn't be done by any one else, and if it could be done, the clients wouldn’t want that.
Around the turn of the century, the five largest accounting firms also set up legal branches to expand their multidisciplinary practices, but few still exist. Through studying the success and failure factors for the developments in those days, I hoped to gain better understanding of the factors that caused these initiatives to end. I believe that from the findings in this paper it is possible to gain insight in the success and failure factors for the multidisciplinary practices between 1996-2005.
Along this thesis process I have often said to feel like a “fish in a tree”, referring to Einstein’s famous quote. I could not have finished without the help and support I received during this process. And I am truly grateful for that.
First of all I would like to thank my supervisor Maarten de Haas for his continuous support in my work, his genuine interest in the subject and his network that he opened to me without
hesitation. Secondly I would like to thank the fifteen professionals, who I interviewed for this paper, for their time and openness about their personal experiences and their vision.
And a special thanks to: Mirte van den Berge, whose exceptional brain helped me sort my thoughts throughout the writing process; Magdalena de Zeeuw, for all of her help; Merle van Riessen as a partner in crime and inspiration; Sweder de Bruijn, who supported me when I didn’t know how to continue; and everyone who I’ve neglected in the last months (especially my mom) for their understanding. Finally I would like to thank Arjen, Josefien and the other kind staff at the Stadskantine for their great lattes and food.
Content
Preface ... 2 Content ... 4 Abstract ... 7 1. Introduction ... 9 2. Theoretical Background ... 132.1 Professional Services Firm ... 13
2.2 Introduction to archetypes ... 13
2.2.1 Professional Partnership ... 14
2.2.2 Managed Professional Business ... 15
2.3 Diversification ... 17
2.3.1 Goals for diversification ... 18
2.3.2 Ways of diversification ... 18
2.4 Success and failure factors ... 18
2.4.1 Organizational fit ... 19
2.4.2 Human integration ... 20
2.4.3 External factors ... 23
2.5 Factors relevant for the cases ... 23
3. Propositions ... 25
4. Methods ... 26
4.1 Research context ... 26
4.2 Dutch market trends for multidisciplinary practices ... 27
4.2.1 Andersen/Wouters ... 27
4.2.2 Deloitte/AKD ... 28
4.2.3 EY/HVG transaction advisors ... 28
4.2.5 PwC/Landwell ... 30
4.3 Interviews ... 31
4.4 Analysis of the interviews ... 33
5. Results ... 36
5.1 Cross firm findings ... 36
5.1.1 Organizational fit ... 36
5.1.2 Human integration ... 41
5.1.2.1 Reasons why individuals left ... 42
5.1.2.2 Personal relations ... 42
5.1.2.3 Willingness to integrate & attitude ... 42
5.1.2.4 Visible leadership and communication ... 45
5.1.2.5 Shared motivation ... 46
5.1.2.6 Timing ... 47
5.1.2.7 Other findings ... 47
5.1.3 External factors ... 49
5.2 Success factors ... 50
5.3 Success factors for allying and separated firms ... 50
5.3.1 Human integration ... 51 6. Discussion ... 55 6.1 Organizational fit ... 55 6.2 Human integration ... 55 6.3 Additional results ... 58 6.4 External factors ... 58 6.5 Conclusion ... 60 6.6 Management recommendations ... 61 6.7 Theoretical implications ... 62
References ... 66
Appendix 1 – Interview guideline ... 71
Appendix 2 - Coding scheme – cross-firm findings ... 72
Appendix 3 - Coding scheme – findings separated vs. allying firms ... 75
Abstract
Between 1996-2005 the Big-Fiveadded legal service to their multidisciplinary practices. Each Big-Five firm set up its legal practice in its own way, either through a merger or an alliance with an existing law firm or through organizational growth. This research describes the success and failure factors for integrating legal services into a multidisciplinary practice.
When expanding a firm, the organizational fit between the expanding firm and the merging or allying firm generally increases the chances of success. Law firms and Big-Five firms are considered to have different organizational archetypes. Therefore the organizational fit between the two types of firms is limited. When there is limited organizational fit, factors such as the willingness to integrate, a shared motivation, monetary incentives and leadership play an important role in order to realize integration or at least work referral between different practices.
In the cases in this research the primary motivations for law firms and Big-Five firms to form an alliance differed to some extent. The Big-Five primarily expected the alliance to provide better client service and law firms primarily expected that the alliance would expand their client base and only secondary they mentioned better client service.
The following factors were mentioned to benefit multidisciplinary practices 1) having a strong firm culture, clear goals and a solid integration program, 2) financial incentives and 3) attracting professionals early in their career. The most important factor for failure was found to be professionals holding on to their old firm’s culture and not having the right attitude towards the other disciplines of the firm.
Additional generic success factors for professionals in the firms to work together and refer work to each other were: personal relations and trust about the quality of work in the other disciplines. The most important generic factor for failure was insufficiently managed expectations with regard to both the type of work and the ratio of referred work versus the work from a law firm’s own practice.
On top of these internal factors for failure and success, the external factors of Sarbanes Oxley and the Dutch Bar Association regulations played an important role in the outcome of the alliances. Because of these the Big-Five went back to focus on their core business of auditing. The conflict checks as a result of Sarbanes Oxley limited the opportunities for lawyers to work for clients referred by the Big-Five and in some cases even reduced their existing client base.
The conclusions lead to potential contributions to literature, however these should be seen in respect to the inherent limitations of this research.
1.
Introduction
“Disruption of the legal profession is inevitable” - Henk Volberda, Professor Strategic Management RSM
The legal market is constantly changing. Although the legal profession in itself is traditional and conservative, external trends influence its development constantly. Following popular publications such as “Tomorrows Layer” by Susskind (2013) and in the press, I studied the current trends in the legal markets and their potential threats to large commercial law firms. The following trends are frequently observed to influence the international/global legal market:
• Clients have more extensive in-house legal council departments; • Niche players can offer similar advice at lower prices (specialization);
• IT systems can replace some of the work done by junior lawyers today (digitalization); • Multidisciplinary practices in accounting firms are attracting lawyers to provide legal
advice on transactions (diversification)1.
The potential success of multidisciplinary practices triggers very different responses and is a popular topic in the legal professional press. I chose this trend as subject of my thesis study. Studying multidisciplinary practices provides for an interesting case from an academic point of view, in particular because the current trend of attraction of lawyers in Big-Five firms, shows parallels with the development of accounting firms merging with law firms between 1996 and 2005 albeit in a different form. In those years Andersen, Deloitte, Ernst & Young, PricewaterhouseCoopers and KMPG2 (further referred to as the “Big-Five”) expanded their business by adding legal advice to their services, each in their own way, creating
1
https://www.rabobankcijfersentrends.nl/index.cfm?action=print.printPdf&id=402f6b04-6845-4106-8856-595b335a6799
multidisciplinary practices. In most of the Big-Five the legal services were discontinued before 2005. This discontinuation was assumed to be caused by external, mainly regulatory, factors. This may be the reason that there is no specific research about the internal success and failure factors for these multidisciplinary practices. In my study I will try to find out what these factors are.
