Over half of my clients are focused on how to survive the transition from a first to a second-generation law firm. This is a critical and difficult business subject to deal with so I will explain the issue and its solutions over two postings. In this first one, I’ll seek to broaden your perspective of succession, describe why its implementation is so critical to a firm, and set the framework for meeting this business need.
This Shouldn’t Be Emergency Planning.
Lawyers are of course human beings, and they age just like the rest of us. That means that they grow in experience and capability; that they need increasing amounts of responsibility and accountability in the firm; and that they eventually leave the practice of law. These shifts mean that the firm is never really the same two years in a row. It is ALWAYS shifting. Great firm leadership is the ability to predict and prepare for these changes well in advance. So my definition of successful leadership is the ability to manage constant change. But most firms don’t do that. Most firms deal with change on an emergency basis. They don’t start to think about how to transition a lawyer’s practice until that lawyer is six months from retirement…or until the lawyer has a heart attack, moves firms, or is asked to leave. Then the world must stop while the partnership grapples with the immense set of variables before it. What is perhaps THE most predictable business event sneaks up on us like a bad illness and cripples our ability to operate effectively for a period of time. Yet we all had access to the inoculation…planning.
What is Succession Really?
Technically, succession is the act or process of inheritance (of a title, office, property or business). Yet when most firms think about succession, they see it as the act of identifying new leaders who can replace old leaders. Very little thought is given to the process of transfer. Rather, it’s assumed that transfer will go smoothly once the giver and receiver have been identified.
Certainly, identifying who will be leaving and who will be inheriting that work or leadership responsibility is a great start. But it’s not the whole picture. Done hastily and at the last minute, I would even call it irresponsible from a business perspective.
To overcome this fate, I prefer to think of the succession process as one of evolution. And I believe this evolution must occur on three levels within a law firm: at the partnership level, at the practice group level, and at the individual lawyer level. I propose that successful succession isn’t just about ensuring that a firm can continue and thrive after the founding lawyers or most senior practitioners have retired. Successful succession starts long before, and is practiced throughout both the firm and the individual lawyer life-cycle.
The Shift from First to Second Generation
Let’s start with the granddaddy of all succession issues: the transfer of firm ownership from a first to a second-generation law firm. And tied in with this, I’d add in the safe retirement of senior partners generally. More than half of my clients are facing this issue. I tend to work with smaller law firms: 1 – 20 lawyers. I’ve been called in more than a few times in the past four years because a partnership has realized that as much as half of their partnership might be retiring in the next five years and they have no idea if or how the firm will navigate through this eventuality.
Aside from the enormous gap in business experience and leadership that this might leave, this also presents a more pressing business gap: the primary relationship with key clients. In a recent Altman Weil survey, it was found that for the majority of the law firm respondents, 50% – 70% of the business base was controlled by partners aged 60 and older. In other words, the firm’s business was controlled by the lawyers closest to retirement or most likely of experiencing a serious illness. Determining how to transfer this knowledge base, skill set and these client relationships cannot be left until the last moment. We need to predict and then actively plan for these transfers to the next generation. Unfortunately, that requires that we know when retirements will take place. And that can be tricky because senior partners are hesitant to declare their retirement for three good reasons:
1. Money: Retiring Partners have usually been making a lot of money for quite some time. And while they logically understand that part of retirement is a reduction in pay, it’s hard to let it go. It’s not just he money, but what it stands for. Part of their self-identity is associated with those earnings. They need to be eased into the financial side of retirement. In the year or two leading up to the actual retirement date (at least the resignation from the partnership date), they should start transitioning client relationships and reduce their own work hours. Develop a financial compensation plan for their doing so. Speak with them about the possibility of a graduated departure: resign from the partnership and work 75% hours for the first year, 50% hours for the second year, etc. Plot out what the financial reality looks like so they see they won’t suddenly “be broke”. Give their minds a chance to get comfortable with a new financial reality.
The other monetary consideration has to do with the ongoing sustainability of the firm. Retiring partners need their capital accounts paid out. This tends to happen over a period of time – say three to five years. And capital account payments are extraordinary: they occur after the rent payment and current producers are compensated, or the firm would cease business. Yet retiring partners can often be some of the biggest rainmakers and financial producers in the firm, so they know that these extraordinary payments will need to take place in a time of probable reduced production. It’s no wonder they are hesitant to announce a retirement date, when they are wondering if their retirement can even be possible.
2. Trappings: Some of a retiring partner’s self-identify might also be related to the items of status around them: their title, their office, their assistant. If they are retiring in a graduated process, they may have concerns about whether those items will still be available to them. They may also be worried about the status of those around them if they lose the “power” to protect them. For example, they may want to ensure that their assistant isn’t fired. To overcome these issues, work with the retiring lawyer on a retirement transition plan. Negotiate with them – in advance – what their title will be, what their office and support structure will look like, etc. Again, realistically they should know that they can’t have access to the same degree of firm support as they reduce their hours. You may need their office for someone else if they are only going to be working two days a week. And they may need to share their assistant in that case as well. As the plan evolves, they will have a chance to acknowledge and accept this new reality, and as they were part of the planning process, they will have greater buy-in than if you were to hand them such a plan. I also encourage firms to re-enforce that this is a transition plan. Most senior lawyers I know have things they want to do in retirement. This is simply a way for the firm to help plot out the decline of firm time and the increase of personal time.
