Why alliances rarely work

Bradford W Hildebrandt analyses the reasons why alliances are doomed. Bradford W Hildebrandt is the chairman of multidisciplinary management consulting firm Hildebrandt Inc.

What follows may cast doubt on the concept of integrated law firm alliances that became very popular in the late 1980s.

I am not talking about large organisations such as Lex Mundi, the Capital Cities Law Group, or the Common Law Affiliates.

These organisations have allowed member firms to have improved access for their clients to lawyers around the world. Such alliances have been especially helpful to small and medium-sized firms that do not have the resources or the need to support locations around the world for the purpose of occasional client representation.

Nor am I talking about the organised management “round tables” that managing partners attend, which have proven to be very helpful.

What I am talking about are small groups of firms that attempt to integrate to compete with large firms and offer an alternative service.

Members of these superficial alliances often come from different countries or, in Canada, different provinces.

Many partners involved in such alliances tout their success, but the truth is that they are often unsuccessful.

During the past few years, many of the better publicised alliances have fallen apart, especially those between US and UK firms.

So why do most alliances fail? One reason is that any alliance requires a commitment of time and energy. Many firms struggle to run themselves, so finding the resources to support the objectives of an alliance is beyond most managers. Superficial alliances rarely develop far enough to be taken seriously by the firm's clients.

The primary reason why less-than-fully integrated alliances fail is because the partners of the firms entering into these alliances believe that membership will immediately (without any real work or investment) increase their revenues. They convince themselves that there will be a flow of referral work among the firms. Each partner expects new cases on a weekly basis and becomes quickly disappointed by the alliance because the referral stream does not materialise.

Partners question the purpose of the alliance and its vision when it does not immediately bring in more revenue. They begin to look at membership of the alliance as a cost and not an investment and are quick to calculate the effect on their profit share.

Once this happens, they begin to oppose further investment, but refuse to dissolve the alliance because they fear the resulting negative publicity.

But easy referrals are rare because clients have always enjoyed the freedom to select counsel. Often, this decision is based on a personal relationship or a recommendation. In some instances, the reputation of the firm in a specific field of law or industry triggers the choice.

Clients rarely send new business to a foreign firm highly recommended by their current lawyers. They are more reluctant to move their ongoing legal work to another firm without good reason. Usually the personal factor remains the most critical.

Furthermore, a client corporation's general counsel who is in one jurisdiction often has little influence on the independent decision-making power of colleagues in another, who may be better equipped to select the most appropriate lawyer.

The best chance for an alliance to generate referrals is when a matter is spread over jurisdictions and where there is an incentive for efficiency by relying on lawyers of the same organisation.

Unfortunately, clients often prefer to select firms with offices within the affected jurisdictions rather than the alliance member firms.

A single firm with numerous offices offers many advantages, such as lower cost, one bill, uniform quality, one responsible party and often a wider expertise and experience in such multi-jurisdictional matters.

It is rare that an alliance of firms can match these key service factors. Consequently, many partners in alliance firms become cynical about the relationship and begin criticising the management of the firm for allowing the alliance to restrict other growth initiatives.

The other major cause of alliance failures stems from neglecting or refusing to develop and use a meaningful common brand name and house style. Without this, the only message received by clients is that the firms are part of an alliance from which they immediately wish to distinguish themselves.

As firms enter into an alliance for referral, they never question whether the alliance's raison d'etre satisfies the strategic goals of the member firms. Too often membership hides the fact that the firm does not have a strategy.

It is difficult for an alliance of firms to practise as one firm. Binding the alliance requires a conflicts policy. Generally, the result has been that member firms have all the disadvantages of an integrated multi-office firm but few of the advantages.

As the consolidation and globalisation of the profession continues, loose alliances will struggle further.

But some alliances have worked. Several Big Five accounting firms are simply sophisticated alliances. The difference is that they use a common name, have applied quality standards and are masters of joint marketing. To their clients, they appear as one integrated firm.