Five Keys to Successfully Transitioning Clients Across Generations

To combat these concerns, here are five drivers of successful client succession planning based on best practices of high-performing firms.

1. Link Transitions to Compensation

Most firms don't have the luxury of a rich pension plan to drive partner behavior. Instead, firms generally use carrots, sticks or a combination of both to drive effective transitions.

A commonly used carrot is linking successful transitions with compensation for partners who are nearing retirement. In this scenario, credit is given if the partner meets certain expectations for transition. Firms often give more than 100% credit for a relationship as an investment in successfully retaining and transitioning the client relationship across generations.

Some firms use a stick, lowering compensation for partners who fail to meet transition expectations. One high-performing New York firm steps down compensation of late-career partners on a five-year glide to retirement. The firm has certain expectations of partners during that period, including effective transition of their relationships to the next generation. To the extent a partner in the firm does not meet expectations during the glide to retirement, the steps get steeper so that compensation decreases more rapidly.

2. Incentivize Teamwork

In her book, Smart Collaboration, Harvard Law School's Heidi Gardner presents data that indicates when lawyers collaborate across a firm's platform to serve clients, they generally produce larger, stickier and more profitable client relationships. Consistent with this concept, at McKinsey and many leading professional service firms outside of legal, the default is that teams, rather than individuals, serve clients. In recent years, an increasing number of law firms have begun to view hunting in packs and serving clients in teams as desirable approaches, and some firms consider the extent to which lawyers collaborate as a subjective driver in determining compensation.

For example, a high-performing Am Law 10 firm ranks partners by the extent to which they collaborate in pursuing and serving clients, and use this as a factor in setting compensation. Another high-performing firm, an Am Law 25 firm, tells young associates that when the time comes for them to be considered for promotion to partner, each associate will need to be backed by at least one partner outside of her or his practice area. This incents relationship-building across practices on an ongoing basis, which builds trust and paves the way for collaboration across practices.  This in turn also allows for an institutionalized approach to serving and retaining clients, therefore creating an environment that breaks down silos and helps firms to retain clients over time, even as partners retire.

The benefit of teamwork across a firm's platform is clear: it allows ample time and opportunity for the next generation of leadership to gradually and naturally build close relationships with the firm's clients and with each other. This leads to natural transitions built on longer-term relationships of trust, which is far more effective than waiting until the eve of a retirement to try to facilitate a transition.

3. Pass the Torch

One leading regional firm developed an initiative called “Project Torch” to provide a formal process for facilitating client relationship succession. Firm leaders meet individually with select partners nearing retirement to discuss their time horizons and put the transition process in motion. Individual transition plans of approximately three to five years are then developed for material clients, with leadership managing each relationship partner's progress against the plan.

At other firms with similar programs, partners are held accountable for transitioning clients by the managing partner or chair, their practice leaders, and/or the firm's compensation committee. According to the results of the ALAS survey, the transition process generally begins at least three years before retirement, with less than 10% of firms starting the process more than five years out, and just over 10% waiting until the last year before retirement. Our experience is that starting the process sooner rather than later, ideally five or more years in advance of retirement, often benefits the firm more than other approaches.

4. Consult the Client

Firms with systemic, proactive client listening programs sometimes include questions to clients about the client's perception of the firm's bench strength. Some firms also ask how the client would like its relationships to be transitioned across generations. For large and strategically important client relationships, some firms also formally solicit input from relevant partners and specific clients about attributes they believe will be required to successfully manage the relationship over time. To lead these conversations, some firms hire third-party, neutral consultants, while others tap formal or informal firm leaders.

Our experience is that these discussions can be valuable for firms because they provide an opportunity for clients to weigh in on, and be part of, the succession planning process.  Sometimes warning signs surface. When asked, clients regularly express concern that they do not have visibility to the firm's succession plan for the relationship.  In some cases, clients start expressing concern well before their relationship partner is near retirement age, in his or her 50s. Some clients who feel they don't have enough visibility to the firm's succession plans say that they go a step further and act on their concerns by quietly spreading work to other firms as a hedge against the possibility there is not an effective succession plan when the relationship partner retires.

5. Assist Retired Partners

A number of firms use an additional carrot to reward partners who meet expectations for retiring partners, including successfully transitioning their relationships. In addition to offering monetary benefits, some firms offer non-monetary incentives, such as providing administrative support during retirement, making introductions to nonprofit organizations and other opportunities, supporting a partner's chosen charitable causes, or keeping the partner close to the firm as a mentor or ambassador.

Using these and other strategies, many firms have an opportunity to increase their retention of client relationships across generations by creating a cultural expectation that clients are “firm clients” and will be retained over time for the long-term benefit of the firm and the client.

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Kent Zimmermann is a principal with Zeughauser Group and an ALM Intelligence Fellow. Kent is one of the legal industry's leading advisors on strategic planning and law firm combinations. As a former general counsel and chief executive officer, he counsels the leaders of Am Law 100, 200, Global 100, and leading specialty firms on the challenges and opportunities they face in an increasingly competitive market. He regularly interviews Fortune 500 and other global company GCs, managing directors and other business leaders. In 2018, he advised on each of the three largest law firm combinations in the United States.