<b>Corner Office</b>: Are Gray-Haired Partners Expendable?

Certainly, honing a legal career takes time and many lawyers hit their stride only when they reach 55 or 60. By then, they have the experience and have developed reputations and relationships that permit them to operate at the top of their game. At that point, they have also attained their maximum value to the firm. Should their peak performance years be limited to five or ten? Should aging baby boomers, with longer life expectancies, be forced to retire at 60 or 65?

Mandatory Retirement

By adopting a mandatory retirement age, a firm gives its partners the opportunity to know the span of their careers with the firm, so they can plan their professional, financial and personal lives accordingly. But what should that age be: 60, 65, 70? Does one size fit all? If you set the age too high, you could wind up with a group of burned-out, unproductive partners. Set too low, you may drive out your most valuable assets. For some, 65 is too old, for others 70 is too young. A few years ago, I had the pleasure of working with a managing partner who at 79 had not lost a step and was more vibrant, effective and motivated than some of his partners 20 years younger.

The Current Environment

Firms with mandatory retirement are finding that some of their senior partners approaching retirement, are seeking out and joining competing firms with less stringent or no mandatory retirement, and are taking their clients with them too. Although amicable, these departures are disruptive to the partner, the firm, and certainly to the clients. A partner who spends the better part of a career at a firm should not, in the twilight of that career, be forced to move to another firm, if still capable of handling an active practice and serving clients effectively. The acquiring firms view these partners as trophies to enhance their stature with their own clients in areas where they may not have adequate credentials or depth. For them, the cost/value benefit of the goodwill generated by acquiring a high-profile player may be justified, even if only for a few years. So if your competitors can see a bright side to your senior partners, isn't it worth reexamining your policies to see if you are prematurely discarding assets that could be equally valuable to your firm, if viewed from a different perspective?

Profile of Senior Partners

From my experience, senior partners generally fall into four categories. The first is made up of partners who have worked hard and long and look forward to retirement. Usually, they have prepared themselves and have transitioned all their relationships and contacts to younger partners. For them, mandatory retirement is a relief, and they can't wait to get to the golf course or beach.

The second category is composed of partners who also have worked hard and long, but as they approach senior status, they begin to lose their edge and their experience gets stale. Their contacts retire and they have difficulty developing new ones. They do not relate well to younger partners and don't mentor them. For this group, even waiting to reach the mandatory retirement age is a burden on the firm and may be demeaning for the partner.

The third category is composed of partners who do not want to retire completely. They are still productive and want to continue working, but at a reduced pace. They mentor and are respected by younger partners, are sought out by clients, and continue to make rain. They want to slow down and take more vacation, or work reduced hours, so they can enjoy more leisure time.

In the fourth category are partners who have no immediate interest in retiring. They still maintain a high energy level, have top-level contacts, and are actually working at peak stride. They are driven, and keep pace with much younger partners. They also mentor and are respected by younger partners, are sought out by clients and continue to make rain.

The Firm Perspective

If a firm fails to adopt mandatory retirement, it runs the risk that senior partners may rest on their laurels, suck up too much of the profits, and inhibit the growth and development of younger partners. That is a recipe for disaster and would frustrate the younger partners and drive them out of the firm. On the other hand, how could it be in a firm's best interest to have partners in either of the last two categories described above, who are productive and want to continue working, walk out the door and into the office of a competitor, with their clients? The only real assets a law firm has are its partners and these senior partners are valuable assets that a firm should learn how to capitalize on for its own benefit.

Evaluating Partner Performance and Value

While partners are expected to contribute value to the firm during their entire careers, the nature of the contribution that each partner makes will, and should, be different at the different stages of a partner's career. I never cease to be amazed at how this subtle but fundamental point so often eludes those who manage law firms.

Perhaps the main reason that firms have difficulty dealing with senior partners is because they erroneously view the entire partner group as homogenous. But because a partner group is seldom homogenous, the key to effectively and fairly determining a partner's value to the firm at any point in that partner's career should be based on a comparison of performance to peers at equivalent points and stages in their careers.

To appreciate the validity of this approach, decompose your partners into at least three groups. First, young partners in their early years. Second, those in their middle or prime years, which hopefully will comprise the bulk of your partners. Third, senior partners. It should be obvious, looked at in this way, that the effort, performance, contribution, and expectations for each of these groups should be different. And so should the criteria by which they are evaluated. Management needs to clearly define the roles and responsibilities of partners at the various stages of their careers. Clear expectations should be set for effort expected, levels of client service, training and mentoring, and marketing and business development.

If the responsibilities of a senior partner are clearly defined and distinguishable from those of a partner in the middle or prime years, it is much easier to evaluate the differing values of partners within and among the groups. And it would also be easier to evaluate the performance and value of senior partners who do not slow down, since they can more easily be compared with those operating in their prime years.

