Law firm succession, whether leadership or client focused, has been an issue for law firms for a long time. Recent articles written about the legal industry suggest that succession will be different if not more difficult in the future.
At the risk of waxing about the “good old days,” it is arguable that operating a law firm successfully today is not as easy as it once was. And it is not likely to get easier in the future. William Henderson, noted law school professor that writes extensively about law firms and their industry, recently commented about the traditional law firm business model and stated “[i]t’s getting harder to generate new business and to grow your top line revenue. The historic, bill-by-the-hour matter, that business is on the decline, so there is really no risk-free strategy right now—the clients are building capacity in-house for the lower-level work, and litigation is …too expensive.”
Add to that a recent study conducted by Citi Private Bank which noted that a number of law firm leaders have expressed concerns about the state of the industry and economy. Young people entering the legal field seems to be on the decline and the recent Bar exam results are at the lowest since 1988. On top of that, the idea of replacing law firm associates, at least to some degree, with artificial intelligence is being discussed more and more.
The point is not to take Chicken Little’s place and declare the sky to be falling. Rather, these developments-whether long term or not-suggest that succession planning will be different in the coming years. It will be different, if not harder, because:
Advances in Technology Will Have a Greater Impact. Technology advances will fashion a double-edged sword. Technology advances tend to make a law firm’s practice more efficient. Savings from efficiency can be passed onto clients, result in higher profits and improve lawyers’ quality of life-all good things. But technology also may allow clients to satisfy their legal needs in house or stimulate more competition. For some law firms their business may become more short-term in nature and not something that demands extensive succession plans.
The Pool Will Be Smaller. If fewer people are going to law school and fewer that go pass the Bar exam, the pool of qualified candidates to whom the baton is to be passed will be more shallow. Planning for succession by drawing from a smaller and less qualified pool will make succession more challenging.
Well-run Firms Will Have the Best Chance at Succession. In the future, law firms seeking success from a business point will have less room for error. A well-run firm will not only enjoy its present, but will be better able to continue its legacy. It will have more clients, be more profitable and have better talent-all things important in succession. Preservation of firms that have uneven business practices will be far less common. Succession for these firms may not be possible.
More Mergers Can Be Expected. More and more law firms are dealing with succession by combining with another firm. As the demographics evolve, “succession through merger” will continue to become more commonplace.
Because succession planning will not get easier, preparations must be initiated as soon as possible. David Goener of Beaton Capital recommended in his Generational Change is Slow inLaw Firms that dialogue about succession begin 10 years before the transition is likely to occur. He also recommends that detailed work on the succession process begin 5 years prior to the anticipated succession. Are you ready for succession today? With the industry changing all the time, will you be ready in the future?