In the middle of the 90’s, the legal market showed two important trends that impacted the way law firms and the Big-Five were organized: 1) Diversification and 2) Globalization (Beaverstock et al., 1999; Flood, 1996; Empson, 2000).
Diversification is the process of expanding business by enlarging the knowledge array and broadening the client market (Gardner, Anand and Morris, 2008). Between 1996 and 2005 diversification was mainly practiced by accounting firms, amongst which the Big-Five, as they were looking to expand their business through multidisciplinary practices by providing advice on IT, HR, legal and strategic issues. Their goal was to become a ‘one-stop-shop’. This trend was global and all over the world accounting firms were looking to expand their business by hiring legal staff or by merging with law firms (Batenburg & Groenewegen, 2001).
Globalization is the process of increasing the levels of international activity both in the sense of the activity in different countries and of the interaction between offices in those countries (Perraton, 1997). This meant merging internationally, working more internationally and opening new offices all over the world. While the Big-Five firms had completed their globalization process in the late ’80’s and early ‘90’s (Empson, 2000), law firms were newcomers to the globalization trend. Between 1999 and 2001 globalization led UK and US law firms to enter the Dutch legal market either through merging with existing firms with a similar scope of work or by opening local offices through attracting partners from other firms who specialized in a similar type of work.
The changes in the legal market that resulted from these developments left Dutch law firms with four options: 1) merge with an international law firm; 2) merge with one of the Big-Five firms; 3) merge with other (large) Dutch law firm; or 4) stay local and serve regional clients. Larger Dutch firms that didn't merge with the UK and US law firms, merged with each other in order to compete with the new entrants in the market. The firms that neither merged with UK and US law firms, nor with another big law firm had either to accept the risk of losing bigger clients, or merge with accounting firms.
This paper focuses on the crossroad where these two trends meet: at the beginning of this century the Big-Five expanded their multidisciplinary practices by merging or allying with mid-market law firms or by attracting individual lawyers.
From the start the Dutch Bar Association (Nederlandse Orde van Advocaten) was strongly against these alliances and restricted profit sharing between lawyers and accountants. The Big-Five did not believe this restriction was going to last and Pricewaterhouse and Andersen fought it in court. They eventually lost in the European Court of Justice.
In 2002 Enron went bankrupt. This was seen as a direct result of the multidisciplinary practices of law and accounting.3 Enron’s bankruptcy led to the Sarbanes Oxley Act of 2002 in the United States and set new standards and regulations for all US accounting firms. Because of these new regulations accounting firms were (among others) no longer allowed to advice a company on matters that could influence its annual accounts when (a part of) the company was also audited by the same accounting firm. These developments changed the (international) perception on multidisciplinary practices and the American branches of the Big-Five urged the
international offices to discontinue the legal and consultancy services. The firms that stayed together after 2002 had to comply with strict conflict checks: a firm was not allowed to provide advice to a client that was also audited by the firm, when the client was a public interest entity. Firms that worked together could get a no action letter from the SEC (the American Security and Exchange Committee) to confirm that they were not related.
Although much is written about multidisciplinary practices in professional services firms (further referred to as PSFs)(Empson, 2000; Cooper, Hinings, Greenwood & Brown, 1996; Hitt, Bierman, Shimizu & Kochhar, 2001; Smith, 2002), I was not able to find a specific study addressing the key factors for success and failure of integrating law in multidisciplinary practices of Big-Five firms. With this research I would like to address key success and failure factors relevant for expanding a multidisciplinary practice with lawyers through studying the course of events in the Big-Five between 1996-2005 in the Netherlands.
In order to address the key success and failure factors, it is important to determine what is already known about multidisciplinary practices in PSF’s, how they are established and what generic factors play a role in the establishment process. In chapter 2, I will describe the theoretical framework of this study. I will start with setting out the literature about PSF’s in general. I will describe the organizational archetypes to explain potentially relevant organizational elements. I will focus on diversification, mergers and alliances in general; subsequently I will focus on these subjects in accounting firms and law firms to formulate my research question. In chapter 4, I will set out my research method and elaborate on the particular cases of each Big-Five firm and each of their solution for diversification. In the results and discussion chapters I will discuss my results and connect them with the theory and I will provide some management recommendations for Big-Five firms and I finish with setting out the limitations of this research and making suggestions for further research.
2.
Theoretical Background
In this chapter I begin with providing an overview of the existing literature about PSFs, the two organizational archetypes for PSFs that are distinguished in the academic literature, and ways of diversification for PSFs. Subsequently I will outline the success and failure factors for diversification. I will explicitly explain which success and failure factors are relevant for PSFs and which I expect to be relevant for the cases at hand.
2.1 Professional Services Firm
Big-Five firms as well as law firms are considered to be PSFs. A PSF can be described as a firm in which professionals apply abstract and complex knowledge to specific client questions resulting in customized solutions (Abbott, 1988; Greenwood & Suddaby, 2006). Generic characteristics for a PSF are 1) knowledge intensity, 2) low capital intensity and 3) professionalized work force (Zardkoohi et al, 2011). In PSFs knowledge and client relations are the most valuable assets (Empson, 2000). Although Big-Five firms and law firms are both PSFs, their managerial structures may differ substantially. These differences are related to the various strategies, structures and values that have been identified as elements of archetypes of PSFs.
If the professional workforce in a PSF only consists of one discipline, the workforce is likely to be homogeneous because only professionals can join the partnership and partners have the tendency to appoint other partners with similar training and values that are socialized into relative conformist behavior. When a PSF is more diversified, the workforce tends to be more heterogeneous because of the variation of its disciplines, trainings and backgrounds (Greenwood & Empson, 2003).
2.2 Introduction to archetypes
Sociologists defined organizational archetypes for the first time in the ‘60’s (Brock, Leblebici & Muzio, 2014). Blau & Scott (1962) described the need for professional organizations to be
bureaucratically organized. Mintzberg (1979) later defined the professional bureaucracy. The professional bureaucracy can be defined as an organization in a stable and complex environment, run by highly specialized professionals, in which power is decentralized horizontally. The decision-making power in professional bureaucracies lies with the operating professionals. As professionals tend to work independently, the professional bureaucracy does not know much (or any) line management and very little regulation (Mintzberg, 1979). In the early ‘90’s theories for organizational archetypes were developed specifically focusing on the types of PSFs discussed in this paper: law firms and accounting firms. The first type that was identified was the Professional Partnership configuration (further referred to as “P2”), followed by the Managed Professional Business (further referred to as “ MPB”).
