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AVOIDING MALPRACTICE – ARE YOU AT RISK?

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TRENDS REPORT

How Will Mandatory Retirement Actions Affect Succession Planning?

Over the past decade, more and more firms have addressed the need for succession planning, a sensitive, critical issue that extends to both firm management and client responsibility. However, several developments with regard to mandatory retirement may add to this already difficult challenge.

Setting the Table

As previously reported in this column in recent years, there has been a growing recognition that the future health of every firm depends, to a great degree, on keeping longtime clients after the responsible partners are unable to serve them due to age, retirement, disability or death. Plus, an additional issue arises when client personnel retire and are succeeded by younger personnel who want to work with a lawyer closer to their own age. In either instance, when responsibility for the client relationship has not been transferred to younger partners, there is a high risk that the client will move to another firm.

Similar problems arise with regard to firm management. There have been many firms decimated by the sudden loss of a managing partner (particularly if he or she was a “benevolent dictator”) because there were no other partners able to step into the void, since they had not been trained and developed to assume senior management responsibilities. The same can hold true for leaders of major practice areas or other high-ranking members of the executive committee, with the firms suffering as a result.

But there is an associated issue: In firms that don’t have mandatory retirement policies, some partners will simply reject planning for succession because they want to continue practicing in the firm, regardless of their age. In these firms, succession planning becomes a very personal issue fraught with sensitivities. Firms with mandatory retirement policies, on the other hand, have an advantage in implementing succession planning because their partners know that, at a certain age, they will have to relinquish their practices and responsibilities regardless, although some of those firms do allow retired partners to remain with the firm in a different capacity.

Enter the EEOC

So how might firms resolve the conundrum? The situation may have started to change several years ago when the Equal Employment Opportunity Commission brought an age discrimination suit against Sidley Austin over its policy of requiring partners to retire at a certain age. In 2007 Sidley agreed to pay $27.5 million to settle the suit and dropped the policy. Then last January the EEOC sued Kelley Drye & Warren over its policy of de-equitizing partners who turn 70. In its response, the firm denied that it discriminates against older partners and insisted that partners are not entitled to employee protections.

Add to that the fact that three years ago, faced with a generation of baby boomers nearing retirement age, both the New York State Bar and the ABA recommended that the profession drop mandatory retirement policies. A few firms, including K&L Gates and Pillsbury Winthrop Shaw Pittman, did so. But other major firms, such as Cravath, Swaine & Moore and Weil, Gotshal & Manges, have not. The principal reason is that mandatory retirement is the lever by which they can make senior-level partners turn work over to younger partners who handle institutional clients.

Furthermore, the recession only served to reinforce many firms in their resolve to keep mandatory retirement, since it made it easier for them to cut their numbers that way rather than by laying off younger lawyers or reducing further, or at least postponing, the hiring of first-year associates. As a partner in one New York firm put it, “Large law firms have a financial incentive to maintain their retirement policies.”

What Will Happen Next?

Regardless of firms’ incentives, the EEOC intends to pursue the issue. Jeffrey Burstein, a senior trial attorney at the EEOC in Newark, New Jersey, who is handling the Kelley Drye case, has made that clear. As quoted in the April 8 online edition of the New York Lawyer: “Do we hope that, if other firms have similar or the same policies, they will rethink the continuation of these policies as a result of us suing? Yeah,” Burstein said. And Mark Alcott, the former president of the New York State Bar, which supported ending mandatory retirement, said this in the same article: “I think the firms are clinging to an old way of doing things.”

Certainly the few firms that have eliminated their age caps would agree with Alcott. According to Peter Kalis, the chairman of K&L Gates, the decision has been “culturally enriching” for the firm and has allowed partners in their 60s to worry less about postretirement planning and focus more on their practices. But he did not address in his comments how this change has affected the firm’s succession planning.

An interesting situation could be developing here if the burgeoning trend to eliminate mandatory retirement policies continues to grow. This could then slow down the trend for succession planning. What will happen? Stay tuned.

About the Author

Bob Denney , President of Robert Denney Associates, Inc., has been providing management and marketing counsel to law firms throughout North America for over 30 years. He can be reached at (610) 644-7020.

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