Why are lawyers so miserable?

I think it’s because they are driven by the clock. Every 6 minutes they have to record what they’ve done, and bill it to someone. Very little latitude or autonomy – they have to produce, produce, produce.

Accounts historically have done the same. Your bill is the sum of the time that has been taken. Never mind if some of that time wasn’t effective, or was wasted. The client (you) still pay for it. How fair is that to the poor client?

Of course it isn’t. I don’t expect to go into one of my client’s businesses and pay more if he dithers or muck it up!

And yet it is the way that most accountants and lawyers still work. The way their clients frankly distrust. And these are your closest professional advisers – the people you entrust with your hopes, dreams and every details of your business life?

Bizarre!

Still – lawyers (and accountants) are miserable. Why do they stay in this misery then? What makes them persist? Partly the management structure of their business I suggest. Most management thinking (everywhere – not just lawyers!) is carrot and stick approach (or stick and carrot!) with a top down control based style. And in any type of work which is right brain dominated – that is, creative, where people have discretion over what they do – it simply stifles creativity and diminishes performance. Not what you want from your accountant or lawyer?

It’s the place where science and business diverge. Business simply hasn’t caught up with the science of what makes people tick and want to do well. There was a study of 320 small businesses, half of which granted workers autonomy, the other half relying on top down direction. The businesses that offered autonomy grew at 4 times the rate of the controlled ones and had 1/3 the turnover of staff. That’s impressive, and we know how, and we are telling our clients!

It doesn’t work in all cases, and certainly not in routine tasks, but it does for more creative ones, like accountants and lawyers.

So – happy accountants and lawyers, which means that there are happy clients. But only if the time sheet is binned. That makes for happiness all round.

We binned them some time ago. Our clients hated time sheets, so we did it simply because if that. We keep timesheets solely as a budget tool – so we can quote prices for future work based on past experience. Clients know they can ring up whenever they like, get the help they need, and know they won’t be getting a bill. We are happier knowing we can do the best job we can, as we are not driven by the clock too. Win – win. That’s rare!

Mergers & Acquisitions - do they work? Ever?

You can grow organically, or you can buy another firm. You look for synergy, and economies of scale. In umpteen years of advising clients on buying out others, I’ve never seen them. You might think you can cut costs in the merged firm, but don’t underestimate the costs of integrating two different ways of working. You may be getting access to a bigger customer base, or new markets. You may be a megalomaniac.

The Economist says that three quarters of mergers fail to increase shareholder value, and half destroy it. Look at the RBS ABN Amro debacle, which we are paying for. Don’t think it’s just big companies that muck up like this – anything they can do, so can small companies!

A lot of mergers or acquisitions are the result of management boredom, ego, and are encouraged by the advisers. The only ones guaranteed to profit from this exercise. Personally I spend my clients’ money like it’s my own. See the moths!

Some find out well into the buying process that it’s not what they thought but they feel that they are committed, so go through with it anyway, hoping it will work out. It won’t – they know that deep down, so smile sweetly, pay the bills, and walk away. It’s cheaper.

A lot of my clients have preserved wealth and gone on to grow through knowing what deals to leave on the table. Just about every deal I’ve seen has been underestimated in terms of cost and effort, and overestimated in terms of benefits. So if it’s looking marginal, it isn’t. Walk away. Another deal will come along – you won’t miss out.

Kraft and Cadbury will be interesting – looks like Kraft paid too much and Cadbury got too little. So many cultural differences will take an awful lot of effort to overcome. But with deals like this the ordinary man can make money too. Here’s maybe how.

Generally, owners of predators worry about overpaying, which sends their share price down. Whilst investors get excited about the target and that sends the target’s share price up.

So if you expect a bid (and Kraft’s was telegraphed a long way off), you buy the target and sell the predator. You can do this with a long spread bid on the target and a short spread bid on the predator. If the deal is announced and predator price falls and the target’s rises, you should make money on both positions. You need to commit the same amount to of money to each part so your strategy is market neutral, so if you’re right about the deal you should make money if the market rises or falls.

Of course if you thought the Cadbury deal would benefit Kraft shareholders, you would have simply bought Kraft shares. But you didn’t, did you?

PS This is not investment advice! Speak to your professional advisers if you are contemplating doing any of this. Each deal is different.