Baby-Boomers in Transition

Much has been written about the popular culture of the “baby-boom” generation (those born in the post WWII era and now in their 50s-60s), but not much about that age group in law firms and how to take them into account in long-term firm strategy. Part One of this article looked at a model (Model 1) with Partner A ' a full-share equity “baby-boomer” partner (BBP) and rainmaker with a substantial client base. Part Two looks at a BBP who is well-respected, and while not a great business generator, has technical skill.

Winding Down

Model 2 involves B, a partner who is not a business generator but has technical skills who serves clients in Y, a mid or large-sized law firm. B is a 55-year-old (non-litigation) lawyer, respected by colleagues and Y's clients. Over the years, B has actively participated in local bar association and business/community groups; on occasion B has written legal articles and given law-related speeches. B has given little thought to retirement. B's practice requires constant re-education as to changing laws, rules, regulations and cases. The practice area is complex, and B recognizes that it is becoming a “young person's game.” B's hours have decreased somewhat in recent years, as Y's younger business-generating partners tend to use their younger Y colleagues for assistance. Some clients that B services are prime candidates for sale, merger or acquisition; if such occurs, B's workload may be further reduced in the future. For these and other reasons Y's managing partners have concluded B is unlikely to be practicing in this area of law 10 years from now on a full-time basis. B is not laterally mobile and has limited prospects for employment at a comparably sized and comparably-profitable law firm, at or near his current income level.

B's expectations are as follows:

• To continue to practice law as long as B can, while recognizing that technological obsolescence can apply to those who have practices like B but who fail to constantly re-educate themselves;
• To modify the scope of B's practice as necessary to extend the number of years B remains of value to the firm;
• To become a senior counselor and mentor of Y's other attorneys (in those areas where B remains knowledgeable and experienced);
• To remain busy and intellectually stimulated, even if his work pace drops by 20%-40% by age 60; and
• In B's sunset years, to keep an office with secretarial support and other benefits commensurate with someone of B's current status in Y. B will be particularly concerned that Y make available medical insurance coverage to B at least until such time as B and B's spouse qualify for Medicare.

In sum, B hopes to remain of value and service to Y for at least another 5 years and longer if possible.

Dealing with the Inevitable

As can be seen by comparing Partners A (from Part One of this article, in the May 2005 issue) and B, certain common objectives are shared by BBPs in transition. However, the Y's vision of B's sunset years again may be different from what B anticipated. Although B is currently a respected attorney, it is less likely that B will greatly enhance Y's profitability and success for many years to come, in light of the anticipated decrease in B's performance, client base and utilization by younger partners. Firm loyalty and collegiality may cause Y to postpone dealing with B's future years until B's decrease in billable hours and performance are notable (if not alarming). Moreover, at that later date, it may be more difficult for B to transition into other areas which may be less taxing or more suited to B's skills and interests.

Many of the questions raised in connection with A and law firm X are also applicable to B and law firm Y. However, the responses may differ by the two partners' respective firms.

The existence of a retirement policy is one of the most difficult issues to address in a partnership agreement. As each partner approaches retirement age, there is a concern as to whether the partner will continue to be productive and profitable, or rather of marginal value who may be blocking the growth of younger partners (billable at lower rates) who could service clients B currently works on. One leading treatise suggests that there should be a provision in the firm's partnership agreement providing for a transition period, if appropriate under the circumstances, whereby the partner's workload is reduced. During this time the partner's capital would be returned and there would be a payment of some portion of the partner's retirement benefits, in consideration of the partner taking steps to institutionalize the firm's clients and to transition matters. See, Leslie Corwin, Law Firm Partnership Agreements, Section 6.04, for a general discussion of retirement aspects and alternative provisions for partnership agreements. Needless to say, the law firm should encourage retiring or near retiring partners to transition their clients' business to younger partners.

