25 percent reduction in legal department after Akzo Nobel acquired International Chemicals

As stated in Corp. Counsel, Vol. 15, Dec. 2008 at 111, the merger of Akzo Nobel and International Chemicals in early 2008 created a combined legal department of 240 lawyers. Within a few months that number had fallen to 180 lawyers, a 25 percent reduction.

Mergers result in layoffs, including in legal departments (See my post of Aug. 4, 2008: Nextel-Sprint was about 30 percent; Sept.13, 2005: Honeywell – Oracle as well as El Paso – Coastal; Feb. 19, 2007: BellSouth – AT&T; and May 5, 2008: turnover after mergers.).

Some headcount reductions may result from dispositions of business units and the lawyers who serve them. A few result from the elimination of duplicate positions; you only need one general counsel or one head of litigation. And disappointed contenders for the top spots may fall for the siren song of headhunters. My question, however, is whether many post-merger losses are short term. For example, some lawyers may decline to transfer to the new locations, but their positions will fairly soon be filled.

At the level of 20-40 percent layoffs, assuming the merged company’s revenue stays approximately the same as that of the predecessors, it suggests that the pre-merger law departments were not very efficient. Over time, law departments in an industry maintain about the same number of lawyers per unit of revenue, so if you combine two companies in a merger and the revenue goes up, the ratio of lawyers for that revenue staying the same means that the job losses are somewhat temporary. The base number will eventually approach the benchmark norm.

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