3. Who Can Replace Me?! This isn’t ego talking. Senior partners may be legitimately concerned that there is not sufficient legal skill, marketplace reputation or leadership and business capability to replace them. Bringing on a new partner every few years is not the same as back-filling for senior lawyers. Unfortunately, a lawyer doesn’t suddenly have business acumen, strong marketing capabilities, respected legal expertise and outstanding leadership skills just because they are a partner, or because the person above them retired. Great partners need to be developed over time, and carefully mentored. While lateral partners are an option, they aren’t a popular one. Younger lawyers like to see that a firm has foresight, business acumen, and promotes home-grown talent. What does it say to them about your firm if you have to buy a star quarterback because you never took the time and initiative to train your own? So senior lawyers have good cause to be concerned in some firms.
Fixing the Gap – Ahead of Time
The best way to prepare for the inevitable top-end shifts that will occur in your firm is to do predictive modelling to identify the gaps well in advance, and to actively develop your future leaders. Here’s how…
- Start with a Strategic Plan
Before you decide how to run your business, you need to know where you are running to. I encourage partnerships to pause, think, and build a strategic plan that describes what they want their firm to look like in five or ten years. How many lawyers? How many Partners? What practice groups and what size are each of them? What kind of revenues do you want to be producing? How would you describe your client base? What will your differentiators be five or ten years from now? Envision and then describe (on paper) what a strong future firm looks. That serves as the end point for your annual planning, which is the road map for your journey.
- Do Predictive Modelling
Create a chart of your firm on a year-by-year basis over the next ten years. Break it down by partnership, practice areas, leadership skills, etc. Keep in mind that lawyers get older every year so this year’s articled student will be a three-year call soon. Request that lawyers within ten years of retirement provide, on an annual basis, confirmation of their possible retirement range. Put the name of every lawyer 65 and older in a different colour on your chart: they are high risk – great to have at the firm, but there’s a chance they’ll either want to retire, or may suffer a health issue.
Next, consider who now has or may be in a position to develop various special skills. For example, who is particularly good at dealing with people, markets, finances, logistics, or is a visionary? Ideally, all partnerships should include individuals covering off each of these skills.
Who in the partnership is weak in a critical area? Lawyers are very intelligent, capable individuals but they aren’t perfect. We all have areas that need improvement: unfortunately, some deficits are more lethal to a lawyer’s career. Do they need help in practice management? Business Development? Leadership? If so, get them help in the form of coaching.
Understand who you have, what they are capable of, how long they will be there, and where they will fit in over time. This will enable you to see (and work on filling) the gaps.
- Consider Your Up-and-Comers.
Do any lawyers show signs of possibly having leadership capabilities. If so, plot them into your model as possible future partners (or if they are partners already, possible future leaders). But don’t assume they’ll evolve well on their own. Start to invest in them through mentoring and coaching. Give them controlled opportunities in which to explore leadership. For example, have them coordinate a major client event, lead a small committee, etc. Actively identify and train your future partners and law firm leaders.
- Actively Focus on Leadership
It takes about five years to teach a lawyer how to be the kind of partner needed to help lead a firm (for example as a practice leader, head of finance, of Managing Partner). They need exposure to management of every aspect of the firm from HR and lawyer recruiting, to marketing, to financials. Reading a spreadsheet is NOT the same as being responsible for P&L. Filling in a survey prior to an assistant’s annual review is NOT the same as working with the firm on hiring and firing decisions, and any negative outcomes resulting from those decisions. Participating in a practice group meeting is NOT leadership experience. Taking clients to lunch occasionally is NOT the same as creating the firm’s marketing plan. A partner does not have to be an expert in all of these areas, but a partnership needs lawyers who can be responsible for each of these areas. And every partner should have a healthy awareness of and respect for each of these business functions. So partners need to get their feet wet, and even soaking, in all of these areas before they can seriously be considered leaders of the firm.
Further, lawyers in a law firm will not follow another lawyer unless they are well respected both inside of the firm and externally for their legal capability, and have a thriving practice. I’ve often seen firms assign a leadership role to someone who – for whatever reason – is having challenges in their practice. It’s a mistake, as your lawyers won’t respect them enough to follow them. At the same time, your reigning legal expert in a particular area might not make the best leader either. More on that in Part Two.
Help Retirement by Shoring Up the Foundation
Senior Partners – even name partners – know that they need to retire one day. They’ve spent a large portion of their life working hard to make the firm successful. They don’t want to see it collapse in their wake. Simultaneously, they are facing an enormous shift in their own life as they transition their self-identify away from being a senior partner in a law firm to…something else. By understanding their hesitancies, we can work to create the best possible conditions for easing this transition for them. And planning well in advance for the succession of a firm – either from first to second generation or simply from one strong group of lawyers to the next – is a much more prudent business practice than dealing with this on an emergency basis.
In Part Two of Planning for Succession, I’ll focus on planning for succession (or evolution) within practice groups, and through an individual lawyer’s career.
Heather Gray-Grant is a business strategist, marketing expert and executive coach for law firms and lawyers. She can be reached at firstname.lastname@example.org. This article was first published in SLAW.