Due Diligence is not always objective

Tina Williams

Partner, McCarthy Denning

March 4, 2026

When entering merger negotiations, any firm needs to investigate a host of issues about its potential merger partner. It pays to bear in mind that more mergers fail to deliver the expected success due to a clash of cultures than for any other reason. Whilst no partner in a firm of any size is going to be on the best of terms with every other partner, the partners as a whole at least need to be viewing the world from the same end of the telescope and to have compatible visions of the future. What motivates a firm and how its constituent members behave constitute its culture. Even a weak culture, if dissonant, will make achieving an aim more difficult.

It is hard to obtain objective evidence of culture. But a firm can build up a broad picture of a potential
merger partner’s culture that can throw up warning signs if it is prepared to invest time and energy in
making reasonable deductions from objective evidence and relying on emotional responses in areas
where objective evidence is unavailable. Here are some useful indicators:

How does the other firm define its own culture and vision? Does it have a set of corporate
values? How are those reinforced?
What do you observe in negotiations with the other firm about how its partners interact with
each other? Are they all on-message or do some display individual agendas? Do they always
treat each other respectfully?
How is its managing body selected and what issues remain for decision by the partners as a
whole?
How does its performance appraisal system operate? Is 360° feedback the norm?
How many partners and employees have left in the last two years? Ask about the reasons.
How often have partners and staff been absent through sickness in the past two years?Is there any indication of a higher than normal incidence of stress-related illness?
What is the gender/race/LGBTQ balance among the partners and within the firm generally? What are the firm’s policies on these issues? How wide is the gender pay gap and what are
the reasons? What employee benefits are provided?
How do the partners compensate themselves? Remuneration systems are an important
indicator of what the firm values.
What risk management and quality control strategies are in place? Have these resulted in low
complaints and professional indemnity insurance claim records? Which of the firm’s practice
areas and what proportion of its partners are rated in the independent legal guides?
Of the partners you have met, how many would it concern you to be stuck in a lift with for
three hours? Are they enjoyable company socially? Are they good ambassadors for their
firm?

It would be remiss of any firm contemplating merger not to focus on culture as one of the most
important intangibles.

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