Succession Planning

It seems that every year there is a hot management topic that all law firm leaders want to talk about.  Last year it was it was mergers using Swiss Verein structures.  The year before it was Legal Project Management.  Two years ago the topic was private investment in law firms.  It’s not that these are fads or flavors of the month — the practice of law is evolving so quickly that firms’ managers are playing whack-a-mole with burning issues.  As soon as they begin to master one, another new concern pops up.  I anticipate that the hot topic for 2014 will be Succession Planning, so lets start the year by talking about it. Law firm succession planning is nothing new.  We’ve been talking about it for years.  The problem is not a lack of awareness; it is trying to figure out what to do about it.  Like so many other concerns, the solution lies in understanding the issue to its roots, devising a realistic plan of action and having the courage and tenacity required for execution. This year we will continue to see the concourse of three unique events.  First, 2015 will mark 69 years since the end of World War II when the Greatest Generation came home and went about making babies with ferocity.  Accordingly the baby boomers are reaching the age when rational people traditionally begin moving on to a new stage of their lives. The second event is the surprisingly rapid transfer of private practice of law for business clients into a mature industry, the definition of which is that the supply of lawyers begins to exceed the demand.  As a result, law firms are finding that they have too many lawyers for the work available.  Their options are to stop hiring young lawyers – the course most firms have at least given lip service to (even though it destroys the leverage system that has been the source of much of their profitability) or to “weed the garden,” as the Brits call it, and move partners out at the top. The third unique event is that we are coming through an economic crisis that has shaken the underpinnings of all of the financial planning that baby boomers have done in preparing for their retirement and that has accelerated the market forces that are driving that maturation of our industry. Succession Planning There are really two separate issues involved in succession planning: one vital to the sustained profitability of most law firms; the other an important concern but not an organizational life or death issue.  The first is client succession and the second is the one most frequently discussed, management succession. Now, don’t get me wrong.  Management is tremendously important.  In fact, the capability of leadership is probably the single distinguishing feature of the most successful law firms.  But, while important, management is not as critical an issue as it is often painted to be for a couple of reasons.  First, in most large and mid-sized firms, professional managers have taken over the technical side of law firm operations.  The most capable law firm leaders (Chairmen, Managing Partners, Practice Group Leaders, etc.) have strong interpersonal skills — the ability to engender confidence and skill in creating consensus.  But these are capabilities that are either native to one’s personality or honed through years of successfully practicing law. They are not picked up by shadowing an incumbent for a year or two.  So, frankly, while it may be comforting to know your management depth chart well in advance, it’s not all that important that successors be designed until the need occurs.  Second, and perhaps more importantly, management succession planning doesn’t seem to work in law firms.  Experience seems to prove that partners don’t like the concept of heirs apparent, and being designated has a way of making the heir unelectable or insuring a rocky transition. The more critical succession planning issue is client succession, the ability to retain a client with the departure of the partner responsible for the relationship.  Unfortunately, the early returns on the success of client succession planning are not good.  In fact, the risk of losing a client upon the retirement of a partner is greater than ever before and for some firms seems to be almost a likelihood. Here is the problem.  Clients, particularly middle market clients, really are quite loyal.  Absent a seminal event (the major screw up of a case or an inappropriate rate increase) they find it awkward and uncomfortable to tell their incumbent lawyer that they are changing counsel.  But a change in the lawyer responsible for their matters provides a natural opportunity to shop the legal marketplace. The problem, however, is not just with the retirement of law firm partners.  In fact, their failing to retire can create an even worse problem.  Like many other professions, we are seeing an increased preference by partners to continue working longer than anticipated.  In fact, many intend to work as long as they are physically able.  In part this is a reaction to advances in health care that allow people to feel healthier longer.  This prospect creates the necessity of financing a comfortable lifestyle for more years after eventual retirement than many partners had planned. Often it results from partners having children later in life or the need to pay several alimonies.  For some it is concern that a tight job market has made them economically responsible for their children and grandchildren.  Many profess to have worked so hard during their life that they have never developed hobbies or other activities to keep themselves busy in retirement.  But the most common thing we hear from professionals in their mid-sixties is that they have reached the pentacle of their professional careers and are not yet ready to walk away from the work, stature and income level they have achieved. Unfortunately, partners working beyond retirement often result in a decline in personal performance and limited available of opportunities for younger lawyers.  But, the most important concern with partners working longer is that client representatives with whom they have relationships may not enjoy flexibility in deciding to retire.  When those client representatives retire, their replacements will, in all likelihood, be younger and eager to replace the relationship partner from their current law firm with a lawyer of their own choosing, possibly from another firm. Making Succession Planning Work Despite the problems, there are actions that law firms can take to plan both management and client succession.

• The most important management succession tool is to create a cadre of partners who have leadership experience.  This can be accomplished through a series of increasingly responsible management roles where candidates can demonstrate their capability to their fellow partners while gaining experience.  Using younger partners on ad hoc committees to deal with specialized management issues is a good way to generate experience and visibility.
• View client succession as an ongoing activity, not just something that occurs when a partner retires.  Create a culture where there are multiple points of contact with each client and client responsibility shifts periodically among partners.
• Be aware of clients’ management succession plans and create strategies for building relationships with potential successors.
• Use succession as a means of introducing a client service team for major clients.  Involve clients in the creation of the team and the succession planning.

The most important action a firm can take in both management and client succession planning is working to understand older partners motivations and concerns.  Using this knowledge, work with partners approaching retirement age to develop their succession plans by asking them to do only incremental planning through a step by step approach rather than requiring them to commit themselves to a full plan immediately.  Start small by asking them to hand off billing responsibility for certain clients or delegating some of their management authority and responsibility.  Then revisit the plan annually with older partners, advancing their gradual retirement in a manner that is comfortable to them. Succession planning is a lot more complex than creating a map of who will replace whom.  It requires compassion, thoughtfulness and all of your interpersonal skills.  But the risk of not planning client succession mandates that it be a priority on your firm’s agenda.