A Defined Role

You need to establish criteria by which senior partners are to be evaluated so that they know what is expected of them as they move into their senior years. This should include activities that enhance the reputation of the firm in the marketplace, as well as training and mentoring younger partners and associates. They should transfer client contacts to younger partners and work actively to develop these relationships successfully, so that clients perceive the transition to be seamless and without duplication.

A Flexible Solution

As managing partner, you should tailor a solution that addresses and can accommodate each of the four categories of senior partners profiled earlier. A flexible approach can be win/win for both the firm and the partners.

Partners who burn out early, and those who just want to do something else, should have an early retirement option. Early retirement could be encouraged by creating a fiscal incentive that makes it attractive to the partner. For example, partners in this category might be delighted to leave early and stop practicing law if they received, for example, one-third of a year's compensation for each year of early retirement, up to, say, five years.

For partners who wish to continue working beyond mandatory retirement, either with a reduced workload, or at full tilt, they should be retired as equity partners, and could be continued as non-equity partners, on an annual basis. But the tough question you will need to address is how to compensate them fairly. While their motivation to continue should not be the money, they would not want to feel demeaned or taken advantage of. All partners should have their retirement funded by the time they reach the firm's mandatory retirement age. If that is not the case, your firm has a different problem that should be addressed separately. In any event, how you compensate these senior partners will be the key to the success of retaining these valuable assets.

The Value of a Partner Is Measured by Compensation

Any protestations to the contrary notwithstanding, compensation is the real yardstick by which a firm measures the value of its partners. Ordinarily, merit-based compensation systems address partner performance during the ascendancy years. Whatever the methodology used, it compares the value of partners to each other on a relative basis. It is not unlike the assessment of real property taxes, where the amount of your particular tax is not as important as its relationship to that of your neighbors. Ordinarily, reducing a partner's compensation implies inadequacy of performance. Firms have not focused on how to reduce a partner's compensation and still preserve the partner's dignity. To address this, you will need to take a hard look at your compensation system.

A merit-based compensation system rewards effort and achievement. Among the items usually measured are: originations, billings, collections, billable hours, marketing, cross selling, training, mentoring, teamwork, and reputation and stature attained in the profession and the marketplace. But the real question is by what standards do you measure effort and achievement in these areas? Is it current effort? Sustained effort? Difficult questions indeed! And ones that, I have found, most firms treat amorphously.

A well-designed compensation system should set expected performance levels to be achieved at all the different stages of a partner's career, from the early years, though the prime performance years, and including the senior years. Under such a system, senior partners could be compensated on the basis of their contribution and value to the firm based on criteria appropriate to their stage and current performance. And if they perform at the level of partners in their prime, you would be justified in setting their compensation at an equivalent level, even though they have retired as equity partners.

The Profession Is Noticing

In a January 2007 report on age discrimination in the legal profession, a Special Committee of the New York State Bar Association concluded that mandatory retirement 'is not an acceptable practice.' While acknowledging the need for flexibility in addressing the differing circumstances of senior partners, it concludes that they should remain in the partnership. And while conceding that partnership is not a guarantee of lifetime tenure, it recommends that partner retirements should be an individual negotiation between the senior partner and the firm. With all due respect to the members of this august committee, I would suggest that most senior partners, except for a few high-profile stars, would be at a disadvantage, with little clout, in negotiating the continuation of their positions in a large firm. That is among the reasons I suggest that the adoption of mandatory retirement, together with my recommendations for flexibility and more precise criteria for evaluating partner performance and determining compensation, are fairer to both the partner and the firm.

Conclusion

Certainly, this is a complicated issue. But before you start inadvertently losing some of your firm's most valuable assets, you owe it to your partners and your clients to take a fresh look at your situation. With the graying of America, and the baby boomer generation looking to defer retirement and extend their working years, you would be wise to undertake a program that focuses on determining how to hold on to your valuable assets for as long as they can be productive. And don't lose sight of the fact that many clients prefer to entrust their important matters to a seasoned lawyer with years of experience ' and the gray hair responds to that message.

Melchior S. Morrione, Managing Director of MSM Consulting (www.msm-consulting.com), provides management consulting services in governance, strategic planning and marketing to law firms. Previously an international tax partner at Arthur Andersen serving a Fortune 500 practice, he balanced the demands of clients with the need to develop new and innovative client services for the firm. A member of this newsletter's Board of Editors, he can be reached at 201-307-1650 or [email protected]. ' 2007 Melchior S. Morrione.

The growth of law firms over the last two decades has produced an accompanying increase in the number of partners. The inevitable result of this increase is that many are now approaching retirement age ' however retirement age may be defined. In the old days, law firms didn't pay much attention to retirement, because partners who remained healthy seldom retired, often working well into their seventies and beyond.

