Assume that your firm has met with a potential law firm and both sides have agreed that there is an interest in merging firms.  The next step is to determine if the conflicts of interest that will arise with both firms’ clients are sufficient enough to kill the deal.  Before your firm undertakes a growth strategy involving mergers, consider shoring up your current conflicts checking processes and database. An assessment to benchmark your current processes and resources is vital to understanding what your firm is capable of searching and reporting, and how quickly. This article will cover ten tips to streamline the conflicts due diligence process in anticipation of or in the case of a potential merger. 

1. PLANNING- First, assess and document current processes, policies and procedures for opening new matters and performing conflicts searching. The assessment should include how information gets into the conflicts database and what is required to open a matter. Then, meet with firm management to determine a timeframe and the exact final product the firm is looking for to complete its evaluation. Merger evaluation is likely to include a number of tiered steps, including initially searching the potentially merging/acquiring firm’s top clients, and then drilling down to more detailed searching of client lists if this first search does not show significant adversity to current clients. Set expectations for how quickly searches can be completed and delivered taking into account daily new matter opening and stand-alone requests. Having these processes in place prior to a proposed merger will ensure that all parties are aware of your firm’s capabilities in this arena.
2. CONFIDENTIALITY- Discretion is a key factor in a potential merger or acquisition. Frequently, initial meetings must proceed with secrecy due to the potential ramifications for all involved parties within each firm as well to avoid client concerns. Recruit a supervisory/management level conflicts analyst to perform searches and train additional conflicts staff on confidentiality issues. Save search details in the system but make the results non-searchable for other conflicts checks if possible while the deal is being evaluated. Initial top-client search will likely need to be re-run and should be preserved.
3. REPORTING- Consider an alternate report format for mergers/lateral acquisitions. Many firms find that different information needs to be reported for these special circumstances. Being able to display non-standard data (financial information, matter descriptions/narratives, complete matter listings for client hits) in an automated format to meet the needs of firm management may be worth the development effort and cost. This format can be used going forward for lateral attorney hires and other bulk searches. Reporting on client financial history may help firm management weigh options when faced with a potentially irresolvable conflict.
4. GO PAPERLESS- Working from electronic listings of conflicts information and providing this in kind to the potential merger candidate reduces manual data entry, increases efficiency and reduces possible errors. This step also provides a first opportunity to compare the structure of your conflicts and financial systems, the combination of which will be a major undertaking if the firms decide to merge. Develop your process quickly and easily report on this information by creating custom reports or investigating standard reports available within your financial or conflicts system that may facilitate this process.
5. IT’S IN THE DETAILS- Request matter description information from the potential merging firm to help you determine if work is substantially related. In situations where clients are adverse but matters are not substantially related it may be possible to obtain conflicts waivers and retain both clients. Firms face the prospect of cutting clients loose as a result of a merger when a conflict cannot be resolved and this may mean the responsible partner will leave the firm with that client to continue representation. Firm management is faced with these tough decisions and must be able to anticipate these conflicts.
6. PRACTICE AREA INFORMATION- Matter practice area information will help your firm evaluate the strategic benefit of supporting clients should you choose to merge. Frequently a major benefit of merging is broadening and strengthening the scope of services available to clients. This cannot be determined by matter names alone.
7. INCLUDE CLOSED MATTERS- Include inactive/closed matters in conflicts search results. The threshold of whether a client is a former client or not does not always depend on billing details, especially matter-level details that do not indicate whether the client is still being actively represented in other matters.. Many times these decisions will have to be made by the firm’s risk management team, loss prevention officers, or General Counsel.
8. DATABASE MAINTENANCE- Conflicts database maintenance is key to efficient searching. Encourage closing inactive matters in the firm’s financial and conflicts database to reduce current client conflicts issues. Instituting an administrative closing process for matters that have no recent billing activity will help this process. Track client name changes and corporate affiliate information whenever possible to make conflicts identification more reliable. Eliminate duplicate party information in your conflicts database to reduce conflicts report hits.
9. INCLUDE LATERAL WORK HISTORY- Be sure that lateral hires’ previous work history is retained for searching. This important information may never come to light in a conflicts search if the attorney has not yet opened matters for this former client since they have joined your firm. Previous representation may still present direct conflicts, sometimes imputed to the entire firm, and must be considered. If lateral work history is saved and included in future searches this activity can be taken into consideration. Accomplish this either through the use of saved searches that do not expire or creation of a dummy matter number with detailed narrative information regarding these prior representations.
10. CONFLICTS WAIVERS- Tracking of conflicts waiver documentation from clients must be monitored carefully. Frequently this process can be very lengthy as clients are contacted and approval is sought. Firms are more likely to include advance waiver language in client engagements and may have to manually review engagement documentation to determine whether this language was present based on when the client retained the firm as counsel. All waiver letters should be tracked and stored centrally for future reference. Ethical wall creation can be a vital part of this process but is not always required when a waiver is obtained. The firm must have a process in place to screen matters as a condition of a conflicts waiver or to allow completion of due diligence if representation is begun immediately.

Once a firm’s conflicts due diligence process has been put in order and streamlined, the process of merging with another firm or acquiring lateral talent will be more smooth and efficient for all parties involved.