Succession planning is an issue that many law firm managers worry about. They ask whether their firm has done enough planning, whether the pool of successors is deep and whether the firm will be stable when transition to new leadership happens. Because succession planning is so important to many of today’s law firm leaders, we’ve written extensively on the subject in Managing Law Firm Transition. For law firms that care about succession, preserving the firm’s legacy is a paramount concern.
For many firms, however, a legacy is last thing thought about. Some law firms, particularly smaller ones, can’t be bothered by the thoughts of legacy but are more interested in the here and now. Getting clients, doing good legal work and making money provide the essential motivations. When such a law firm’s year concludes and final profits are distributed, the partners tend to hop back on the merry-go-round and focus on doing it again in the coming year. That is, of course, for the firms satisfied with the status quo.
Other firms reach a different conclusion at year-end. Upon assessing the prior year’s performance and thinking about the future, more than a few law firms’ partners conclude that their respective interests have diverged or gone in different directions. For those firms, there is no “hopping back on the merry-go-round.” Instead, the partners decide to go their separate ways and end the law firm’s existence. When that happens, there are at least five things the owners should do.
Determine Assets and Liabilities. A fundamental first step is to assess the assets and liabilities of the firm. For some firms, the “one for all and all for one” culture never got started and instead the firm forged ahead with a “this is mine and that is yours” approach to assets and liabilities. Whatever the firm’ style, owners readying for a wind-up must have a full understanding of where the firm and they stand when assets and liabilities are considered.
Review Applicable Agreements. Most law firms will have various agreements that establish the relationships between the owners, such as a partnership or shareholders agreements. Other ancillary agreements may exist that further define their contractual duties to each other. These seminal agreements must be read and understood as the firm embarks on a wind-up. In addition, all third-party contracts entered into during the firm’s existence should be reviewed to see how they are impacted by a wind-down and how they will impact a wind-down.
Take the High Road. In a perfect world, divorcing owners will deal with the split amicably. Taking the “high road” can minimize animus and unfortunate behavior that makes separation difficult. Of course, not all law firm break-ups will be amicable. Indeed, some break-ups are the result of estranged relationships the repair of which was deemed impossible long ago. Even when the break-up starts out ugly, however, at sometime during the course of the divorce the hatchet will probably get buried. The sooner a hole is found for the hand axe the better.
Obtain Third Party Assistance. Turning to others to provide dispassionate help in the wind-down is a good idea for a couple of reasons. First, the owners of law firm often are too close to the situation to see the obvious or avoid the ridiculous. Second, the divergent views that precipitated the split up may make interested partners less than trusting when wind-up decisions are proposed by another interested partner-soon to be former law partner. An independent third-party solely interested in executing a successful wind-up can not only earn the trust of all sides but also do wonders for keeping a wind-up on track.
Think About the Future. When law partners decide to split the sheets, they often do so because they want their future law practice approached differently. Thus, it is contrary to that objective to bog down in the wind-down with petty disputes and score keeping at a minute level. Rather, former partners moving on should focus on the future, get their former law firm home wrapped up promptly and efficiently and avoid dwelling on the things that were irritating enough to compel the break-up in the first place.
When any law firm decides the joy is gone and it is time to call it a day, five ideas should guide the firm as it gets on with its divorce. Given what you know about your law firm and its partners, could your law firm follow these five concepts if it decided it was time to move on?