The Senior Partner Class

Gray-haired, older, or as I shall refer to them, senior partners, as a class, represent a challenge that most managing partners find vexing. Many firms have avoided addressing this very complex issue either because of the emotional reaction it invokes, or because they just don't see it as a real problem yet. Others have adopted the apparently simple solution of setting a mandatory retirement age at which the partner is expected to stop practicing and head for a retirement community.

Certainly, honing a legal career takes time and many lawyers hit their stride only when they reach 55 or 60. By then, they have the experience and have developed reputations and relationships that permit them to operate at the top of their game. At that point, they have also attained their maximum value to the firm. Should their peak performance years be limited to five or ten? Should aging baby boomers, with longer life expectancies, be forced to retire at 60 or 65?

Mandatory Retirement

By adopting a mandatory retirement age, a firm gives its partners the opportunity to know the span of their careers with the firm, so they can plan their professional, financial and personal lives accordingly. But what should that age be: 60, 65, 70? Does one size fit all? If you set the age too high, you could wind up with a group of burned-out, unproductive partners. Set too low, you may drive out your most valuable assets. For some, 65 is too old, for others 70 is too young. A few years ago, I had the pleasure of working with a managing partner who at 79 had not lost a step and was more vibrant, effective and motivated than some of his partners 20 years younger.

The Current Environment

Firms with mandatory retirement are finding that some of their senior partners approaching retirement, are seeking out and joining competing firms with less stringent or no mandatory retirement, and are taking their clients with them too. Although amicable, these departures are disruptive to the partner, the firm, and certainly to the clients. A partner who spends the better part of a career at a firm should not, in the twilight of that career, be forced to move to another firm, if still capable of handling an active practice and serving clients effectively. The acquiring firms view these partners as trophies to enhance their stature with their own clients in areas where they may not have adequate credentials or depth. For them, the cost/value benefit of the goodwill generated by acquiring a high-profile player may be justified, even if only for a few years. So if your competitors can see a bright side to your senior partners, isn't it worth reexamining your policies to see if you are prematurely discarding assets that could be equally valuable to your firm, if viewed from a different perspective?

Profile of Senior Partners

From my experience, senior partners generally fall into four categories. The first is made up of partners who have worked hard and long and look forward to retirement. Usually, they have prepared themselves and have transitioned all their relationships and contacts to younger partners. For them, mandatory retirement is a relief, and they can't wait to get to the golf course or beach.

The second category is composed of partners who also have worked hard and long, but as they approach senior status, they begin to lose their edge and their experience gets stale. Their contacts retire and they have difficulty developing new ones. They do not relate well to younger partners and don't mentor them. For this group, even waiting to reach the mandatory retirement age is a burden on the firm and may be demeaning for the partner.

The third category is composed of partners who do not want to retire completely. They are still productive and want to continue working, but at a reduced pace. They mentor and are respected by younger partners, are sought out by clients, and continue to make rain. They want to slow down and take more vacation, or work reduced hours, so they can enjoy more leisure time.

In the fourth category are partners who have no immediate interest in retiring. They still maintain a high energy level, have top-level contacts, and are actually working at peak stride. They are driven, and keep pace with much younger partners. They also mentor and are respected by younger partners, are sought out by clients and continue to make rain.

The Firm Perspective

If a firm fails to adopt mandatory retirement, it runs the risk that senior partners may rest on their laurels, suck up too much of the profits, and inhibit the growth and development of younger partners. That is a recipe for disaster and would frustrate the younger partners and drive them out of the firm. On the other hand, how could it be in a firm's best interest to have partners in either of the last two categories described above, who are productive and want to continue working, walk out the door and into the office of a competitor, with their clients? The only real assets a law firm has are its partners and these senior partners are valuable assets that a firm should learn how to capitalize on for its own benefit.

Evaluating Partner Performance and Value

While partners are expected to contribute value to the firm during their entire careers, the nature of the contribution that each partner makes will, and should, be different at the different stages of a partner's career. I never cease to be amazed at how this subtle but fundamental point so often eludes those who manage law firms.

Perhaps the main reason that firms have difficulty dealing with senior partners is because they erroneously view the entire partner group as homogenous. But because a partner group is seldom homogenous, the key to effectively and fairly determining a partner's value to the firm at any point in that partner's career should be based on a comparison of performance to peers at equivalent points and stages in their careers.

To appreciate the validity of this approach, decompose your partners into at least three groups. First, young partners in their early years. Second, those in their middle or prime years, which hopefully will comprise the bulk of your partners. Third, senior partners. It should be obvious, looked at in this way, that the effort, performance, contribution, and expectations for each of these groups should be different. And so should the criteria by which they are evaluated. Management needs to clearly define the roles and responsibilities of partners at the various stages of their careers. Clear expectations should be set for effort expected, levels of client service, training and mentoring, and marketing and business development.