2.2.1 Professional Partnership
Greenwood, Hinings and Brown (1990) developed the definition of the P2 when studying large accounting firms, based on the firms’ strategic, financial and operational control.
Just like all PSFs, P2s focus on ownership, professional knowledge and on applying expertise to complex problems. The most important values are autonomy, democracy and collegiality. Autonomy is the individual voice of partners and senior associates and implies a minimal level of hierarchy; democracy is the decentralized way of decision-making and collegiality is the ability of partners to work well together in an informal and consensus finding fashion (Cooper, Hinings & Greenwood, 1996).
Because of the democratic value all partners in the partnership are involved in decision-making. Therefore the operational control in a P2 lies with the partner group as a whole. P2s specialize in custom-tailored advice to serve clients’ needs, which requires a direct and discreet relationship with clients. The focus on marketing, performance management and planning is minimal in P2 type organizations (Cooper et al, 1996).
The P2s’ financial control system is based on specific targets. Compensation is based on equal sharing and partner seniority; rewards do not depend on other performances such as marketing or pro-bono work (Cooper et al, 1996).
The management of the P2 is commonly assigned to a managing partner or to a board of partners, who are appointed as coordinators among equals. Partners’ external reputation is based on what their competitors think, rather than what their clients think. Internally performance is managed through peer control. The democratic nature gives each partner great autonomy in the organization. Together with the way performance is managed, the high level of autonomy makes it difficult to control the individuals in the firm. This results in a high tolerance of low performance and limited accountability. Firms that focus on consensus building frequently also have a more short-term vision and short-term focus on strategy (Cooper et al, 1996).
P2s tend to work with up-or-out promotion: employees are promoted up the chain, until promotion is no longer possible. This means they will eventually be either promoted to partner or they will have to leave (Galanter & Palay, 1993; De Haas, 2013).
2.2.2 Managed Professional Business
Due to globalization, new policies and technological innovations, firms started to focus more on objective business metrics, performance management, efficiency and clients (Teece, 2003; Brock et al, 2014). As a result new corporate and managerial modes of operation emerged which lead to a second archetype for PSFs: the MPB (Greenwood & Hinings, 1993; Cooper et al, 1996). The MPB is predominantly used for commoditized types of services (Greenwood & Empson, 2003) and MPBs think of the client as someone who wants demonstrable value for money and takes (legal) expertise for granted (Cooper et al, 1996). Therefore partners in MPBs take pride in responsiveness towards clients and they provide business-like value-added client service. Partners are typically team-players with trust in the central marketing and growth
strategy. The focus on marketing, performance management and planning is typically stronger in MPB type organizations (Cooper et al, 1996). The type of work in an MPB is sometimes described as more commodity type (Empson, 2007).
The MPB’s operational control is centrally coordinated. A board, a managing partner/director, or another type of management that is hierarchically superior to the rest of the partnership has key decision-making power (Cooper et al, 1996; Lander, 2012). Compared to P2s, management in MPBs is more powerful and is more independent in their decision-making. Central management is responsible for appointment of partners in the firm. Operation and business planning in e.g. marketing, HR, IT are each coordinated by a manager or a specific partner appointed by central management. This division of tasks and authority leads to a more hierarchical organizational model, a structure that resembles that of a ‘normal’ corporation.
Financial control in an MPB is characterized by performance related profit sharing; partner compensation is based on perceived contribution to the firm (including marketing, pro bono and management tasks) (Cooper et al, 1996). Performance is frequently managed through a performance management system/routine (Cooper et al, 1996). Because of this frequent performance management, MPBs have a low tolerance for underperformance and as a result underperformance is compensated in lower profit shares or rewards. In MPBs employees do not necessarily go up or out, but can also stay with the company in different senior roles (Galanter & Palay, 1991; De Haas, 2013). Despite the fact that performance in MPBs is managed internally, a good external reputation remains necessary to continue selling services in the market place (Hanlon, 2004).
The above can be summarized in Table 1 .
Table 1
Globalization and diversification generally lead to more bureaucracy, hence to a more MPB-type organization, as the presence in multiple countries and a larger workforce requires a stronger focus on strategy and management to be successful (Cooper et al, 1996). The choice to shift from a P2 towards a MPB type of organization is generally triggered by geographic expansion, diversification, commoditization of services and general growth (Harlacher & Reihlen, 2014). These changes had not yet occurred for law firms at the end of the ‘90’s. The Big-Five however, had already expanded globally, diversified and merged in the early ‘90’s (Furgeson & Stokes, 2002). Because of that, these firms had already shifted towards the MPB type organization (Greenwood, Suddaby & Hinings, 2002; Greenwood, Hinings & Brown, 1994; Alt, 2006; Harlacher & Reihlen, 2014).
Based on the above, in this chapter I assume law firms discussed in this paper to be closer to the P2 archetype and the Big-Five to be closer to the MPB archetype. This assumption will be tested in the analysis chapter.
2.3 Diversification
Diversification in PSFs is the process of entering into new practice areas that sufficiently differ from the firm’s existing practice areas (Alvesson, 2004). In the following paragraph I will focus on the goals for PSFs to diversify and the methods to obtain these goals.
2.3.1 Goals for diversification
The generic goal of diversification is the expansion of the business by enlarging the knowledge array and broadening the client market (Gardner, Anand & Morris, 2008). One of the benefits of diversification is the increased utilization of resources (Hitt et al, 2001). Diversification in PSFs often follows from the (global) strategy to expand the business through offering more services to clients. Attracting a new discipline provides PSFs with the opportunity to both offer existing clients new services and to cross-sell existing services to new clients obtained through the diversification.
2.3.2 Ways of diversification
To diversify, a firm needs to obtain one or more new practice areas. In PSFs the main assets consist of human capital (Morris & Empson, 1998). New practice areas are therefore obtained by attracting professionals through either a merger4 or alliance with an existing firm or through direct recruitment of individuals with the right expertise (the latter option is further referred to as “organizational growth”). When a firm is trying to diversify through a merger or alliance, its main goals are generally to obtain knowledge, to share clients, to improve economy of scope and scale, increase its market share and profitability (Koza & Lewin, 1998). In the next paragraph I will focus on the success and failure factors for diversification through mergers and alliances. According to Groysberg & Lee (2009) for PSFs there is very little difference between the success and failure factors of a merger and those for recruiting an experienced professional. Hence the literature on mergers should also be applicable to organizational growth.
2.4 Success and failure factors
In this paper I define success as the either the full integration of a new practice area into a Big-Five firm or a well working (still existing) alliance between a law firm and a Big-Five firm, serving both allying partners.
