General Practice, Solo & Small Firm DivisionMagazine

The Business of Law ® / Edward Poll
© American Bar Association. All rights reserved.

Edward Poll is a certified management consultant in Los Angeles. He is the author of Secrets of the Business of Law: Successful Practices for Increasing Your Profits! and The Profitable Law Office Handbook: Attorney’s Guide to Successful Business Planning . If you have comments about this article, call 800/837-5880 or send e-mail to edpoll@lawbiz.com.

When I was younger, I had the wonderful experience of going into business with my father. He ran a food manufacturing company, and I left the practice of law for a time to become a member of his management team. I worked with him for four years before we sold the company, and I returned to the practice of law.

Those four years were among the most satisfying of my adult life. It was a true learning experience and family affair with older and younger family members contributing to a vibrant, multigenerational enterprise. Whether in the business world or the practice of law, bringing younger family members into the fold can be not only profitable but also very satisfying for both generations.

All in the Family

One advantage is that the incoming family member is often steeped in the tradition of the law, having grown up at the elbow of a lawyer. As a result of this familiarization, the practice frequently comes more easily in the early years. The younger lawyer is more familiar with the concepts and the language of the law. For the younger generation, job security is a plus. It is highly unlikely that the parent will fire the child, even when mistakes are made.

For the firm in general, the goodwill of the law practice tends to be significantly higher when there is a clear path to the transfer of authority. The parent has enough time to properly nurture the growth of the child, and the younger generation can develop close relations with existing clients, who are likely to remain with the firm even upon the death or retirement of the senior generation (the parent). This creates value for the firm. If the firm were to be valued for the purposes of selling or merging the firm or for estate tax purposes, a valuation expert would most certainly take this fact into consideration. The value of the firm would no doubt be greater than it would otherwise be.

Another advantage is that the practice can be passed on to the next generation for very little cost. An "insider’s deal" can have a dramatic impact on the estate value and estate tax level of the parent. When an independent party decides to buy a practice from another independent party in a traditional buy-sell situation, the price will ultimately settle at the fair market value. The seller wants to receive maximum dollars while the buyer wants to give up minimum dollars. So there tends to be a compromise.

In a familial environment, there is usually a desire by both parties to pay the minimum amount of money for a practice. The child, like the typical buyer, wants to pay the least amount of money, but now, the seller—the parent—also wants the value to be lower. Why? Because the parent doesn’t need the money (the practice has done well over the years), or wants the estate taxes to be lower so that more of the parent’s assets can be passed on to the child.

Possibly the greatest of all benefits is the close family harmony that results when the younger and older generations have the same commitment and work environment, and therefore develop even stronger bonds of caring and love than before.

Disadvantages of a Family Affair

Everything comes with price, and family businesses are no exception. One of the problems is that parents tend to be more critical of their own children than of other young lawyers. It’s one thing to be criticized as a youngster in the family home, but in the workplace, this behavior can be devastating. The parent-child relationship never seems to end, and it takes a very sensitive parent to differentiate the home from the office.

Another disadvantage is that parents tend to have higher expectations of their children. Seemingly no performance can be good enough. And when it is, the response is: "That was to be expected, that’s my child." Higher expectations also relate to the younger lawyer’s commitment. And when the expectations are not met with enthusiasm, there can be bitter disappointment on all sides.

A disadvantage for the parent is the mirror image of the advantage for the child: The inability to fire a child who is not performing. Because of the family relationship, the parent may be restrained in exhibiting her true feelings of disappointment or dissatisfaction with job performance. Anger or criticism cannot be stated in the same manner as with a nonfamily employee. And additional pressure not to fire the child may come from the other, nonlawyer parent who wants to be sure that his child is earning a stable income in a "safe" environment. Despite dissatisfaction, the parent must frequently just grin and bear it.

For a family that is not well-adjusted, working together in the same profession and in the same physical space can add more strains. Saying things that will be regretted later can cause irreparable tears in a family’s fabric. Although I am talking here about the interaction among family members, another aspect that needs to be addressed is how family troubles can impact the other employees in the firm. Intrafamily shouting matches can cause the other employees’ work product to go down significantly.

A final minor problem, but one that is often mentioned in multigenerational practices, concerns the blurring together of social and business time. Families that work together commonly take up social time—holidays, meals, etc.—with business talk. This can become a real source of divisiveness between nonworking spouses or parents and those actively involved in the practice. The solution is to set up strict barriers between work and nonworking family time.

Value Changing Hands

Remember TV’s Dr. Casey or Marcus Welby, M.D.? These television heroes were doctors who spent much of their screen time bringing in a new-generation doctor and introducing him to patients before retiring and leaving the practice to this younger practitioner. In real-life medicine, patients tend to stay with the new doctor because of the older doctor’s references and because the patient has had a chance to experience firsthand the care and concern of the young doctor. There is a natural transition from one generation to the next.

The same concept can occur in the law, especially in the solo or small firm environment. A mentoring process occurs when different generations work together. Unfortunately, this seems to have been lost in today’s rush. Once out of law school, with the state’s bar exam passed, lawyers are entitled to strike out on their own to practice wherever and however they want. But for long-term growth, maturity, and enhanced learning, not to mention the increased economic benefit, a younger generation of lawyers might do well to consider staying closer to home and keeping the law a family affair. CL

     


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