When law firms consider merging the primary effort usually focuses on financial and practice issues: How well do the two firms match up in expertise, client base, referral business, geographical reach, and assets? How will the new firm be organized and managed? What will it be named and where will it be located? How should compensation, retirement, and withdrawal plans be structured?
What can happen under the press of these critical concerns is that risk management of the merger process gets lost in the shuffle. Review of ethical considerations, malpractice exposure, and professional liability insurance coverage are just as important as any other merger issues. They must be thoroughly evaluated prior to merger.
The ABA/BNA Lawyers’ Manual On Professional Conduct recently published an excellent short analysis on firm mergers that focuses on merger ethical considerations (Merger of Law Firms at 91:901, 7/21/99). Client confidentiality and conflicts of interest are the major ethical concerns when merging. The Manual covers them in the context of pre-merger, post-merger, resolving conflicts, and screening issues. While confidentiality of information issues can arise in several ways, confidentiality is most often the cause of a conflict of interest between clients of the firms considering merger. The Manual recommends using these questions to identify and resolve merger conflicts:
In addition to an ethics review a careful review of each firm’s risk management program and malpractice claims history is essential. Are there open claims? Are there claims that have not been reported to the professional liability insurer? Going forward, how will the merged firm be insured for professional liability? How much coverage and what deductible is appropriate for the merged firm? What is the risk management program for the merged firm? What work control and conflict check procedures will be followed? Are computer systems and data bases susceptible to smooth integration to avoid start up glitches that lead to missed deadlines?
You get the idea – there is a lot of detail to parse through to avoid gaps in insurance coverage and practice foul-ups for the newly merged firm. Longer term a comprehensive risk management program is essential. The new firm is bigger with a more players. The exposure to malpractice risk rises in geometrical proportion the larger a firm gets. Lawyers Mutual stands ready to help when the urge to merge hits you. Give us a call!