4As in PSFs, the term merger is preferred over acquisitions to de-emphasize the imbalance of power between the
The general success-rate in mergers is found to vary between 60% and 25% (Smith, 2002; Tichy, 2001; Krug & Aguilera, 2005; Marks, Mirvis & Brajkovich, 2001) and, although little research is available, this rate seems to be even lower for PSFs (Empson, 2000). Several factors are commonly distinguished by researchers as important for the success of mergers (and organizational growth):
• Organizational fit • Human integration • Social acceptability
Below I will describe each of these factors in more detail.
2.4.1 Organizational fit
When two groups of professionals are integrated after a merger, each group has the tendency to keep acting in the same way as before the merger (Briscoe & Tsai, 2011). They idealize their old firm in comparison to the merging firm (Marks & Mirvis, 1992). Greenwood (et al, 1994) found that sharing values and beliefs is an important factor for success and that hostility between professionals in the merging firms is an important factor for failure of the integration.
When the professionals’ old firm is similar to the new firm, these differences in values are smaller. Therefore organizational fit is an important factor for success in PSF mergers (Greenwood, Hinings & Brown, 1994). As seen in chapter 2.1 PSFs, P2s in particular, have quite a homogeneous and collegial culture. Diversification of a firm can undermine that culture when a new team’s culture differs from the existing culture (Harlacher & Reihlen, 2014). A mismatch in cultures can result in low levels of integration of the merging companies, and subsequently, can lead to underperformance (Briscoe & Tsai, 2011). In order for a merger between PSFs to succeed, the congruence of the organizational cultures is an important factor. Mergers of firms
with a congruent culture perform better than incongruent ones. Ferner, Edwards & Keith (1995) emphasize that when a PSF grows due to diversification, the lack of formal hierarchy and the differences in organizational archetypes make it challenging to integrate the new professionals. The more similar the structural and cultural elements of the merging companies are, the smoother the merger process generally is (Greenwood, Hinings, and Brown 1994). For this paper I consider firms to have an organizational fit when they have the same organizational archetypes.
To determine a firm’s archetype I studied the factors set out in Table 1: organizational control, decision-making, client focus, financial control (incl. remuneration systems),
performance management and autonomy. As mentioned in chapter 2.2 for the purposes of this chapter I assume that the Big-Five and law firms each have a different organizational archetype. This assumption will be tested in chapter 5.
2.4.2 Human integration
The success rate in mergers between PSFs is deemed to be lower than the general merger success rate because the most valuable assets in a PSF are 1) the tacit knowledge of the employees (Morris & Empson, 1998) and 2) the relationships with the clients (Alvesson, 1995). In PSFs the people, rather than the PSF as a whole, create and deliver products to clients and relations with clients develop at the level of the individuals (Groysberg & Lee, 2009). One of the main goals of integration is to reduce the level of employees leaving the firm voluntarily after the merger (Birkinshaw, Bresman & Håkanson, 2000).
It depends on the closeness of the network between client and partner, how easily existing connections can shift (Briscoe & Tsai, 2011). In general it is quite costly for a PSF to lose a senior professional not only because of the loss of human capital, but also because of the clients that will probably follow him/her (Levinthal & Fichman 1988, Baker et al. 1998).Prior research by Greenwood (et al, 1990) and Seabright, Levinthal & Fichman (1992) found that clients are
indeed more likely to follow a specific partner, than to stay with a firm once a partner leaves. This indicated the importance of personal relations to obtain work. Because clients and knowledge are connected to individuals through personal relations, integration of professionals in the new firm is essential for these assets to be beneficial to the new firm (Empson, 2000). For the purposes of this paper integration is considered to be complete when two firms share beliefs, share staff departments and policies (Marketing/HR policies), make decisions together and work together as one team. As most mergers ended up to be alliances, I will also look at how much work was referred to measure integration success and why.
Failure in mergers is often caused by the lack of attention to integration of organizational assets such as people, processes, and technology (Mehta & Hirschheim, 2007). According to Birkinshaw (et al, 2000) a successful merger has both high task integration and high human integration. Task integration is the need to create operational synergies quickly and to secure that the various teams are stimulated to work together rather than continue to work independently. Task integration can be realized through a specific integration plan using integration mechanisms and through specification of the tasks of the workforce.
Nahavandi & Malekzadeh (1988) describe that it is important for two merging firms to agree on the manner of integration. Therefore it is important for the smaller party to be willing to commit to the integration process. The more willing professionals are to integrate, the smoother the integration process (Empson, 2000). Therefore the attitude of the professionals in the merging firms plays an important role in the success of a merger. As briefly addressed in the Organizational fit chapter, professionals can have the tendency to keep acting the same way as before the merger and idealize their old firm when joining a new firm (Briscoe & Tsai, 2011; Marks & Mirvis, 1992). This can influence the new joiners attitude toward the new firm and the professionals in the new firm. Visible leadership and communication about the merging process are often seen as success factors for human integration (Birkinshaw et al, 2000). Therefore
securing partner approval for the merger and maintaining partner motivation for the integration process is important because it improves communication and provides for a broader acceptance of the merger at all levels within the firms (Greenwood et al, 1994).
The departure of key individuals and the passive resistance to change by individuals are known obstacles for task integration (Birkinshaw et al, 2000). Task integration is therefore easier established through a successful human integration. Birkinshaw (et al, 2000) describes human integration as: the “creation of positive attitudes towards the integration among employees on both sides”. This positive attitude should be created before the merger by finding merging partners with a shared motivation for merger or alliance (further described as “shared motivation") and should be maintained during the integration process by peoples’ willingness to integrate (further described as “willingness to integrate"), further set out below.
Mergers in general have a better success rate when both merging firms operate from a common interest and perspective (Marks, Mirvis & Brajkovich, 2001). In order to have shared motivation in two merging or allying firms, the motivation of the firms’ management needs to be in line. Because a PSF consists of knowledge workers, especially in the P2 type organization, the motivations of the individual partners to participate are relevant. In other words, the support of the partners in a firm can influence the success of the merger.
Timing of integrating personnel appears crucial for the success of the merger (Marks & Mirvis, 1992). When integrating too soon, it could demoralize the workforce because traditionally professional organizations change incrementally rather than radically (Mintzberg, 1979), which can be conflicting with quick integration. When integrating too late on the other hand, the benefits of the merger could get lost. Postponing integration leaves weaker staff to become demoralized and stronger staff to find employment elsewhere, weakening the human capital a PSF relies on. The risk of missing out on the benefits of integration is especially
important in PSFs, as both integrating too soon and too late can lead to employees leaving and therefore to the loss of knowledge and clients (Empson, 2000). This undermines client trust and delays opportunities for value creation due to reputational damage (Empson, 2000; Greenwood et al, 2005).
