A significant number of partners in baby boomer law firms are now approaching retirement, many unprepared and confronted with daunting questions around how to smoothly transition their clients and practices to the next generation.
Indeed, a lot of these small law firms are top heavy with long-serving older partners. Often much is tied up in one senior partner who’s been instrumental in building the client base, growing, managing and leading the firm and is reluctant to let go, leaving younger partners hamstrung.
They face the prospect of not only losing the revenue of the retiring partner’s clients without a proper transitioning phase, but the expertise, stakeholder and industry nous and leadership as well.
Very often these firms have not invested in keeping their culture fresh and can’t attract new blood to build up a base of productive successors.
While these partners may be aware of the need for succession planning, many are reluctant to develop adequate plans, often hoping transitions will happen by themselves or dealing with them belatedly. Some common reasons why succession is often avoided or put off include;
- Inertia around business planning: Things have always worked out for the firm without planning for the long-term and there is enough pressure serving clients without worrying about what might happen.
- Compensation model - Due to the usual way partners are compensated, the focus tends to be more on shorter-term success and profits than succession issues.
- Don’t rock the boat: Fear of antagonising highly productive seniors at the top of their game with discussions around phase downs and transitioning of clients.
- Don’t scare the clients: Broaching the topic of transition may destabilise clients accustomed to stability, reliability and responsiveness.
- No successor(s): Either there is no next-in-line or the next generation has not been groomed so lacks the expertise, client and industry knowledge to become the heir
- Too hard: The psychological challenges of succession for those facing moving on are also extremely powerful tugging at the strings of dignity and self-respect.
As a best practice
, all law firms should be proactive about the succession process. Planning should start at least five years ahead of any retirement, allowing successors to be groomed and clients transitioned down the firm to the partners of the future allowing time for trusted relationships to develop. So, when the right time comes, clients will stay on with the next generation.
The makeup and structure of a firm’s partnership over time should be designed to allow it to move forward without succession becoming an issue.
The elements of a succession plan will vary substantially between firms, but the most important part is to get started, the earlier the better, but certainly at least five years out from retirement.
Start the dialogue -
Any firm with partners who are within five years of retiring from full-time practice should acknowledge the need to address the pending changes and begin to work together on a plan.
Start the dialogue by identifying those who are likely to retire or pull back from full-time practice in the near future, discussing individual plans and succession strategies.
For a firm top heavy with older partners and those likely to retire in the next decade, the critical question is are there enough seasoned lawyers to transition the clients of senior partners? Does the firm have the necessary expertise/skills to retain the clients and bring in further work?
Partnership exit model -
The firm must identify and support younger partners as they grow into their roles of running a practice, but must also prepare and support the senior partners who will be transitioning away from their full-time client responsibilities.
The partner may not be retiring altogether, but can move into a different role in the firm, changing status but not leaving altogether, moving from equity to salary and enabling them to take on the valuable role of mentoring successors.
Client transition -
It is important to develop a habit Build a habit with major clients of ensuring a team is involved, reducing reliance on one partner. The client needs to know and trust the wider team, not just one older senior partner. This also provides a backstop against sudden illness, absences etc.
Attracting the Next Generation -
No ambitious young lawyer wants to consider working for a small law firm with stale offices and a dusty culture. So, while there may be strong resistance to change, it’s critical that law firms remain fresh, up to date, vibrant and relevant to attract the next generation of partners and remain appealing to current and new clients.
Run the firm like a business, push for cultural change at all levels from internal design and technology to building an equal partnership model where everything is shared equally.
Ultimately, without succession planning, long-serving partners risk leaving no legacy. Not only is it essential for ensuring a firm’s strong and healthy future, but provides the recognition long-serving practitioners deserve and the support the next wave of partners need to enable them to grow.
About the author: Adam Davy is managing partner BDO Wellington and head of advisory services for BDO New Zealand