Succession planning among law firms is uneven-some law firms do it well, some not so well and some not at all. Even the law firms that go about planning for succession won’t always do a good job when it comes to executing on the plan. But because succession of leadership can have serious ramifications, a misstep in planning for succession can take years of recovery if recovery is even possible.
Succession planning and execution in 2014 is far more difficult than its was a decade or more ago. It is not that it is harder today to identify credible candidates to succeed existing leadership; searching for the best talent is a task that has not changed much. Rather, the changing face and nature of the legal industry has made succession a more complicated matter.
Not only must a law firm pick the right leader for the future, but also the new leader and the firm must be prepared to transition from past practice norms to a legal market vastly different than the past. In yesteryear, a new leader’s promise to maintain the status quo meant good times would continue. Today, in our different legal market, promising to continue the status quo means the opposite. Only through strategically addressing change in today’s legal market can new leadership provide the kind of stewardship a law firm needs.
Succession planning today means that a number of complexities are presented:
Competing in the New Age. Until recently, competition in the legal industry was almost entirely between law firms, with the occasional accounting firm intruding on the law firm enclave. That is no longer the case as the proliferation of alternative legal providers or services has exploded. Jordan Furlong’s An Incomplete Inventory of New Law, an excellent summary of these alternatives, starkly demonstrates the growth of new competition. A new law firm leader will need to lead the firm in a market saturated with competition not previously present.
Riding Into the Sunset. Matt Greenslade’s Your Boomer Partners are Retiring. Is Your Law Firm Ready? notes the Boomer’s march towards retirement age and rightly suggests that any succession plan needs to deal with a spate of lawyers facing retirement. Many of those lawyers aren’t interested in the gold watch and want (or need) to work longer. If your firm doesn’t have mandatory retirement, should it? If it does, will it work well as so many productive partners reach retirement age? Are your elder lawyers still productive, do they have relationships that need to be preserved for the firm, and does the firm have the bench strength to replace their expertise? How is the firm going to deal with its aging population; with dignity and compassion? How a firm deals with its elders says a lot about the firm and its culture. Doing it right sets the tone for later years since, as Mr. Greenslade notes, the aging in the AmLaw 200 will continue.
An Expanding Market is History. Today, law firms can’t count on an ever-expanding market. Annual raises for partners, increasing starting salaries for first year associates, adding offices, markets and lawyers is, for most firms, a thing of the past. So are automatic annual rate increases. Clients have begun to pushback on rate increases; practice inefficiency and young associate training at client expense. There is no indication that the pendulum that has swung to the client’s side will swing back anytime soon. The difficult task of operating in a contracting legal market is not something last year’s leaders faced.
Unfunded Pension Plans. Law firms’ non-qualified pension plans typically are funded from cash flow. Establishing these plans long ago during an expanding legal market made sense at the time, but some firms face retirements and funding obligations at the same time they are shrinking. The financial strains imposed by upside down demographics in a contracting legal market can be severe. So when a law firm with non-qualified plans seeks to deal with succession planning, it needs to consider these obligations as it plans for the future.
The Many Faces of Loyalty. As Sandra Bekhor notes in A Firm Handshake for Unsure Times, life at law firms has changed. Many of the partners getting ready to retire are among the most loyal employees at the firm. Some have spent their entire legal careers toiling for Mother Law Firm. Younger partners have grown up knowing a legal market where lateral movement, and reduced loyalty, has been a way of life. The associates’ generation typically is even less attached to the firm-many are not even sure they have a long-term future. Succession planning requires that these differing perspectives about life at a law firm and its future be understood in connection with any long-term planning.
Today, when a law firm picks a new leader, the new leader must possess the skills and vision to deal with the transition hitting the legal industry. The issues described above are five each new leader must address. Are there others that are equally important?