Karen Courtney* –
Longevity for a law firm as in any organisation requires a great deal of forethought and planning. Many firms only consider succession when it comes closer to retirement age for some partners.
It is fair to say that this is very knee-jerk and not a plan.
Succession should be given thought to across the life of the firm and should encompass all levels of professional staff and partners. This is where having a plan that includes development of persons within the firm can save a lot of grief later on.
Retirement age and exiting strategies are entirely different in each firm. It can take into account the person’s on-going contributions, their desire to work full time or ease back and it will sometimes be an agreed age. Other factors may come into it too. We’ll look in to this further on.
The Dollar and Branding Cost of Poor Succession Planning
Well organised succession planning or lack thereof will contribute to either high staff turnover or stability; employee and partner satisfaction levels; and poor or strong employer branding. How does this work?
When recruiting staff solicitors, I am often told by candidates that they are looking for a firm where they can develop their skills and their ability to contribute. These candidates say they want a path that takes them through the firm, either to partnership or to a role with more responsibility.
When this isn’t in place, the dissatisfaction that this can raise makes them ripe for the picking from other firms that may offer a plan to develop them within their practice. A former employer who hasn’t provided this path will therefore;
- Have to replace the person leaving at the cost of loss of fees while someone is not in the seat (the replacement period);
- Have reduced income due to the downtime needed for the new staff member to come up to speed;
- Incur recruitment costs and
- Have damaged their employer brand. An ex-employee will likely have let their friends know that this is not a firm where there is a future. This news spreads and the tarnished impression to the market can make it harder to recruit for other positions within the firm.
In monetary terms, this doesn’t make sense. It is disruptive and you’re back to the drawing board. In employer branding terms, it also doesn’t stack up.
“not every solicitor you hire is going to be identified as one for partnership”
So how do firms who value their people as long-term integral parts of the firm differ. Part of it is in the on-going dialogue that they have with their staff.
This then needs to be followed up by actions such as on-going internal training development programs for those identified for succession to partnership.
Of course, not every solicitor you hire is going to be identified as one for partnership.
They may not have the disposition to develop client relationships needed to support a business case; they may have no desire for partnership – they may be uninterested in the extra time and effort required to be a partner; there may not be room at the partnership table for one more equity partner in any given specialisation.
“when do you start putting these efforts in to your staff solicitors?”
This does not mean that a conversation with them about their potential within the firm shouldn’t be had. You may find that they are happy in a support capacity and can be valuable if developed and are retained in that way.
There are other options to equity which may suit them well.
So, when do you start putting these efforts in to your staff solicitors?
I would suggest from the beginning. When a person starts with the firm, part of the on-boarding program should include an overview of development options within the firm followed by the pre-requisites required to advance.
Initially, this information can be provided as a high-level overview.
They should also understand what training and development is available at different stages to help them achieve these milestones and discussions on this should be included within regular performance reviews.
At an associate level or a senior associate level, more in-depth education needs to be provided as to what these pre-requisites are. Support should also be in place to help them achieve these goals.
A good place to start is helping them to understand law firm economics. The firm as a business.
Most already know that in a general sense, as an employee they are paid a portion of their fee’s generated. One part going to overheads and the other as profit to the partners. Some refer to this as the ‘a third, a third, a third rule’ (this varies of course in its distribution).
What associates may not understand is why the partners deserve what they may view as a high proportion of the profits from fees they feel they have generated. So why not start with that.
Let them know that as a firm this is compensation to the owners of the firm for its goodwill including:
- the brand/reputation of the practice;
- the client relationships;
- the intellectual property;
- the overall structure of the firm being more than the sum of its parts.
- As a business, it also represents the possibility of loss on investment, taking the highs with the lows and having fluctuating profitability and therefore income. As a result of becoming an equity partner (compared to an associate, or salaried partner) is that you are directly exposed to, and responsible for, the profitability of the firm.
Explaining the Concept
This is common sense you would assume. But in speaking with a number of associates over the years, they are not all au fait with this concept. It needs to be explained.
This can be a turning point for some who on learning that partnership is not a rite of passage and requires extensive input, decide that equity is not their goal.
