In early 2014, Ajay Raju arrived at white shoe Philadelphia law firm Dilworth Paxson LLP with a colorful set of new laces. As the firm’s upstart Chairman & CEO, Raju was determined to build a transformative approach to the practice and business of law upon the institution’s sterling and steadfast legacy. Recognizing that the ravenous geographic expansion lately characteristic of American’s biggest law firms wasn’t the right prescription, Raju set about positioning Dilworth Paxson at the center of a universe of affiliated enterprises. Through 215 Capital, a Series A investment fund with links to the firm, Dilworth clients have found new investors, and investors have become new Dilworth clients. Under the auspices of Indigo Global, a multifaceted executive-in-residence consultancy, Dilworth clients and contacts have gained the insights and advice of an elite circle of corporate professionals. The Dilworth watering hole has also attracted major players in Philadelphia’s real estate development, media, and philanthropic communities. All of these initiatives, Raju emphasizes, serve the firm’s mission of locating itself “at the intersection of relationships, value, and judgment for the benefit of (its) clients and the industries and regions in which they operate.”
The Temple 10-Q caught up with Raju at that intersection to discuss whether law firms can grow without getting bigger.
10-Q: What are the drivers of law firm growth in the current business climate?
Ajay Raju: In a way, what’s driving growth is growth itself. For a host of reasons, we’ve been seeing something of a consolidation mania among large law firms over the past decade or so, and at this point there’s a sense that firms just need to keep feeding the beast. The conventional way to grow, of course, is to expand the geographic footprint. The firms that have done this well are those that have been able to pinpoint key sector markets in which their existing relevant capacity can hit the ground running with an edge over their already-present competitors. We’ve also been seeing an emerging phenomenon where disparate firms are forming something akin to collectives; they operate under a shared letterhead, but maintain separate balance sheets, offices, and virtually every other trait that separates one law firm from another. A third form of growth is through targeted regional expansion. This is an approach that a firm like ours has taken and continues to take, most recently with our new Princeton, New Jersey office. It’s a strategy that requires maintaining a keen ear to the ground and an eye on the shifts, even subtle shifts, in the business landscape, and capitalizing on those changes with tactical headcount adjustments and acquisitions. But our primary focus is on helping our clients to grow in a way that makes our own growth commensurate to their ambitions. By, for instance, helping with raising capital, developing management structures, and providing a host of services beyond traditional legal work, we operate as strategic counsel, rather than just attorneys. It’s about capability more than it is capacity and co-location.
10-Q: What are the special challenges that law firms face when undertaking mergers, as opposed to M&A in the corporate world?
AR: It bears mentioning that in a lot of ways law firms are becoming more and more like conventional corporations, so I would say that there are a considerable number of similarities in the experience, but there are some essential attributes of a law firm that pose particular challenges. Of course, first you have to deal with representational conflicts, which can break a deal right out of the gate. Other financial considerations like mismatched rate and compensation structures can torpedo a merger, but I think the principal challenge is with respect to culture—reconciling two firms’ disparate histories with the promise of a shared future. If you think of two merging firms as a pair of tributaries merging into the same lake—the current can run in only one direction. If one or both of the firms insists on fighting back upstream toward its own legacy and idiosyncrasies, the water will never reach the proverbial lake. It’s no secret that lawyers have egos, insecurities, and long memories, but from my experience with combining firms, those who make the best go of it are those that can maintain a solid sense of purpose in new environments and put collegiality above all else.
10-Q: How do clients react to law firm mergers?
AR: Generally, I think they see it as a positive. There will be a few hiccups as the dust settles, and it’s critically important to be extra attentive to clients during that phase—ensuring that they do not feel the bumps of the transition. But the point of a merger is to expand a firm’s capability, reach, and depth. And that’s all to the good for clients.
10-Q: Is it possible for a law firm to innovate without growing?
AR: From my perspective, the terms are synonymous. As I’ve said, growth doesn’t just mean adding offices and lawyers, it’s about enhancing and deepening the relationships you have with clients and adding to the services you can provide. A couple of years ago, we closed down Dilworth’s offices in New York and Washington D.C. We took a hard look at the sectors that dominate those cities and determined they weren’t the places where the Dilworth legacy, or brand for the lack of a better term, would hold a place of distinction among the firms that have spent generations carving out reputations for themselves in banking and federal government relations. My view is that growing just for the sake of growing, or being motivated by FOMO as it were, can jeopardize our identity as specialized, elite, unparalleled counsel in the sectors and regions we serve. That wasn’t a risk worth taking.