B provides some managerial challenges for Y that differ from A's situation. The decline in performance that eventually will affect all BBPs often is faced at an earlier stage for BBPs who are technicians or competent service providers to clients. Medium-large and large-sized law firms are sensitive to widely discussed national law firm surveys that rank each firm's profits per (equity) partner; no firm wants to be comparatively less profitable per partner. B is likely to be marginally reducing Y's profitability average as B's compensation decreases commensurate with B's declining performance. If B's compensation is artificially 'subsidized' to reflect B's prior contributions to Y rather than B's current worth, Y's other partners may perceive B's compensation (and Y's action) as a sign that the pie is improperly being cut by senior management to favor less productive senior partners. Young partners then may vote with their feet, especially those who are sought by other firms, if they are not adequately compensated or perceive an unfair compensation system.

Given this situation, if Y has a two-tier partnership structure it may facilitate B's change in status from equity to non-equity (fixed share) partner, coupled with an appropriate adjustment in compensation and reduced share of upside profits. B's clients and friends need not know of this internal change, as B will (properly) continue to be held out as a partner. B's productivity (if so merited) can be rewarded with a bonus at year end, to incentivize B. B's non-equity partner status may be a stepping stone to B's later becoming an of counsel attorney, when B reduces client responsibilities and pursues other interests. Y may help B identify areas in which B can represent Y to the mutual benefit to B and Y (eg, in bar association or industry group activities, or in civic, social or charitable groups). A nonqualified retirement benefit payable for 5-10 years may help provide B with a soft landing financially. Firm-provided medical insurance coverage may be an important requirement for B and B's spouse until they qualify for Medicare.

In all cases involving partners in transition, their arrangements as agreed or negotiated with their firms' management should be memorialized. A well-drafted document should protect the BBP in transition (and provide a roadmap for the BBP's spouse or representative in the event of disability or death). The agreement should also better protect the law firm, by reducing ambiguity as to the BBP's rights and obligations in transition and beyond, and by obtaining appropriate releases from the BBP when the transition commences or is being completed.

Conclusion

As the large number of baby-boomer partners enter their twilight years of practice, law firms of all sizes will need to address transitional aspects, taking into consideration their partnership agreement, policies, guidelines and culture; compensation, tax, ethical and legal constraints and other matters, to best meet the BBP's needs and expectations without jeopardizing the profitability (and in the worst cases, survival) of their law firms.

Much has been written about the popular culture of the “baby-boom” generation (those born in the post WWII era and now in their 50s-60s), but not much about that age group in law firms and how to take them into account in long-term firm strategy. Part One of this article looked at a model (Model 1) with Partner A ' a full-share equity “baby-boomer” partner (BBP) and rainmaker with a substantial client base. Part Two looks at a BBP who is well-respected, and while not a great business generator, has technical skill.

Winding Down

Model 2 involves B, a partner who is not a business generator but has technical skills who serves clients in Y, a mid or large-sized law firm. B is a 55-year-old (non-litigation) lawyer, respected by colleagues and Y's clients. Over the years, B has actively participated in local bar association and business/community groups; on occasion B has written legal articles and given law-related speeches. B has given little thought to retirement. B's practice requires constant re-education as to changing laws, rules, regulations and cases. The practice area is complex, and B recognizes that it is becoming a “young person's game.” B's hours have decreased somewhat in recent years, as Y's younger business-generating partners tend to use their younger Y colleagues for assistance. Some clients that B services are prime candidates for sale, merger or acquisition; if such occurs, B's workload may be further reduced in the future. For these and other reasons Y's managing partners have concluded B is unlikely to be practicing in this area of law 10 years from now on a full-time basis. B is not laterally mobile and has limited prospects for employment at a comparably sized and comparably-profitable law firm, at or near his current income level.

B's expectations are as follows:

• To continue to practice law as long as B can, while recognizing that technological obsolescence can apply to those who have practices like B but who fail to constantly re-educate themselves;
• To modify the scope of B's practice as necessary to extend the number of years B remains of value to the firm;
• To become a senior counselor and mentor of Y's other attorneys (in those areas where B remains knowledgeable and experienced);
• To remain busy and intellectually stimulated, even if his work pace drops by 20%-40% by age 60; and
• In B's sunset years, to keep an office with secretarial support and other benefits commensurate with someone of B's current status in Y. B will be particularly concerned that Y make available medical insurance coverage to B at least until such time as B and B's spouse qualify for Medicare.

