More Small Firm Leaders Embrace Succession Planning

As partners and firm leaders from the baby boomer generation have begun to reach retirement age, legal consultants say succession planning has become a subject of increasing concern at small law firms, and is a topic they encourage those firms to prioritize.

Consultants say small firms have employed a number of different approaches when it comes to preparing for the retirement of senior partners and firm leaders. Lori Carpenter of Carpenter Legal Search in Pittsburgh says she hasn't noticed a particular trend in how firms prepare for these changes, but an overall increase in awareness.

“I'm seeing smaller firms thinking about their future ' particularly those that have been in existence for a long time,” Carpenter says. “People are thinking about it and I'm encouraging it more.”

Still, she says, a lot of smaller firms have no rules on succession, and no forced retirement. While large firms often set a retirement age for partners, and designate a time period for transitioning clients, small and midsize firms are less likely to have such prescribed plans. Strict requirements may not be necessary, consultant Jeff Coburn says, but firms should at least be thinking about the issue years in advance.

“I think this is a case where the really big firms have really taken the leadership and have instituted really rigid, disciplined rules and regulations about partners who have gotten on,” Coburn says. Midsize and smaller firms are behind in comparison.

“They're run like mom-and-pop shops. The culture is more like a family than a business,” Coburn says.

More Flexibility

Dennis C. Reardon, founder of Reardon & Associates, has a firm with one associate, a paralegal and a secretary. He says a lot of partners probably start thinking about succession planning later than they should.

“The problem with a small firm, if you start out with a solo, is the solo may have no one to succeed them,” Reardon says.

Sometimes a medical event propels the process, Reardon says. He noted that with baby boomers reaching retirement age, it has become an issue of growing concern at small firms.

“As that plan gets developed, nobody on the staff wants to see the sausage being made, but as the plan develops, it's important to communicate,” Reardon says.

Lately, Reardon says he has seen more firm founders taking their practices to a larger firm, which then takes over the work once the lawyer retires. Carpenter agrees.

“They tend to look toward going to other firms because they find it harder to attract talent,” Carpenter says. But “it's hard because [the firm has] been their baby for 25 years” or more.

Sometimes, a new firm leader can be brought in to inherit both the clients and the firm itself. But this works best when it's “a home-grown proposition” involving a younger lawyer who spent a significant amount of time at the firm before getting the opportunity to take it over, Reardon says. When done properly, he says, it gives the retiring lawyer the opportunity to scale down his or her practice, gradually passing it along before leaving.

But that is easier said than done in some states, such as Pennsylvania, says David A. Fitzsimons, vice chair of the Pennsylvania Bar Association's committee on legal ethics and professional responsibility. While the American Bar Association updated its model rules on sale of a law practice years ago, to allow for smoother transitions, Pennsylvania is still in the process of implementing that change.

“The ethics are holding back right now some opportunities for transition,” Fitzsimons says.

Currently, under the Pennsylvania Rule of Professional Conduct 1.17, a law practice must be sold as a single entity, and the seller must cease to practice law in Pennsylvania.

“The justification for the existing requirement that the practice be sold as an entirety to a single lawyer is to avoid a piecemeal sale whereby a purchaser might only purchase a seller's more profitable cases or matters, leaving clients whose matters are less lucrative unrepresented,” the Pennsylvania Disciplinary Board said in an announcement of proposed changes to the rule. “However, the present requirement to sell as an entirety can pose difficulties in identifying a capable, competent purchaser where the law practice consists of disparate practice areas.”

Fitzsimons says this is mostly a problem for solo practitioners.

Last year, the Pennsylvania Bar Association recommended that the rule be changed to allow an attorney to sell a practice area without retiring from the practice of law overall. The Disciplinary Board reviewed the change and recommended it to the Supreme Court of Pennsylvania, Fitzsimons says, which has yet to announce whether it will be accepted.

“What this rule modification will do is provide more flexibility in options,” Fitzsimons says. “Under the new rule, you could potentially transfer for value your family law book of business to, say, a younger attorney ' and you would also be allowed to spend some time assisting the younger attorney in transition.”

Mentorship

Coburn says partners should allow at least three, and up to five, years for the transition of a practice to another attorney. “The idea [is] that you're going to start transitioning your clientele and you're going to start involving younger lawyers, even if you can't charge for it, because it's really important to the client as well as to the firm.”

Eventually, Coburn says, the clients begin to ask for the newer attorney, and more of the business goes to that person. And at some point, the fee structure changes to accommodate that.

“Leadership of the law firm needs to have their eyes on this too,” Coburn says, by ensuring partners make these plans. But there should also be a management succession plan, he said, particularly at small and midsize firms with multiple partners.

“I encourage firms to have a deputy managing partner who will eventually graduate ' and give them a chance to get their feet wet a little bit,” Coburn says.

Fitzsimons says the change to Rule 1.17 is expected to be helpful to the small and solo firm leaders who are looking for a transition plan. But it may also be the solution for the new generation of lawyers who are facing overcapacity at the Pennsylvania law firms.

“Their best opportunity to establish a career in a small town is through the mentorship of another lawyer,” Fitzsimons says.

Lizzy McLellan writes for our Philadelphia-based sibling ALM newspaper, The Legal Intelligencer. She can be contacted at 215-557-2493 or [email protected]. Follow her on Twitter @LizzyMcLellTLI.