2.4.3 External factors
Greenwood’s (et al 2005) finding of a significant relation between performance and reputation for the success of diversification in PSFs shows the relevance of external factors for the success of a PSF. Reputation was found to be even stronger connected to performance than congruence in diversification. One of the most important factors is whether clients perceive the diversification as legitimate. The perception of synergy turned out to be more important than the actual synergy. Perception is often influenced by external factors such as regulations and current events. Hence diversification in PSFs follows what is socially acceptable. In the Enron aftermath, the multidisciplinary practice became less socially accepted, which clearly had an effect on the Big-Five and their practices (Flood, 2011) In order to provide clients with comfort and protect the PSFs reputation, the services offered by a PSF should be considered legitimate (Greenwood et al, 2005). These external factors should be taken into account when determining the success and failure factors for the alliances.
2.5 Factors relevant for the cases
Based on the above, I will include the following potential success and failure factors in my analysis:
• Organizational fit:
o Matching organizational archetypes; o Sharing values and beliefs
• Human integration: o Personal relations;
o Visible leadership & communication; o Willingness to integrate & attitude; o Shared motivation; and
o Timing human integration, not too quick and not too late. • External factors
o Regulation; and
o Perception in the market.
3.
Propositions
This research is set up to be exploratory rather than confirmatory. Many studies are available about accounting firms and multidisciplinary practices and about success and failure factors in mergers for PSFs, but no specific information is available on success and failure factors of the multidisciplinary practices set up between Big-Five firms and law firms between 1996 and 2005. I propose to find the success and failure factors of multidisciplinary practices set up through mergers, alliances and organizational growth with the following research question:
What were the factors that were related to the success or failure of the diversification of the Big-Five accountancy firms by adding legal services between 1996 and 2005 in the Netherlands? What was the contribution of (a lack of) organizational fit, human integration and external factors?
4.
Methods
In the first chapters I described what is already known about the success and failure factors in multidisciplinary practices in general based on current literature. In order to answer my research question about the success and failure factors of multidisciplinary practices between 1996 and 2005, I have studied the situation in each of the Big-Five. As the phenomenon cannot be separated from its context and the personal perspectives of the interviewees are relevant for the analysis, the subject is appropriate for a multiple case study (Eisenhardt, 1989; Denzin & Lincoln, 1998; Robson, 1993). The interviews helped me to understand the environmental context in the relevant years. The multiple cases provided me with the possibility to compare the outcomes of various processes of diversification and make a contribution to the theory concerning multidisciplinary practices (Yin, 2009).
4.1 Research context
Given the specific characteristics of the phenomenon studied, the context of analysis was easily determined: the process of forming multidisciplinary practices in the Big-Five between 1996 and 2005. I decided to research the Big-Five because they are comparable along three primary dimensions: 1) they are large global accounting firms; 2) each of them tried to add legal services as a discipline to their firm by cooperating with a Dutch law firm or through recruiting lawyers from Dutch law firms, and 3) they are all located in in the Netherlands so they all experienced the same external (institutional) limitations.
To understand the various success and failure factors in their merger/alliances processes, it is important to understand the differences between the firms and the various ways they merged/allied. Below I set out these differences in terms of course of events, strategy and decisions made. Based on the general trends in the market described in chapter 1, I describe the context for each of the Big-Five before they started to add legal services to their multidisciplinary practices, the way they integrated the law practice, whether that practice still
exists and in what way. I will differentiate between internal and external influencing factors for success. As none of the firms merged in the end, I will further refer to the cooperations between the firms as alliances.
4.2 Dutch market trends for multidisciplinary practices
As described in the introduction, around the year 2000 the legal market was shifting. Below I have set out the effects of these market trends for each individual Big-Five firm.
4.2.1 Andersen/Wouters
Andersen was the first of the Big-Five firms to develop a legal branch. This development took place simultaneously all around the world. In the Netherlands Andersen recruited Mr. Wouters in the late ‘80’s to set up their legal practice. The Dutch Bar Association had a pragmatic approach and approved the cooperation as long as the lawyers would not use the name Andersen. Although the international name remained Andersen Legal, the Dutch name was Wouters Advocaten. The Dutch Bar Association deviated from this point of view when Wouters Advocaten opened a legal branch in Andersen’s Rotterdam office. The Bar Association took the position that in Rotterdam the legal partners could work with Andersen. Wouters Advocaten fought this decision in court.
In Amsterdam the legal practice grew through organizational growth. In 2000 Wouters Advocaten had around 140 lawyers in the Netherlands and Andersen Legal was one of the largest law firms in the world, with about 3800 people. Andersen was Enron’s legal advisor and controller. After the Enron affair, Andersen went into bankruptcy and was globally integrated in Deloitte.
The findings for Andersen cannot be used to test external factors as Andersen ceased to exist as a very direct result of the Enron scandal in 2002. I did include Andersen in this research because they were the first firm to expand their services with a legal practice and Andersen and
Wouters Advocaten were truly one firm, with fully integrated services, shared profits and a shared client base. Their best practices can be taken into account when determining how to become one firm.
4.2.2 Deloitte/AKD
Deloitte was aiming to establish a presence in all main economic areas in the Netherlands and had mainly mid market clients. AKD, Prinsen van de Putt, Van Wijmen and a few other mid-market law firms initially tried to merge with larger law firms, but as these had no intention to go regional, they looked for a more suitable merging partner. As their clients matched and the law firms together were located in the main economic areas, Deloitte saw a match.
Deloitte urged the law firms to merge with each other first (in 1999) so that the new firm (together: AKD) was ready to merge with Deloitte in 2002. In anticipation of that, Deloitte and AKD had moved into the same buildings all over the country.
In 2002, allegedly because of the new regulations, the firms decided to stay completely separate. Although they shared offices, cafeterias and bars, Deloitte and AKD did not share profits. They obtained a ‘no action’ letter from the SEC that declared that they were considered to be two separate entities and they did not have to do conflict checks. Both AKD and Deloitte still exist in the form of two separate entities, albeit in the same office buildings.
As the cooperation between Deloitte and AKD is limited the Deloitte AKD alliance cannot be considered an alliance or integrated firm.
4.2.3 EY/HVG transaction advisors
EY (prior to 1999 Moret Ernst & Young) had accountants, consultants and lawyers not admitted to the Dutch Bar Association. EY had a separate tax and legal branch and in the late ‘80’s legal was a full fourth independent practice area in the EY group. This practice was set up
by attracting two law professors, and by organizational growth. Unfortunately the practice met a lot of resistance in the market, both by clients and through the Dutch Bar Association regulations. The Dutch partners decided to disintegrate the legal services, and discontinued legal as a fourth practice area. This caused a large part of the lawyers to leave and those who remained became part of the tax group.
In the middle of the ‘90’s the remaining lawyers started to expand again. EY wanted to expand their legal practice with notary services and lawyers who were admitted to the Dutch Bar. This process was led by Mr. van Gijzen. EY sought to merge with several smaller firms in the market. They found the best fit with Van Benthem & Keulen, Banning Van Kemenade and Holland Advocaten. Van Benthem & Keulen quit the alliance before it started.
