Secure Your Future with Effective Succession Planning
Who Are Your Firm’s Future Leaders?
For many senior professionals, thinking about who will succeed them and determining their exit plan and next phase of their life often brings about anxiety and even anger. Handing over your hard-won book of clients to a colleague, whether young or old, is challenging. Decisions surrounding succession planning focus on the good of the firm, but a comprehensive plan also addresses the changing needs of the professionals who have helped build the firm over many decades.
Everything Will Be Fine.
Even though legal professionals spend their days counseling clients to be prepared, or fixing the mess when things don’t go according to plan, many law firms leave succession up to chance. A recent industry report, The State of Preparedness on Succession Planning, found that 61% of leaders of midsize law firms were concerned about their firm’s readiness. However, only 37% had a formal succession plan in place or were currently creating one. The report goes on to say that most firms are handling issues only as they arise through informal practices. This laissez faire attitude places the future of a firm at considerable risk.
What’s the Problem?
Senior partners have traditionally had a huge impact on a firm’s success, developing large books of loyal clients over the years. This structure may be lucrative for the firm, but what happens when that partner retires or becomes ill or disabled? A longer-term strategy to ensure the success-ion of the firm is quickly reaching crisis proportions. One recent report estimates that nearly 65% of equity partners will retire over the next decade.
Compounding the problem is the continuing effects of the recession of 2007-09 which contributed to a downturn in demand for lawyers, a decrease in the number of law school graduates, and a smaller pool of qualified mid-level associates. Even with the bounce-back in law school graduates in the past few years, the opportunities for junior associates to hone their skills through training and professional development are decreasing. Clients are less willing to pay for what they consider “on-the-job” training and would rather pay higher fees for senior and mid-level professionals. Firms themselves are not footing the bill for such opportunities because it’s not billable and those self-confident younger professionals move all the time!
These factors contribute to a lack of qualified “successors”—those individuals who could potentially take over as future leaders of the firm. The industry is succumbing to the short-term pressure of completing work and catering to clients, instead of putting in the hard work to solve long-term problems.
Who Doesn’t Want to Spend Their Days on a Tropical Island?
According to the State of Preparedness report cited above… senior partners. Among respondents, their resistance was the major issue preventing the development of a succession plan. In defense of these stalwart leaders, they have invested an enormous amount of time and energy building a career and a firm. In many cases, clients have become friends and work is deeply entwined with their identity, self-esteem, and financial well-being. The thought of stepping back can create uncertainty and anxiety. Discussions about succession can descend into embarrassing territory when issues like cognitive, physical, and mental capacity come into play. Having no say in an exit strategy, either due to illness or lack of planning, can be harmful to senior leaders’ long-term adjustment to their next phase of life.
Transitioning with Respect
A good succession plan addresses the needs of both the firm and senior leaders who bring a wealth of experience to the table. The key practical concerns are similar whether you’re talking about solo practice, boutique, or BigLaw. Access to clear, organized, and specific information is critical and may seem obvious, but is surprisingly not the case. Always check to ensure state rules and regulations on document retention are followed.
Practical concerns include:
- Client information (where and how it is stored)
- Disposition of cases (open and closed)
- Current calendar
- Client billing records
- Trust account records per client including access and authorization to sign
- Computer passwords
It may be necessary to include firm-related items such as:
- Rent agreements, office equipment leases, or contracts
- Current liabilities
- Access to bank accounts and authorization to sign
Identifying a successor may be more or less complicated depending on firm size. A sole practitioner may decide to sell, close, or identify a colleague who will act as trustee for their practice in the event of a crisis. The American Bar Association has numerous reports and resources that can assist professionals in developing their own succession plan.
Larger firms should consider including marketing, human resources, and management in the succession plan discussion to begin to address longer term goals for firm growth and success. Many experts believe that succession is a natural stage of the employee life cycle and should be taken into consideration in the firm’s recruiting, hiring, training, and mentoring of a diverse and multi-generational workforce. The continuity and reputation of the firm depend on it. At the very least, succession planning should start years before a senior partner is ready to retire or leave.
Involving the senior partner is critical to a smooth client transition, but also to ease the personal transition to a new phase of life. Providing an ongoing, emeritus role such as the pro bono adviser as well as financial and professional coaching will lead to less stress and greater enjoyment of retirement years.
Whether you’ve never considered a succession plan or are in the midst of discussions right now, there are many resources that can guide you through the process. As with most things, the better prepared you are before a crisis hits, the smoother the transition will be for clients, employees, and the firm itself.
Do you or your firm have a succession plan in place? Tell us in the comments what prompted your plan.
This article is for informational purposes only.