The Baby Boomer Problem
For years, law firms have been planning for the retirement of the baby boomer generation, the huge group of partners who were born between 1946 and 1964. For some firms, particularly those with unfunded defined benefit partner pension plans, the primary concern surrounds the potential profit hit the firm is likely to endure as it faces large scale retirements. Other firms worry about leadership succession as much of their firm, office and practice group management draws closer to retirement age. But the biggest issue for most firms is the fact that their 60+ year old lawyers have a tight grasp on the bulk of client relationships and continue to be the largest segment of firms’ business originators.
For these firms there is good news and bad news. The good news is that partners in their 60’s are not retiring at the anticipated levels. The bad news is the same thing – partners are routinely expecting to work into their 70’s and beyond.
Deferring retirement is part of a significant national trend. Professionals in their middle 60’s are enjoying greater health than any prior generation. They are at the peak of their careers, professional reputation and earnings. For many partners, their life’s focus has been their practice of law at the expense of their family and pursuing avocations. So the concept of retirement, or even slowing down, is a scary prospect. Many potential retirees face an unsecure financial situation due to their failure to adequately fund (or successfully invest) their defined contribution pension accounts. Others see unexpected costs as adult children and grandchildren, affected by divorce or job loss, return to the nest. For yet others it is the cumulative cost of multiple marriages and young children who arrived late in life.
Whatever the reason, lawyers working through their middle to late 60’s and beyond is causing a major client transition problem for some firms. If a partner sees him or herself working as long as possible, there is little incentive to hand off clients to younger lawyers. Senior lawyers are all too aware that their client base is the source of both their prestige within the firm and the basis of their compensation. Besides, if they don’t control a significant number of clients, how will they get legal work to perform?
Here’s the problem. Most older lawyers’ client relationships are with people who are roughly their own age. Corporations, however, are more diligent in enforcing mandatory retirement ages so it is likely that older partner’s contact bases may rotate out of their client’s management. The result is the client decision makers are becoming younger and many newly promoted general counsels have eagerly awaited the opportunity to get rid of the “old fogie” who represents their firm so they can give their legal work to their law school classmate or next door neighbor.
The simple truth is that law firms that do not have an aggressive succession program for the generational delegation of client relationships are at extreme risk of losing those relationships.
Now, this is the point in an article where you expect prescriptive advice on what to do to resolve this problem in your firm. Regrettably, the problem is just starting to appear so we don’t have many time-tested answers. We are, however, observing some actions that seem to be working for some firms, specifically:
- Term limitations. One firm limits the time that a partner can serve as billing attorney to a client to five years after which they must begin a couple of years phase-out of the relationship responsibility to another partner or senior associate approved by the firm’s management committee.
- Team relationships. We know of several firms that mandate that every client over a certain dollar volume must have a relationship team made up of two partners, typically the originating partner and one other partner involved in the client’s work. The client is aware of the dual relationship and is encouraged to use the two partners interchangeably.
- Retirement phase-out. Another popular technique is the mandatory five year phase out of client relationships starting at a specific age (typically somewhere between 60 and 65), even if the existing relationship partner is not planning to retire. Often this is tied to a compensation phase out.
- Succession planning. A rare, but highly effective technique is to appoint a succession committee that supervises a customized succession plan for each significant client designed around building personal relationships with likely successors within the clients’ organizations. In at least one firm we work with, this is part of the managing partner’s annual client meeting with the firm’s largest clients.
The take away from all this is that succession planning is not just an issue for retiring partners. It may be an even greater concern when partners continue to work through retirement age. Talking openly with those partners and dealing with client relationship structures on an individualized basis may represent the best way to safeguard a secure client base.