In 2002 EY allied with Banning Van Kemenade and Holland Advocaten under the name of Holland van Gijzen (HVG). EY and HVG did not merge; neither did the lawyers share profits with the accountants. The lawyers did however share profit with the tax advisors who shared profits with the accountants. All share a house style, have similar logos and share offices. They managed to obtain a confirmation from the Dutch Bar Association that their alliance did not conflict with the bar regulations. They do have to comply with the Sarbanes Oxley Act and have to perform a global conflict checks on every new client.
EY and HVG still have an alliance.
4.2.4 KPMG/Steins Bisschop Meijburg & Co
KPMG was the last of the Big-Five to attract lawyers to expand their practice. They looked into merging with several mid-sized and larger law firms such as Nauta Dutilh and Schut & Grosheide. But as they were the last it was difficult to find a willing and suitable match. Their solution was to recruit Mr. Steins Bisschop in 1998 to set up the legal practice for them under the name: Steins Bisschop, Meijburg & Co (SMBC). SBMC grew through organizational growth at
a steady pace. At its top SBMC consisted of approximately 120 lawyers and was the second largest law department in a Big-Five, behind Andersen. The partners received a fixed fee, and SBMC and KPMG didn’t share profits. They did share costs.
After Sarbanes Oxley, KPMG globally decided to completely separate their legal departments from the other disciplines. A group of legal partners continued their legal practice as K-Legal. KPMG was the first of the remaining Big-Four to separate the Legal practice. In the Netherlands KPMG pushed for the separation with SBMC in a quite abrupt way, damaging KMPG’s image and SBMC went bankrupt5.
KPMG did not retain any lawyers in the Netherlands nor do they ally with a law firm at the time of this paper.
4.2.5 PwC/Landwell
Before the merger between Coopers & Lybrand with Pricewaterhouse in 1998, Coopers & Lybrand had lawyers not admitted to the Dutch Bar who were transaction advisors. Pricewaterhouse did have lawyers who were admitted to the Dutch bar. When they merged, the legal groups became one group and was rebranded as Landwell; the law firm alongside PwC. PwC and Landwell remained one partnership and profits were shared. This was conflicting with the Dutch Bar regulations, but PwC joined Wouters Advocaten in court.
In 2002 the case was lost in the European Court of Justice. After Sarbanes Oxley, PwC completely separated from Landwell, and a few years later Landwell merged with the large Dutch law firm Van Doorne. PwC retained a few lawyers who specialized in compliance, but these lawyers were not registered with the Dutch Bar Association.
5 NRC 7 november 2003 – KPMG stopt met juridische adviezen -
PwC does no longer have an alliance with a law firm.
Table 3
4.3 Interviews
The cases studied provide for a holistic analysis that relies mainly on narrative, phenomenological descriptions (Yin, 2009; Stake, 1976). The primary source of data collection is semi-structured interviews. I studied the cases of the Big-Five by interviewing key decision-makers who were identified based on the following criteria 1) he/she was a key decision-maker in an alliance between a Dutch Big-Five firm and a law firm and 2) the involvement was internal: he/she was employed by or partner in one of the involved firms.
The interviewees were (managing) partners, board members or general managers of both the Big-Five and the involved law firms. I tried to include interviewees that started their career at the Big-Five as well as respondents that started their career at various sized law firms. An
anonymized list of the interviewees is included in Appendix 4. As motivations and processes potentially differ for each alliance, my aim was to interview at least three key decision makers for each alliance. I approached the interviewees through my thesis supervisor’s network, my own network and through other interviewees’ recommendations. All interviews were conducted between August 2014 and January 2015. All interviewees were Dutch and I conducted the interviews in Dutch. Because of the sensitivity of the subject, in order to secure that the interviewees felt free to discuss any item and the personal involvement of the interviewees the quotes are anonymous and not traceable to an individual interviewee. For the same reason the transcripts of the interviews will not be published with the thesis. My thesis supervisor can confirm authenticity of the quotes and results.
While conducting the interviews, I realized that several interviewees I had selected for the purpose of acquiring insights in one alliance had also worked for one or more other alliances or had insightful information on other alliances. Some interviewees therefore provided information about as much as three alliances. After conducting fourteen interviews little new information came up in the additional interviews. Together, the interviewees exceeded my aim of three interviewees per alliance.
The method of semi-structured interviews suited my research best because of the exploratory nature and because I wanted my interviewees to describe the situation from their own point of view, not influenced by a pre-designed list of questions. I started each interview by explaining I was interested in the subject of multidisciplinary practices between 1996 and 2005 because of the current developments in the legal market. I explained that I had invited him or her for this interview because he or she had a relevant role in the developments of multidisciplinary practices between 1996 and 2005. While conducting the interview, I had a list of items for myself as a guideline. If the interviewee’s story would not cover all the items of my guideline, I asked them to elaborate on specific subjects until all issues of my guideline were
covered. Because of this interview approach, the interviews differed in length and lasted between 30 to 90 minutes.
The final version of my guideline was completed during the interview phase following information and insights from the first interviews. The final guideline can be found in Interview Guideline. Please note that this guideline is in Dutch because the interviews were conducted in Dutch.
4.4 Analysis of the interviews
While analyzing the interviews, I started by going through the interviews and coding the phrases that were relevant for my research question. In order to determine whether the codes were relevant, I kept the key concepts from my theoretical framework in mind:
• Organizational fit • Human integration • External factors
I also collected quotes about the way the alliances were set up. This information was used to support data found in the press about the context of the alliances. Also, I used this information to determine whether the alliance can be seen as a success for the purposes of this paper. As seen in chapter 2.4 I characterized an alliance as a success when a Big-Five firm established either the full integration of a new practice area or a well working (still existing) alliance with a law firm, serving both allying partners.
Initially I collected all relevant phrases of each interviewee and I provided primary codes to the phrases based on the core information in the sentence. Each sentence contained information about the themes found in my theoretical framework or additional information regarding success and failure factors for the alliances. Sometimes one quote contained information for two secondary codes or themes. In those cases I used the quotes two times. Subsequently I added
secondary coding to group the primary codes, such as: “Reasons to ally for law firms”, “Reasons to set up multidisciplinary practices for Big-Five firms”, “Willingness to integrate”, “Shared motivation” and on the organizational archetype of the firm. Eventually I divided the secondary codes into themes. These themes correspond with the themes found in the theory as described in Table 2. An overview of the secondary coding and themes can be found in Appendix 2. The coding was an iterative process and I went back and forth between the interviews, the quotes and the various levels of coding to identify corresponding messages between interviewees of the different firms. In the first instance I coded the phrases and quotes in Dutch, and only translated them once I was certain that the quote was relevant. In my coding scheme, the original phrase, the Dutch quote and the English translation are shown.
