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American firms 'shouldn't expand for no reason'

Posted by: Laurence Simons 08/01/14

In my small experience of the US (largely gleaned from shouty reality television shows), Americans like things to be big. Buildings, portion sizes, cars - they all loom over their embarrassingly weedy European counterparts. But does this logic also apply to law firms?

According to data compiled recently by Altman Weil, mergers in the US reached a peak over the course of 2013, with 83 announced throughout the 12 months. In the main, these deals involved larger companies acquiring boutique firms, often with fewer than 50 lawyers on their books.

Of course, it would be disingenuous to recognise that this process is going on elsewhere too, with British firms also keen to consolidate their holdings in the shaky economic climate.

However, a new report from Georgetown Law's Center for the Study of the Legal Profession argues that organisations are bulking up for all the wrong reasons, reports American Lawyer.

The putative benefits of bringing a smaller company on board include increased efficiency and the ability to bring more talented lawyers on board. Georgetown claims that companies are not expanding in the right way, though, meaning they are not responding to the needs of the modern legal market.

"In our view, much of the growth that has characterised the legal market in recent years ... frankly masks a bigger problem - the continuing failure of most firms to focus on strategic issues that are more important for their long-term success than the number of lawyers or offices they may have," the report declared.

Clients are calling on legal organisations to be more cost effective and responsive to their needs - if anything, increasing the size of a company is likely to make it less capable of changing tack quickly on the demand of a particular case.

However, not everyone agrees with the conclusion of the Georgetown report.

Altman Weil principal Ward Bower told American Lawyer that mergers can often accrue a strategic advantage that is ignored in the university's study.