Many law firms are finding themselves in a succession planning crunch. Some partners are backing away from long-standing succession plans because their retirement is not looking as stable as it did a few years ago, before the pandemic. Others are rapidly accelerating their retirement plans as they come to appreciate the greater degree of balance their new ways of working have brought them in the past year.
Yet, a majority of leaders of midsize law firms said they did not feel that their firm is prepared to deal with the retirement and succession of partners with 61% saying they were concerned about their firm’s preparedness. Further, most firms relied on an informal succession process and handled issues as they arose with just 37% saying they had a formal process or were going through efforts to create one.
Here’s the catch, however, these findings are from a survey conducted in 2018. Why look at today’s succession planning efforts through a two-year-old lens? Janet Stanton, a Partner at Adam Smith, Esq., says that the situation today is roughly the same as it was then, with one major difference — law firms are talking about it more. “A few years ago, you could barely say the phrase succession planning above a whisper,” Stanton notes.
The one big development since 2018 is that 5% to 10% of the firms are pulling away from the rest because they have upgraded the practice of running their firms like a business, and this has had positive implications for their plans to transition management and clients, she explains. “The successful firms are being more intentional about succession planning, not running away from the idea,” says Stanton, adding that such firms are embracing the idea rather than sticking their head in the sand and pretending it is not going to happen.
Essential parts of the plan
With law firms realizing that they need to be run more like a business, it is more likely that firms are more willing to undertake succession planning because it is an evergreen component of a strategic plan. And as part of that plan, law firms need to account for some key considerations, such as:
Prioritizing clients in terms of revenue — The first key step in approaching a holistic succession planning process from the firm’s perspective is analyzing which clients are the firm’s most important by focusing on the biggest revenue-producing relationships and which firm partner owns these relationships. Understanding these critical elements is vital, as is knowing how billing credit is applied and which lawyers currently are serving that client, as well as having a deep bench of potential relationship-owners ready to take over.
Creating incentives and amending compensation practices — Incentivizing partners to assist in the transition of their clients is also a critical piece of the succession plan. One of the biggest concerns for retiring partners is increasing their revenue before retirement because once the partner leaves, that is it — the ties to the firm are no longer there. In addition, the firm’s prioritizing of maximum profits for the current year disincentivizes collaboration in succession planning, among other negatives, such as the firm’s rewards system being focused on originations. Further compounding these disincentives can be the partner’s practice of protecting clients, which is often driven by a mindset of my clients rather than the firm’s clients.
Assigning a project owner on firm’s behalf — It is also vital to assign a senior person on behalf of the firm to oversee the succession while it is in progress and to manage expectations that practice leaders are accountable for monitoring. Failure to execute the plan could have meaningful consequences on future efforts to manage succession for other clients.
Nudging the soon-to-be retiring partner — One of the biggest factors in a good outcome of the process is helping the retiring partner think about life in retirement. “You are dealing with people’s sense of purpose, self-worth, identity, and income,” says Stanton. As a result, she advocates for elements of consistent gratitude, compassion, and grace because it is a fraught time for the partner who is transitioning to life after full-time work. To help the retiring partners build a plan for life after practicing law, the best firms are providing coaching services with robust financial, wellness, and lifestyle guidance, incentivizing the departing partners to be more proactive in the transition process.
To reduce the stress, these firms often hire a coach who specializes in this service to soon-to-be retiring partners. Indeed, this can be instrumental in easing the hesitation by many partners to address the topic.
Ida Abbott, of Ida Abbott Consulting, is one such coach. According to Abbott, some of the biggest common concerns are money, loss of identity, status, influence, and community because their clients and connections are most often their friends. That loss of purpose and the fear of the unknown beyond work are key barriers to partners’ willingness to embrace retirement, Abbott says.
Assessing talent needs and potential successors — Identifying the ideal mix of knowledge, skills, and abilities (KSA) for the client is a key step in identifying potential successors to take over client relationships. Establishing this criteria helps the firm decide how it will invest in each candidate’s custom development plan to create success in the transition. Analyzing the candidates for the new relationship owner is a great opportunity to apply the Mansfield rule, which is a program to create accountability and recognition in diversifying equity in client relationships and other key leadership roles within the firm’s structure, Stanton says.
To make the decision-making process easy, firms should ensure candidates have a solid understanding of clients’ business because increasingly clients want business solutions rather than technical legal solutions. This involves expressing recommendations in business terms and having the emotional intelligence to consider the perspective of the client when delivering them.
All the client a voice in selecting the successor — Involving the client in the transition process cannot be ignored. It is imperative for the client to have a say in terms of who takes over the relationship. “A lot of times lawyers say, ‘Oh, I don’t want to bother them,’ but if you want to retain that client, you have to involve them in this process,” Stanton says.
In fact, many clients say they expect as much notice as possible to ensure that they have enough time to explore all options. William Crosby, Associate General Counsel at Interpublic Group, stated that in the case of a retiring partner, he “would look unfavorably on both the firm and the lawyer if the transition was not planned years in advance.”
Stanton agreed, saying the succession planning process is one of the biggest opportunities for improvement, especially around client relationships. “We constantly say, ‘Please start this sooner. Please think through the implications. Think through what the client needs. Think through what the firm needs holistically.’” Then, execute.