It is fair to say that there may be no hotter topic in the legal world right now than succession planning. The subject is being featured on the programming of about every major bar association meeting. Online seminars are offered almost weekly, and one legal publication after another has articles about how to do it. Unfortunately, succession planning among law firms is rare, and efforts to even discuss it can be upsetting.
According to recent polls of American law firms, only about 5 percent of firms of any size have an actual succession plan. Moreover, an alarming number (nearly 75 percent) of law firms dissolve after the founding partners retire.
There is one word to describe the reason why lawyers and law firms do not plan for succession — denial. Lawyers as a group are fearless and bulletproof. The nature of the profession is such that lawyers do not see their careers ending at age 65 (or anything close to traditional retirement ages.) Indeed, for many lawyers, the word “retirement” is not in their vocabulary. As a consequence, many have not saved sufficiently for retirement, so continuing to work seems to them to be their only option.
The denial is exacerbated by the fact that many lawyers do not view law as work. In their view, it is a calling. It is not what they do, it is merely who they are. Their entire identity is wrapped up in law. Their lives and their work intermingle seamlessly, and they pay little attention to their age or end-of-life issues. They will be a lawyer as long as they can be.
Law management expert John Remsen opines that it takes an average of five years for a client relationship to be transferred from one lawyer to another. If he is correct, then lawyers and law firms need a long runway to wind down a practice, and retirement is not something that can be planned on a moment’s notice unless circumstances dictate otherwise.
For law firms, the task of succession planning is hampered by a number of structural issues and societal changes. On the structural side, many law firm partner agreements have not been written with partner retirement in mind, and many lack the guidance for how to unwind affairs without blowing up the firm. Few such agreements contain retirement ages for partners. Many have no payout provision for the capital of retiring partners, so firms are strapped with the financial burden of immediately paying a retiring partner. Furthermore, compensation formulas in many law firms are designed in such a way that senior partners lack incentive to hand off client relationships and origination credit to younger lawyers.
On the societal side, the recent economic downturn of the late 2000s prompted corporate America to reduce outside legal spending, and good in-house legal jobs with good pay and reasonable hours have become widely available. Younger lawyers have seen that a comfortable legal career can be enjoyed without the burdens and challenges of ownership of a firm and the demands of rainmaking. Thus, law firms are now losing rising partners to corporations and are seeing their potential successors leave.
In addition, recent studies have shown that younger people lack trust in the “establishment,” and few join an organization with the idea that they will retire there some day. To keep them, law firms must offer flexible working conditions, and they must be transparent about firm business. Unfortunately, flexibility in working conditions can clash with billable hour requirements, and the culture of law firms may not allow for transparency. Very few young lawyers in firms today will be able to gain sufficient information about their long-term opportunities for advancement and for compensation. Without that information, they cannot see the future benefit of taking on the responsibilities of partnership. To the contrary, they see more senior lawyers working long hours into their later years, and they are left wondering whether that is what they want for themselves and their families someday.
Despite the challenges, lawyers and law firms must engage in succession planning. If they don’t, the jobs of many loyal staffers and colleagues will be lost. The equity built up by senior lawyers will be lost. The good name and reputation of the firm can be squandered if the doors are shuttered.
The best place for firms to start is with strategic planning. The process should include lawyers of all ages within the firm. The planners can study the firm’s compensation and partner agreements and suggest structural changes that will make retirement easier. An age for retirement in the partner agreement can be established that dovetails with a program to allow senior lawyers to continue to be compensated for new business and for legal work performed. Firms can establish and fund accounts to set aside the money to pay obligations to retiring partners. Firms can assist and encourage mid-level partners to engage in retirement saving with guidance from financial advisers. Client relationships can be studied, and potential successors to those relationships can be introduced and groomed. This is just the start.
If you and your firm fall into the sizeable majority of firms that have no succession planning, don’t wait another day. Denial must be overcome. Tough talks with senior lawyers must occur. The future is now. Please take charge of your future for the good of your family, your colleagues and staff, and your clients. #WillYouBeThere?•
• John C. Trimble (@indytrims) is a senior partner at the Indianapolis firm of Lewis Wagner LLP. He is a self-described bar association “junkie” who admits that he spends an inordinate amount of time on law practice management, judicial independence and legal profession issues. The opinions expressed are those of the author.