Business succession and generational transition are no longer just theoretical issues or problems to be deferred until sometime in the future. By our estimates, a majority of the law firms in the world - perhaps as many as 75% of them - are now or within the next ten years will be, confronting the need to pass leadership, management, and fee-producing responsibilities from the older generation of partners to the younger generation.
Moreover, they will be doing this for the first time.
These firms are past the point for succession planning. They need succession management.
As many of these firms are already discovering, succession in a law firm involves much more than redistributing the departing partner's files and filling an empty office. There are some subtle and very difficult issues that my colleagues and I have observed as otherwise well-managed firms deal with succession.
- Should we have a mandatory retirement age?
- If not, how will we know when it is time for a partner to retire?
- Can we continue to handle retirements on a case-by-case basis? Is this wise flexibility or crisis-to-crisis improvisation?
- How do we calculate the amount of money that we owe the retiring partner?
- How can we manage the buy-out of a retiring partner without jeopardizing the incomes of the partners who remain in the firm?
- What do we do about partners who are no longer fully productive, but are reluctant to leave?
- What do we do about partners who want to remain affiliated with the firm in some way?
- What do we do about younger partners who are reluctant to assume management duties being given up by the older partners?
- When is the right time to "pass the torch" of ownership control and management responsibility to the next generation?
- What should we do about a partner compensation system that rewards financial performance but also discourages partners from transitioning to retirement?
Interestingly - but not surprisingly - the law firms that have the most difficulty with transition issues and succession management are those with partnership agreements that are vague or even silent on the subject. (I use the term partnership agreements in a generic sense, to include shareholders agreements, operating agreements, and other corporate "constitutions.") This is why, for law firms with partners who are over age 50, one of the most important first steps toward successful succession planning and management is to review the firm's corporate documents to ensure that the policies and rules governing partner retirement are clear, support the long-term business and financial interests of all partners, and are consistent with the professional culture of the firm.
To read more about global trends in law firms, visit the Walker Clark Worldview Blog.