Unexpected lawyer departures from a law firm are a far too common occurrence as noted by Above the Law’s recent reporting on K&L Gates. It can happen at any time during the year but many times peaks around the end of a fiscal year. Whether it be disappointing financial results, political infighting, loss of confidence in management or plain staleness at the old firm, the end of year stimulates thoughts of leaving.
A typical reaction from management is to consider the departed as disloyal or misguided. Casting a shadow (throwing shade?) on the stated rationale for departure can provide reassurance that all is not bad at the firm or that the firm is better off free of such selfish people. Sometimes thoughts percolate about making the departure more painful or difficult for the firm’s newest alumni. While the enforcement of fiduciary or contractual obligations has its place, extracting tribute from the departed takes on a life that seldom plays out well and usually delivers little benefit.
A more rational response is to focus on the things that really matter-the nitty gritty that determines the future health, if not survival, of the firm. So when confronted with an unanticipated lawyer departures, leadership should:
Determine the Short-term and Long-term Financial Impacts. Leadership must take stock of the financial impact caused by departures. For firms that have borrowed money under credit facilities, the departures may create a non-monetary default. Assessing this possibility is very important. The next step is to analyze the short-term hit financial impact of the departures. In many cases, the departures actually provide a brief cash-flow respite since financial obligations to the former lawyers are reduced or eliminated. From a long-term standpoint, the departures always have a financial impact. Whether the outcome is positive or negative typically turns on the profitability of the practice that left with the attorneys. Finally, if the firm has an obligation to return capital to the former owners, the impact may be short-term, long-term of both.
Be Alert to the Tsunami. Like the first guest at a boring party announcing the need to leave only to be followed by the entire guest list, lawyer departures can create a Tsunami of defections. When more than an isolated departure is experienced, wide spread discontent may be gurgling beneath the surface-ready to turn a slow trickle into a gargantuan wave. The first departures could well be a signal. See it as such and take steps to stem the potential for more.
Secure Your Information and Assets. A firm’s assets can be many, including client relationships, ongoing legal matters and proprietary information. At the same time you are putting on the full-court press to retain your clients and open matters, be sure to secure the firm’s information base. As legally and contractually permitted, cut off the departed parties’ access to sensitive information. It may be too late since most resignations are preceded by surreptitious preparations (including collecting data, work product and vital information), but sound management must act to minimize access once departures are announced.
Notify and Reassure Those That Matter. While you are reacting to the crisis, leadership must avoid becoming so insular as to ignore other interests that need reassuring. Staff, associates, owners, clients, banks (remember the possibility of a non-monetary default) and landlords all have an interest in the firm’s well being. An information vacuum can cause these parties in interest to assume the worst. Getting out in front of the news quells the possibility of overreaction.
Develop a Plan for the Long-term Health of the Firm. By the time the foregoing steps have been taken, or at least started, designing a long-term plan for the health of the firm becomes paramount. Things that are learned as the crisis is addressed (the financial impact, the risk of added departures, loss of clients and third party reaction) will be the guideposts for a plan. Soliciting input from key players still at the firm, from important clients and, in some cases, outside parties, can be very important to not only create a sound plan, but also one that has good prospects for “buy-in.”
For most firms, year-end is still months away. If the end of your firm’s fiscal year brings with it “moving day,” immediate focus on the crisis is critical. Is your firm prepared?