If the responsibilities of a senior partner are clearly defined and distinguishable from those of a partner in the middle or prime years, it is much easier to evaluate the differing values of partners within and among the groups. And it would also be easier to evaluate the performance and value of senior partners who do not slow down, since they can more easily be compared with those operating in their prime years.

A Defined Role

You need to establish criteria by which senior partners are to be evaluated so that they know what is expected of them as they move into their senior years. This should include activities that enhance the reputation of the firm in the marketplace, as well as training and mentoring younger partners and associates. They should transfer client contacts to younger partners and work actively to develop these relationships successfully, so that clients perceive the transition to be seamless and without duplication.

A Flexible Solution

As managing partner, you should tailor a solution that addresses and can accommodate each of the four categories of senior partners profiled earlier. A flexible approach can be win/win for both the firm and the partners.

Partners who burn out early, and those who just want to do something else, should have an early retirement option. Early retirement could be encouraged by creating a fiscal incentive that makes it attractive to the partner. For example, partners in this category might be delighted to leave early and stop practicing law if they received, for example, one-third of a year's compensation for each year of early retirement, up to, say, five years.

For partners who wish to continue working beyond mandatory retirement, either with a reduced workload, or at full tilt, they should be retired as equity partners, and could be continued as non-equity partners, on an annual basis. But the tough question you will need to address is how to compensate them fairly. While their motivation to continue should not be the money, they would not want to feel demeaned or taken advantage of. All partners should have their retirement funded by the time they reach the firm's mandatory retirement age. If that is not the case, your firm has a different problem that should be addressed separately. In any event, how you compensate these senior partners will be the key to the success of retaining these valuable assets.

The Value of a Partner Is Measured by Compensation

Any protestations to the contrary notwithstanding, compensation is the real yardstick by which a firm measures the value of its partners. Ordinarily, merit-based compensation systems address partner performance during the ascendancy years. Whatever the methodology used, it compares the value of partners to each other on a relative basis. It is not unlike the assessment of real property taxes, where the amount of your particular tax is not as important as its relationship to that of your neighbors. Ordinarily, reducing a partner's compensation implies inadequacy of performance. Firms have not focused on how to reduce a partner's compensation and still preserve the partner's dignity. To address this, you will need to take a hard look at your compensation system.

A merit-based compensation system rewards effort and achievement. Among the items usually measured are: originations, billings, collections, billable hours, marketing, cross selling, training, mentoring, teamwork, and reputation and stature attained in the profession and the marketplace. But the real question is by what standards do you measure effort and achievement in these areas? Is it current effort? Sustained effort? Difficult questions indeed! And ones that, I have found, most firms treat amorphously.

A well-designed compensation system should set expected performance levels to be achieved at all the different stages of a partner's career, from the early years, though the prime performance years, and including the senior years. Under such a system, senior partners could be compensated on the basis of their contribution and value to the firm based on criteria appropriate to their stage and current performance. And if they perform at the level of partners in their prime, you would be justified in setting their compensation at an equivalent level, even though they have retired as equity partners.

The Profession Is Noticing

In a January 2007 report on age discrimination in the legal profession, a Special Committee of the New York State Bar Association concluded that mandatory retirement 'is not an acceptable practice.' While acknowledging the need for flexibility in addressing the differing circumstances of senior partners, it concludes that they should remain in the partnership. And while conceding that partnership is not a guarantee of lifetime tenure, it recommends that partner retirements should be an individual negotiation between the senior partner and the firm. With all due respect to the members of this august committee, I would suggest that most senior partners, except for a few high-profile stars, would be at a disadvantage, with little clout, in negotiating the continuation of their positions in a large firm. That is among the reasons I suggest that the adoption of mandatory retirement, together with my recommendations for flexibility and more precise criteria for evaluating partner performance and determining compensation, are fairer to both the partner and the firm.

Conclusion

Certainly, this is a complicated issue. But before you start inadvertently losing some of your firm's most valuable assets, you owe it to your partners and your clients to take a fresh look at your situation. With the graying of America, and the baby boomer generation looking to defer retirement and extend their working years, you would be wise to undertake a program that focuses on determining how to hold on to your valuable assets for as long as they can be productive. And don't lose sight of the fact that many clients prefer to entrust their important matters to a seasoned lawyer with years of experience ' and the gray hair responds to that message.

Melchior S. Morrione, Managing Director of MSM Consulting (www.msm-consulting.com), provides management consulting services in governance, strategic planning and marketing to law firms. Previously an international tax partner at Arthur Andersen serving a Fortune 500 practice, he balanced the demands of clients with the need to develop new and innovative client services for the firm. A member of this newsletter's Board of Editors, he can be reached at 201-307-1650 or [email protected]. ' 2007 Melchior S. Morrione.