Succession Planning Is Essential for Law Firm Survival

A major challenge law firms face today is the continued aging of their partnerships. One of the principal reasons for this is that 'baby boomers' are approaching retirement. While this is a problem for all businesses and professions in the United States, it is particularly serious for law firms because it poses a threat to their future survival. While many senior partners are both physically and mentally able to continue practicing, firms are beginning to recognize that succession planning, for both client and management responsibilities, has become essential if the firms are to continue in existence.

The first succession issue to address is client responsibility. This is a delicate situation for a few reasons:

As noted above, the future health ' and even survival ' of every firm depends, to a great degree, on retaining longtime clients after the attorneys who have worked with them are no longer practicing due to age, disability, retirement or death.

Clients, particularly long-standing ones, develop unique relationships with their attorneys.

First Objective: Keep the Clients

Older partners have always had to face the question of what would happen to their clients when they eventually stopped practicing. Senior partners in some firms have wisely already involved younger attorneys in working with their clients. Where clients have felt comfortable with the younger attorneys, and have been willing to work with them, these partners have, at some point, taken the initiative and have advised the clients that they are transferring responsibility for those clients to the younger attorney who is generally a partner.

Unfortunately, older partners often fail to accept the likelihood that their clients may leave the firm when they are no longer the responsible or billing attorney. Some older partners also fail to recognize their clients' perspective. Client personnel age as well as attorneys and younger people may have already replaced the contacts the partner had a close relationship with. Many of these new people prefer to work with an attorney closer to their own age.

Even if they are quite satisfied with the older partner, sooner or later they begin to worry about who will handle their work when the partner slows down, becomes ill or dies. If they have not developed confidence in, and a relationship with, younger attorneys in the firm, these younger client personnel start thinking about taking their work to an attorney they know in another firm. In some cases, the client doesn't even wait for the older partner to stop practicing and advises him or her that they are changing firms. There are more than just a few firms that have not been able to survive these losses and have had to merge into another firm or close their doors.

Transferring client responsibilities can take time. It must be started early rather than as the result of an unexpected or unplanned-for development.

Also Important: Develop Management

The other important succession issue is management ' of the firm, practice groups and offices. Some firms are fortunate in having strong and capable Managing Partners or CEOs who manage the firm effectively, maintain the trust of the other partners and who are willing to continue in that role for many years ' even at the sacrifice of their own practices.

Since many attorneys do not possess management skills, or are unwilling to give up some ' or all ' of their practices to assume the management responsibilities, firms that are blessed with a strong and capable Managing Partner seem to assume that that person will be in that position forever and give little or no thought to what will happen if the MP retires, is taken ill or even leaves the firm to join a client. The last instance is not unusual. The CEO of one of the largest firms in the U.S. unexpectedly resigned from the firm several years ago to become the CEO of a major client. While the firm still serves that client, it had not groomed a capable successor and has struggled since then. In fact, it is now seriously considering merging into another firm.

Succession planning is important, not just for the managing partner or CEO, but also for other key management positions. If there is a management or executive committee, term limits should be established so that younger partners can be elected and begin to develop as future managers. The same is true of a practice group chair, probably the second most important management position in a firm. Finally, even in this developing era of matrix management, the position of office managing partner or in-charge is still a major responsibility, particularly in a large firm where some of the offices are the size of entire firms.

When and How to Start

Firms that have been successful in establishing and implementing succession programs have learned some important lessons ' often painfully. To begin with, it is important to start the transition, both client and management, early. Some firms that have a mandatory retirement age have also instituted a 'wind-down' period that begins 3-5 years before a partner retires or becomes of counsel. In these firms, the partners are required to begin transitioning client responsibilities or to step down from any senior management position during this wind-down period. Under this arrangement, the firm can move younger partners into these roles while the senior partners are still available to provide counsel and direction as requested.

In the case of client responsibilities, some firms require the partner to develop a transition plan that must be approved and monitored by the managing partner or executive committee. This occurred recently in one of our clients, a national firm, where one of the founding partners had not begun to transfer client responsibility to other partners. In this firm, the name partner will continue to work with his clients but will no longer be responsible for them. One of the benefits of such succession planning is that it permits the senior partner to continue practicing if he or she wishes without having to also be the 'relationship partner' for clients.

The speed and sequence in which clients should be transitioned varies with each client. There may be particular matters the senior partner should continue to handle. Or the client may have already raised the issue of who will succeed the responsible partner. The one factor that does not depend on the client is that, in all cases, the transition must be discussed with each client to be sure that they are satisfied with the designated ' or contemplated ' successor.

When Resistance is Encountered

What does a firm do when an older or senior partner resists transition, particularly with regard to clients? These situations must be approached with extreme sensitivity and with understanding and appreciation for the partner's feelings and his or her longtime service with the firm.

One of the best ways to handle the situation is for a partner who has a close relationship with the senior partner to approach that partner in private. If given time to recognize and accept the situation, most older partners will gradually come around. However, if a partner continues to resist transition, firm management must then take more direct action.

Another issue that must be considered is compensation. As partners begin to phase out of management positions and transfer client responsibilities, there will be a point at which their compensation should be gradually reduced. 'Gradually' is the important word. In firms that have established a wind-down period, the adjusted compensation is generally spelled out in advance. In other firms, the adjusted compensation is negotiated with each senior partner.

Conclusion

Regardless of the situation in each firm, succession planning is essential. The key words to remember in this regard are 'early, gradual and continuous.'