In sum, B hopes to remain of value and service to Y for at least another 5 years and longer if possible.

Dealing with the Inevitable

As can be seen by comparing Partners A (from Part One of this article, in the May 2005 issue) and B, certain common objectives are shared by BBPs in transition. However, the Y's vision of B's sunset years again may be different from what B anticipated. Although B is currently a respected attorney, it is less likely that B will greatly enhance Y's profitability and success for many years to come, in light of the anticipated decrease in B's performance, client base and utilization by younger partners. Firm loyalty and collegiality may cause Y to postpone dealing with B's future years until B's decrease in billable hours and performance are notable (if not alarming). Moreover, at that later date, it may be more difficult for B to transition into other areas which may be less taxing or more suited to B's skills and interests.

Many of the questions raised in connection with A and law firm X are also applicable to B and law firm Y. However, the responses may differ by the two partners' respective firms.

The existence of a retirement policy is one of the most difficult issues to address in a partnership agreement. As each partner approaches retirement age, there is a concern as to whether the partner will continue to be productive and profitable, or rather of marginal value who may be blocking the growth of younger partners (billable at lower rates) who could service clients B currently works on. One leading treatise suggests that there should be a provision in the firm's partnership agreement providing for a transition period, if appropriate under the circumstances, whereby the partner's workload is reduced. During this time the partner's capital would be returned and there would be a payment of some portion of the partner's retirement benefits, in consideration of the partner taking steps to institutionalize the firm's clients and to transition matters. See, Leslie Corwin, Law Firm Partnership Agreements, Section 6.04, for a general discussion of retirement aspects and alternative provisions for partnership agreements. Needless to say, the law firm should encourage retiring or near retiring partners to transition their clients' business to younger partners.

B provides some managerial challenges for Y that differ from A's situation. The decline in performance that eventually will affect all BBPs often is faced at an earlier stage for BBPs who are technicians or competent service providers to clients. Medium-large and large-sized law firms are sensitive to widely discussed national law firm surveys that rank each firm's profits per (equity) partner; no firm wants to be comparatively less profitable per partner. B is likely to be marginally reducing Y's profitability average as B's compensation decreases commensurate with B's declining performance. If B's compensation is artificially 'subsidized' to reflect B's prior contributions to Y rather than B's current worth, Y's other partners may perceive B's compensation (and Y's action) as a sign that the pie is improperly being cut by senior management to favor less productive senior partners. Young partners then may vote with their feet, especially those who are sought by other firms, if they are not adequately compensated or perceive an unfair compensation system.

Given this situation, if Y has a two-tier partnership structure it may facilitate B's change in status from equity to non-equity (fixed share) partner, coupled with an appropriate adjustment in compensation and reduced share of upside profits. B's clients and friends need not know of this internal change, as B will (properly) continue to be held out as a partner. B's productivity (if so merited) can be rewarded with a bonus at year end, to incentivize B. B's non-equity partner status may be a stepping stone to B's later becoming an of counsel attorney, when B reduces client responsibilities and pursues other interests. Y may help B identify areas in which B can represent Y to the mutual benefit to B and Y (eg, in bar association or industry group activities, or in civic, social or charitable groups). A nonqualified retirement benefit payable for 5-10 years may help provide B with a soft landing financially. Firm-provided medical insurance coverage may be an important requirement for B and B's spouse until they qualify for Medicare.

In all cases involving partners in transition, their arrangements as agreed or negotiated with their firms' management should be memorialized. A well-drafted document should protect the BBP in transition (and provide a roadmap for the BBP's spouse or representative in the event of disability or death). The agreement should also better protect the law firm, by reducing ambiguity as to the BBP's rights and obligations in transition and beyond, and by obtaining appropriate releases from the BBP when the transition commences or is being completed.

Conclusion

As the large number of baby-boomer partners enter their twilight years of practice, law firms of all sizes will need to address transitional aspects, taking into consideration their partnership agreement, policies, guidelines and culture; compensation, tax, ethical and legal constraints and other matters, to best meet the BBP's needs and expectations without jeopardizing the profitability (and in the worst cases, survival) of their law firms.