The data were analyzed both cross firm to determine the success and failure factors generally mentioned by the interviewees. Subsequently I also looked at the data for the individual alliances. For anonymity purposes I bundled the reactions for the Big-Five firms and the corresponding law firms into two groups based on the situation in 2005: 1) one group of firms that fully separated its law practice (Deloitte, KPMG and PwC): the “separated firms” and 2) one group that still had an alliance or used to have a fully integrated law practice (EY and Andersen): the allying firms. I chose this separation because of the integration efforts that were made to accomplish the alliance/integration and the potential differences in the motivation for work referral. The data for this analysis can be found in Appendix 3. Please note that the total number of quotes per code in the overview for ‘human integration’ can diverge from the total mentioned in the overview for ‘separated vs. allying firms’ as in the prior, general remarks about the alliances were included and those were not taken into account when comparing the firms.
The quotes in chapter 5 will be accompanied by the label ‘law firm’ or ‘Big-Five’. ‘Big-Five’ refers to the interviewees who started their careers at a Big-Five firm or who were attracted in a Big-Five firm in an early stage in their career. ‘Law firm’ refers to the interviewees who started
their career at a law firm and joined the Big-Five to expand the legal practices. Whether the quote is about the Big-Five or a law firm is indicated in the context. In the translated quotes the names of the Big-Five firms have been replaced by ‘X’ and the names of the law firms have been replaced by ‘Y’ to further ascertain anonymity of the interviewees. In this paper a lawyer is generally assumed to be admitted to the Dutch Bar unless explicitly stated that he/she is not.
5.
Results
5.1 Cross firm findings
Below the results for all firms combined are analyzed.
5.1.1 Organizational fit
As I determined organizational fit to exist when two firms have similar organizational archetypes, I will identify below what organizational archetype the firms have. Table 1 includes an overview of characteristics of the two organizational archetypes as described by Cooper (et al 1996) and Greenwood (1990). All interviewees frequently mentioned most characteristics of Table 1. Therefore a good indication of the archetypes of the firms involved can be made. Table 4 summarizes the findings about the archetypes in this research. Below each characteristic is set out in more detail, supported by quotes.
5.1.1.1 Same organizational archetype
Operational control and decision-making - Most of the interviewees mentioned the operational control and way of decision-making in their firm. The operational control in the law firms involved was described as decentralized. In those years law firms involved the entire partnership in setting the strategy and decisions were made by consensus: “Not everyone was happy with the decision, but when the majority of the partners wanted to do something, we did it.” – law firm; “On the other hand [lack of bureaucracy] in law firms does not necessarily lead to quicker decision making, because a lot more people are involved in the decision-making process.” – law firm.
Partners in law firms were also described as rather autonomous with regard to following the firms’ strategy: “When a [lawyer in law firm] disagreed with a rule in the firm, he could just decide not to follow it for his team.” –Big-Five and “When there is a strategy in a law firm; the idea is great, but subsequently a dozen exceptions are made to not follow the strategy for [one
particular partner or team] and partners say: that does not apply to my team because…” – law firm.
In the Big-Five the decision-making at strategic level was described as centralized and top down: “The [national] strategy was determined by the national board of X. X was a very hierarchical organization, the managing partner had a lot of power” – law firm;“X was becoming more global, which meant legal became an even smaller part of a very large organization.” – law firm; “The most important cultural factor in my belief is the management structure: almost corporate, very top down”. – law firm; and “Things were managed top down.” – Big-Five.
Legal partners in Big-Five firms maintained autonomy over their specific practice area after joining the multidisciplinary practices: “I was in charge of the day to day decisions about the legal practice.” – law firm; “Everyone had a lot of autonomy in their own practice area.” – law firm; and “Managing the legal practice was in our hands.” – law firm.
Based on these results, operational control in law firms seems to be more decentralized and partners in law firms seem to have more autonomy in strategic matters. Big-Five firms appear to have a more top down operational control and more centralized decision-making, though partners kept some autonomy in their own practice areas.
Client focus & business-like – Three interviewees emphasized the importance of client service for the Big-Five: “Superior quality was top of mind, all the time, to ensure excellent results to our clients and to reach excellent client satisfaction.” – Big-five; and “They [the Big-Five] were more client focused with regard to their ideas and products.” – law firm. Client focus was mentioned twice with regard to law firms, mainly as a reason to ally: “The clients liked it: one point of contact for all his questions.” – law firm. This suggests that the law firms acknowledged that the Big-Five had a stronger client focus than they had at that point.
The stronger focus on clients in Big-Five again indicates the law firms resembled the P2 type organization and the accounting firm the more client focused MPB.
Six out of the fourteen interviewees mention that the Big-Five had a more business-like organization in the sense that it was focused on innovation, entrepreneurship, better resources, industry focus and had a corporate structure: “We had know-how departments and marketing departments, and as soon as you had an idea, they looked into the opportunities.” – law firm; and “X was focused on innovation, growth, quality and client service. Those were our core values, which were constantly implemented.” – Big-Five; “Accountancy firms, especially X, were organized a lot more professionally than mid-sized law firms.” – law firm.
Financial control/reward system – Five interviewees described the reward system. The reward structure in the Big-Five firms seemed to differ per firm. In some firms partner rewards were merit-based: “At X partners are rewarded based on individual performance, based on their own responsibilities.” – law firm; and “At X lawyers were not rewarded better just because they were lawyers. We had a merit-based reward structure and you had to prove yourself.” – Big-Five. At least one Big-Five firm however still had a reward system based on credits in the partnership, which increased yearly, not based on performance: “Profit was calculated per credit, which increased very year.” – Big-Five.
As described by Cooper (et al 1996) and Greenwood (1996) a merit-based reward system is a characteristic for MPBs. Although the reward system for law firms was not discussed in the interviews, based on the general information about the reward system in law firms, I assume the reward system for law firms to be equal sharing.
Performance management – Three of the interviewees described the performance management structure in their Big-Five firm: “Your performance was constantly managed through 360-degree evaluations by your own peer group.” – law firm and “A lot of lawyers would have looked confused if you asked them to work with a business balance score card, but at X it was normal” – Big-Five. A strong focus on performance management resembles the MPB type firm. The fact that lawyers did not mention performance management could be an indication that they weren’t concerned with performance management, which is an indication for a P2 type organization.
Archetypes
Based on the above, law firms appeared to be P2 type organizations; law firms had a more consensus-focused decision-making, more decentralized operational control. Law firms did not mention performance management or performance based profit sharing. The client focus was mentioned as a reason to join the Big-Five, but not as a general focus for the law firms. This also corresponds with a typical P2 organization, where clients are considered important, but client service is not the central focus (Greenwood, 1990).