You will need to work with them to ascertain if their objectives can be accommodated within the practice such as remaining as an associate, salaried partner, consultant or perhaps special counsel if they are senior enough.
“Don’t show them the ocean without showing them how to fish”
So, with this knowledge imparted, you will also need to have in place a mentoring and training program to help them meet the criteria for advancement. Don’t show them the ocean without showing them how to fish.
Training for Associates should include:
- Understanding of Law firm economics
- How productivity of partners is assessed and what will be required of them
- Personal billings
- Work introduced
- Work managed
- They’ll need to understand the value and cost of leverage
- Effective business development and retention
- Delegation and mentoring responsibilities
- Business contribution requirements
- Contribution and distribution within the equity partners
- How lock-step works if this is within the practice
- Exiting strategies
- Restraints of trade
This is something that needs to be understood within the partnership. It applies to a number of situations, not just retirement. It can also be for those who want to leave the partnership for other reasons such as a lateral move, location move or going to the bar.
Therefore, it’s a good idea to have a process for managing exits based on different exiting scenarios worked out before it is needed. It requires agreement and buy in earlier to avoid conflict and should provide clear guidelines.
It requires putting in place win, win scenarios and should be incorporated within the terms of the partnership so that all are on the same page.
In a retirement or easing back to retirement scenario, options should be incorporated in the partnership contract to fit with the individual’s personal needs. People often feel differently about retirement when it comes so provide for options.
“Even after gaining agreement that clients should be introduced and gradually moved to younger ones”
Some may prefer to carry on working in a reduced capacity, others may feel like a full break at an agreed time. Whatever it is, provide them the dignity they deserve for their long service.
Transitioning of Clients
It is easy to get verbal agreement to transition clients to younger ones within the practice. People generally agree that it is good for the practice if this is done well.
Even after gaining agreement that clients should be introduced and gradually moved to younger ones, there is generally a big gap with those expected to pass over these relationships.
This should come as no surprise.
Get to know what is important to the person heading towards retirement:
- Are they concerned about their long-standing clients being well looked after;
- Do they have a concern with the person(s) that they are expected to transition clients to?
- Do they feel they are being pushed to retirement when they are not ready to go?
- Do they want to retain key clients so they can continue on reduced hours?
- Do they feel that in passing on their clients they are losing their value to the firm and the associated level of status within the partnership?
- Do they feel that these client relationships belong to them and they therefore want to take them with them to a new firm?
- Do they feel that once their client relationships have been transitioned they could be ousted sooner than they want?
- Do they have concern over the value of their retirement goodwill being diminished and that they are giving away their hard-earned work for nothing?
These are all concerns I’ve heard before.
Most people who have spent years building up and maintaining long-held client relationships will feel a bond and sense of personal responsibility to these clients. It may be that some of these clients are generational.
If you do want a person to transition these clients, give them the responsibility of:
- Involvement in the internal or external recruitment choice of successors.
- Give them financial reparation for work done by others over an extended period. For example, they could get a percentage of the fees generated for 2-3 years (even if they have left the partnership) to ensure they have a reason to promote this transition to clients.
- Provide support and training in mentoring and delegating to the appointed successor. This may not be their forte so help them set a path and work with them to stick to it.
- If the person retiring has valuable skills such as business development or are a mine of information in their area of specialisation, get them to transition from fee earning to utilising these talents across the firm and provide reparation them to do this unconnected to fee expectations.
It’s not pleasant hearing how some have been poorly treated on leaving a practice through retirement or moving to another firm.
Conversely it puts out a very good impression of a firm when you hear positive stories of how well people are respected in their retirement years.
It’s a personal and business decision for people so if the path is clearly outlined and has real agreement early on in the piece, maybe there can be a joint success in successfully navigating transition of clients and in providing a positive transition of partners to retirement.
*Karen Courtney is a partner and legal recruitment and search specialist with LegalTalent, part of the Customise Talent Group and has over two decades of experience as a legal search specialist dealing with professional service recruitment and advisory work, including presenting at law industry seminars, speaking on partnership issues including attraction, retention and working more effectively as joint business owners.