Financial Due Dilligence for Partners
Lateral partner candidates are starting to ask more questions before accepting an offer from a competing firm. According to Law.com:
Reed Smith partner Jack Nelson said that a couple of years ago, interviewees asked for a description of the capital requirements and a summary of the firm’s borrowing positions, including term debt. Now, candidates want to know more about leases, personal liability and the firm’s plans for capital and debt, “something that you rarely heard a couple of years ago,” he said. And they want to know that information earlier, long before an offer has been made, Nelson said. Today’s laterals seem to be using the information to weed firms out of consideration, rather than to make a final decision on a particular firm.
If you think about it, it is pretty astonishing that partners have historically made moves without doing more financial due diligence. In my mind, it is simply a case of “the shoemaker’s children having no shoes”. Simply put, an M&A lawyer would never allow a client to merge with another company without carefully reviewing that company’s financial obligations, balance sheet, cash flow statement, etc. So why would a law firm partner move a large book of business to another firm without first learning everything he or she could about the economics of the new entity?
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