A major challenge law firms face today is the continued aging of their partnerships. One of the principal reasons for this is that 'baby boomers' are approaching retirement. While this is a problem for all businesses and professions in the United States, it is particularly serious for law firms because it poses a threat to their future survival. While many senior partners are both physically and mentally able to continue practicing, firms are beginning to recognize that succession planning, for both client and management responsibilities, has become essential if the firms are to continue in existence.

The first succession issue to address is client responsibility. This is a delicate situation for a few reasons:

As noted above, the future health ' and even survival ' of every firm depends, to a great degree, on retaining longtime clients after the attorneys who have worked with them are no longer practicing due to age, disability, retirement or death.

Clients, particularly long-standing ones, develop unique relationships with their attorneys.

First Objective: Keep the Clients

Older partners have always had to face the question of what would happen to their clients when they eventually stopped practicing. Senior partners in some firms have wisely already involved younger attorneys in working with their clients. Where clients have felt comfortable with the younger attorneys, and have been willing to work with them, these partners have, at some point, taken the initiative and have advised the clients that they are transferring responsibility for those clients to the younger attorney who is generally a partner.

Unfortunately, older partners often fail to accept the likelihood that their clients may leave the firm when they are no longer the responsible or billing attorney. Some older partners also fail to recognize their clients' perspective. Client personnel age as well as attorneys and younger people may have already replaced the contacts the partner had a close relationship with. Many of these new people prefer to work with an attorney closer to their own age.

Even if they are quite satisfied with the older partner, sooner or later they begin to worry about who will handle their work when the partner slows down, becomes ill or dies. If they have not developed confidence in, and a relationship with, younger attorneys in the firm, these younger client personnel start thinking about taking their work to an attorney they know in another firm. In some cases, the client doesn't even wait for the older partner to stop practicing and advises him or her that they are changing firms. There are more than just a few firms that have not been able to survive these losses and have had to merge into another firm or close their doors.

Transferring client responsibilities can take time. It must be started early rather than as the result of an unexpected or unplanned-for development.

Also Important: Develop Management

The other important succession issue is management ' of the firm, practice groups and offices. Some firms are fortunate in having strong and capable Managing Partners or CEOs who manage the firm effectively, maintain the trust of the other partners and who are willing to continue in that role for many years ' even at the sacrifice of their own practices.

Since many attorneys do not possess management skills, or are unwilling to give up some ' or all ' of their practices to assume the management responsibilities, firms that are blessed with a strong and capable Managing Partner seem to assume that that person will be in that position forever and give little or no thought to what will happen if the MP retires, is taken ill or even leaves the firm to join a client. The last instance is not unusual. The CEO of one of the largest firms in the U.S. unexpectedly resigned from the firm several years ago to become the CEO of a major client. While the firm still serves that client, it had not groomed a capable successor and has struggled since then. In fact, it is now seriously considering merging into another firm.

Succession planning is important, not just for the managing partner or CEO, but also for other key management positions. If there is a management or executive committee, term limits should be established so that younger partners can be elected and begin to develop as future managers. The same is true of a practice group chair, probably the second most important management position in a firm. Finally, even in this developing era of matrix management, the position of office managing partner or in-charge is still a major responsibility, particularly in a large firm where some of the offices are the size of entire firms.

When and How to Start

Firms that have been successful in establishing and implementing succession programs have learned some important lessons ' often painfully. To begin with, it is important to start the transition, both client and management, early. Some firms that have a mandatory retirement age have also instituted a 'wind-down' period that begins 3-5 years before a partner retires or becomes of counsel. In these firms, the partners are required to begin transitioning client responsibilities or to step down from any senior management position during this wind-down period. Under this arrangement, the firm can move younger partners into these roles while the senior partners are still available to provide counsel and direction as requested.

In the case of client responsibilities, some firms require the partner to develop a transition plan that must be approved and monitored by the managing partner or executive committee. This occurred recently in one of our clients, a national firm, where one of the founding partners had not begun to transfer client responsibility to other partners. In this firm, the name partner will continue to work with his clients but will no longer be responsible for them. One of the benefits of such succession planning is that it permits the senior partner to continue practicing if he or she wishes without having to also be the 'relationship partner' for clients.

The speed and sequence in which clients should be transitioned varies with each client. There may be particular matters the senior partner should continue to handle. Or the client may have already raised the issue of who will succeed the responsible partner. The one factor that does not depend on the client is that, in all cases, the transition must be discussed with each client to be sure that they are satisfied with the designated ' or contemplated ' successor.

When Resistance is Encountered

What does a firm do when an older or senior partner resists transition, particularly with regard to clients? These situations must be approached with extreme sensitivity and with understanding and appreciation for the partner's feelings and his or her longtime service with the firm.

One of the best ways to handle the situation is for a partner who has a close relationship with the senior partner to approach that partner in private. If given time to recognize and accept the situation, most older partners will gradually come around. However, if a partner continues to resist transition, firm management must then take more direct action.

Another issue that must be considered is compensation. As partners begin to phase out of management positions and transfer client responsibilities, there will be a point at which their compensation should be gradually reduced. 'Gradually' is the important word. In firms that have established a wind-down period, the adjusted compensation is generally spelled out in advance. In other firms, the adjusted compensation is negotiated with each senior partner.

Conclusion

Regardless of the situation in each firm, succession planning is essential. The key words to remember in this regard are 'early, gradual and continuous.'