The organizational archetype for the Big-Five in the period between 1996-2005 can be confirmed to resemble the MPB. Their operational control is more centralized and top down, and their decision-making lies with one board or partner. The organization is focusing on performance management and they often have merit-based reward structures (except for one). They have a strong focus on client service and is organized in a business like way.
These differences in organizational archetypes suggest that there is very little organizational fit between law firms and Big-Five firms. Based on findings of Groysberg & Lee (2009) that in PSFs there is little difference in integrating a firm or one partner, the differences in organizational fit can also be a problem for the firms that developed through organizational growth. Hence individuals, who started their career in an organization with a P2 archetype,
might also lack “organizational fit” with a MPB type organization. The individual fit will be addressed in more detail in the Human Integration chapter.
The findings on organizational archetypes in this paragraph are summarized in Table 4.
Table 4
5.1.1.2 Other results for Organizational fit
The characteristics of the organizational archetype of the Big-Five appeared to influence the type of work.
Expectations about type of work
The interviewees mentioned the type of work done by lawyers in the multidisciplinary practices as a relevant factor. Nine interviewees mentioned the importance of the differences in the type of work in the multidisciplinary practices compared to the work in traditional law firms. From the interviews it can be concluded that it was important for the law practices to connect with the other disciplines in the Big-Five and that not all practices of the allying law firms fitted the Big-Fives type of work: “The most profitable [legal] practices were the practices with a strong connection to the accounting and tax practices.” – Big-Five; “Y had quite a large litigation group. I never believed in the additional value of such contentious practices in accountancy firms.” – Big-Five; “Within Y, there were a lot of lawyers whose practices had no
synergy with X's practices.” – law firm; “Y didn't want to join the alliance in the end because they feared that their less commercial law practices would have had a hard time in the alliance and potentially would be let go. I am convinced that was a smart move, because they wouldn't have survived in our firm.” – law firm.
According to some interviewees the type of work that is more synergetic to the audit or advisory practice of the Big-Five firms is considered to be less professionally challenging: “The type of work in a Big-Five legal department is not as challenging as the legal work in a commercial law firm” – Big-Five. This partially corresponds with the finding that (legal) work in MPBs tends to be more commoditized (Empson, 2007).
The expectation seemed to be that the type of work of lawyers in Big-Five firms would become more similar to the type of work in law firms once the lawyers admitted to the bar had joined: “In-house lawyers are technically strong, but often lack commercial skills. In order to play 'premier league' law we needed to have lawyers who were admitted to the bar.” – Big-Five; and “For the real big deals, you need lawyers admitted to the bar. Not because of the litigation practice, but because of client acknowledgement.” – Big-Five.
5.1.2 Human integration
Human integration is aimed at reducing the amount of professionals that leave the firm voluntarily after a merger/alliance or after organizational growth. The integration process is complete when two groups of employees or new individuals are connected with the purpose to share beliefs, share staff departments and policies, make decisions together and work together as one team. Because most organizations did not merge in the end and the overall motivation for most interviewees to ally was work referral (as seen in 5.1.2.5) I have also looked at the level of work referral to see what efforts for integration were made and I have studied the reasons why individuals left the firm after a merger, alliance or organizational growth.
5.1.2.1 Reasons why individuals left
Before I describe the way the alliances tried to integrate, I would like to mention the reasons the interviewees gave why some professionals eventually left the alliance. This regards both professionals who joined through organizational growth and professionals who were part of an allying firm. The two main reasons provided were that the expected outcomes of the alliance never occurred and that some partners weren’t ready to conform to the new firm: “The main reason to leave was that the alliance hadn't brought us what we had expected, we hardly shared work”. – law firm; “The loss of work because of the conflict of interest was bigger for partners who did not generate as much work through the network. Therefore for them the cooperation wasn’t as beneficial as expected.”– law firm; and “They just had a different vision for the future.” – law firm.
5.1.2.2 Personal relations
Seabright, Levinthal & Fichman (1992) and Greenwood (et al, 1990) mentioned that clients are more likely to connect with a specific partner than with a firm. The interviewees described the phenomenon of a ‘business friendship’ or how much you liked each other as the most important factor for work referral within one firm or between allying firms (internal referral). The importance of a good relationship for referrals, both internally and externally was mentioned by seven of the interviewees: “Clients are not referred by X but by partners from X. When you're friends with someone at X he will refer work to you and vice versa” – law firm; “A lot of large clients still involve me in everything they do. They don't care about the firm, but about the person they work with.” – Big-Five; and “Having friends was an important factor in working together.” – Big-Five.
5.1.2.3 Willingness to integrate & attitude
The second most frequently mentioned motivation for individuals to leave the firm was the fact that professionals were not willing to adjust to the new firms culture or that lawyers did not respect the other firm or disciplines culture, as mentioned in 5.1.2.1. This underlines the importance of the willingness to integrate during the integration process. 17 quotes from 11
interviewees addressed the importance of willingness to integrate: “Carrying out a business plan and using business like tools […] is something you have to be open to.” – Big-Five; and “The integration of lawyers in an accounting firm was hampered by the lawyers’ unwillingness to be flexible toward the new culture.” – Big-Five. Seven interviewees mentioned the differences in mentality between lawyers from a (larger) law firm and lawyers who started their career at a Big-Five firm with respect to the shift in the level of autonomy as a potential problem for integration: “I think that for some people, who came from a traditional law firm, it might have been difficult to become a small part, a local Dutch part even, of an accounting firm.” – law firm; “I doubt whether they would have been willing and able to work in such a strictly regulated firm with an international board. I doubt whether that would have been a success.” – law firm; and “Some lawyers didn't benefit from the internal relations because they didn’t have the right attitude towards accountants, those people didn't come very far in a multidisciplinary practice.” – law firm.
A recurrent theme in the findings about the willingness to integrate was mutual respect and the attitude of the integrating firms/individuals. According to Briscoe & Tsai (2011) and Marks & Mirvis, (1992) individuals or teams that joined from P2 type organization have the tendency to idealize their old firm and keep acting the same as before they joined a Big-Five firm. I looked at this phenomenon in each of the alliances. The outcome from the interviews suggests that some partners indeed kept behaving the same way as before the merger: “Lawyers had a separate status with X, some lawyers really believed they were superior to the other disciplines.” Big-Five; and “We were lawyers with our own responsibilities. We didn't want the accountants to tell us what to do.” – law firm. The tendency to keep acting the same as before the merger and idealize their old firm cultures can hamper integration (Marks & Mirvis, 1992). The interviewees mentioned the importance of mutual respect, as some lawyers had the tendency to value the legal profession over the accountants’ profession: “X inclined to treat lawyers differently from the accountants, and gave them better benefits.” – Big-Five.
