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Prospective Partners Ask Small and Midsized Firms Tough Questions About Succession
In the past, when up-and-coming young lawyers and lateral candidates were invited or recruited to join a law partnership, they often gave little thought to whether the required capital contribution was a good investment. Partners made a lot of money. The rising stars wanted in. Most of the time they assumed that accepting responsibility for the firm's debts, obligations, and liabilities — even signing personal guarantees — would be a good idea.
Today, at most big firms, these assumptions are likely correct. But at small and midsized law firms, this is not always the case. Senior associates, non-equity partners and lateral candidates are well aware of the spectacular implosions of storied firms, and the disasters that followed for their capital partners (including, even at large firms, clawbacks by bankruptcy trustees from partners who had resigned years before). Many want to know whether the firm is well-positioned financially to grow and prosper when the current generation of senior partners retires. To get the information they need to value an investment in the firm, they turn to its finance professional (such as its CFO, Controller, or other financial manager).
Three Questions a Firm's Chief Finance Professional Should Expect from Prospective Partners
A law firm's chief finance professional is its repository of all things financial. This executive should be ready to answer three important due diligence questions from prospective new partners about succession:
- Does the firm regulate the timing and terms of partner retirement?
- Will senior partners be required to transition their clients to other members of the firm before retiring?
- By the time senior partners retire, will the firm have a full complement of younger partners ready to replace the revenue the older lawyers generate now?
These are "canary in the coalmine" questions. If the finance chief cannot produce satisfactory responses, it may be time to tell firm management that inadequate succession planning is inhibiting the firm's ability to attract new partners — and therefore inhibiting growth.
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