Succession Planning: Bringing Your People on the Journey

It is commonly presumed that a succession plan for a law firm grows in complexity as the firm grows. It is certainly true that a growing firm has more moving parts, more interested parties and more households dependent on the firm. But a growing firm is frequently better resourced, with more human capital to actualize the plan you initiate and see it to its destination. In that regard, a firm with more infrastructure and employees has it easier than a solo practitioner.

Of course, humans can as readily thwart your vision as further it. They can be fickle or anxious, have complicated lives or have no interest in managing or furthering the mission of the firm. 

The last few years have changed the way we practice, and this time has been marked by lawyers joining in the Great Resignation (wiser people may call it the Great Reshuffling). It is essential to retain talent and bring associates into the fold if the firm is to have a legacy beyond its founders. We will first discuss considerations unique to the succession of growing or grown law firms and then how to bring law firm employees into the process and inspire them to be a force for good in your succession plan.

What Stays The Same

Many traditional aspects of a succession plan persist in importance as a firm grows. A succession plan needs to address emergencies, death and disability, which can cause disruptions to a practice. But also, businesses may end or carry on with new leadership. A plan will always need people or a person to put the plan into action. Similar to an executor of an estate, here we will call that person an assisting attorney. A succession plan needs lawyers to take over cases, whether they are in the firm or outside of it. We should not assume all our cases are miraculously wrapped up when we are ready to leave.

Another aspect of succession that doesn’t change with firm size is that the assisting attorney needs to know essential information. The malpractice insurance policy, lease, partnership agreement and other active contacts should be kept in a secure place, such as a lockbox, which is accessible to the assisting attorney. Making the assisting attorney a signer on the lawyer trust account and operating account or having a springing power of attorney that comes into effect when certain conditions are met are important steps to ensuring continuity of service and reducing disruptions.

Obviously, the goal to reduce disruption to clients and the firm is consistent regardless of firm size; it is what gives the firm’s legacy staying power and retains value in the practice. To that end, pristine practice management that includes documented, functional processes and procedures, current technology tools and accurate financial records are part of any succession plan.

What Changes

While the succession plan needs pristine practice management, those elements that make it up get both more complicated and simpler as the firm grows. Practice management can be relatively simple for a solo practitioner, even with a few experienced employees. But there is a tipping point—different in every firm—where you absolutely need written processes and current technology.

For example, if all the firm’s processes are contained in one lawyer’s mind, not on paper, that can work for a lawyer and two experienced staff. But once a firm reaches four or more staff, or the staff are less experienced and need more help, that lawyer becomes the employment manual. Their days then become a series of managing questions from clients and staff who cannot access crucial information anywhere else. We can easily imagine how catastrophic a disaster can be to a law firm with a single lawyer with everything in their head. No succession plan and poor documentation and processes spells disaster. Add to this more clients that need to be triaged by an unequipped assisting attorney and we can see that as the firm grows, it becomes more essential to have the proper infrastructure in place to support it.

The actual process of transition can be made simpler in a larger firm simply because there are more people available to assist in the transition, more human capital at the firm’s disposal to accomplish the tasks necessary and a greater possibility of several people with daily knowledge of processes, clients and active cases.

Capital Considerations

A growing firm also means more people rely on the practice. For this reason, being undercapitalized—not having at least enough savings to cover six months of overhead and salaries—is not as potentially detrimental to a solo practice as it is to a practice that has grown. More is at stake for more individuals in a larger practice—this applies to both clients and staff. If cash flow issues are a concern during a transition, get a business line of credit to cover expenses during the transition, which will take time and money to accomplish.

Another solution undercapitalized law firms use is life insurance on partners, to cover a partnership buyout. But what firms may be forgetting in this scenario is that disability—both short-term and long-term—is probably a greater risk to the law firm than death. Have insurance and contract terms for disability as well as death.

This is especially important to consider when firms are in a time of growth. When a business is growing, it is frequently undercapitalized because it is putting everything into the expansion of the business, hiring and marketing costs. Time lags before there is a return on investment. Some law firms focus on fast growth over stability and creating a rainy-day fund. Succession planning would, therefore, be an argument for controlled growth with increased financial stability. How much is enough changes with how big the firm gets.

Another positive difference, as a firm grows in healthy ways, is that it becomes more valuable. With pristine practice management infrastructure, people who can enact the plan and an ever-widening client base, the law firm has options. The partners can more readily sell, merge or pivot to a different niche or practice area. The value of the firm is heightened by wise strategic decisions and consistent profits year over year. Such value could decrease, though, if the partners stagnate in their strategic missions, don’t pay attention to market pressures and changes, begin to wind down and decrease profits, or lose key talent.

Bringing Your People With You

It is common that a law firm will be made up of people of all the same generation. Lawyers meet in law school or relate to each other through shared experiences. They partner and they hire people who look and live similarly to them. Everyone gets along and few leave, so they age out together. The future of such a firm is not bright. To be a growing firm that has a goal of a legacy, the firm should strive to hire and mentor people of diverse ages and backgrounds. Not only are diverse voices and characteristics good for the creativity and dynamism of the law firm’s culture, but they are also good for the survival and future of the firm. There will be a torchbearer.

Diversity is essential to the succession plan. Prepare all employees to see the firm succeed under new leadership far before the plan is implemented. Grow the practice with a vision of what it will be in five, 10, even 20 years from now. The partners should develop and evolve a mission statement for the firm and core values that guide their actions. Use those core values, vision and mission in all that is done, because principles stay with the firm and evolve long after leaders leave.

Mentor associates to become not just legal minds, but rainmakers, entrepreneurs, managing partners and strategists. It is a strange but common dynamic in law firms that an owner may have their heart set on a certain associate taking over the law firm at some nebulous date in the future, but the associate will be utterly clueless of this expectation. Lo and behold, when the time comes to start putting the nebulous succession plan in place, the anointed successor will either be totally disinterested in taking over the practice or have a difficult time seeing the pathway to that end. The associate leaves and the owner scrambles to find a solution such as merging with or selling to a larger firm or just winding down.

A harsher scenario can also unfold, where the owner-chosen associate succeeds over other associates who now feel rejected and befuddled about when and where they were chucked off the partnership track. When this happens, talent is inevitably lost.

These difficult situations come about because the partners and associates are not communicating enough, or at all, about the future of their careers and the future of the law firm. Have realistic, frank conversations with employees of all types about where the business is going. It doesn’t mean a retiring lawyer must announce their intent years ahead of time, but having a thoughtful plan can be a good selling point to potential employees and clients. Retirement should be seen as part of the life of every career.

The Sticky Wickets, Or Where Things Go Sideways

Some law firms have an age limit at which lawyers must retire. This can be difficult for the forcibly retired who often keep practicing in some limited capacity from their home office or den. Such policies alienate the retiring lawyer and relegate them to an isolated practice where there is no oversight of their capacity to practice and little or no community. More harm may be done than good. The flip side is there are law firms where younger lawyers are primed and ready to move into the corner office or leadership roles, but they are held back by aging partners who “refuse to go.”

Try to find that middle ground that respects diversity while also permitting the next generation to have a crack at strategizing and growing the practice in new and exciting directions. Consider “of counsel” relationships where aging lawyers can still work on a limited basis and continue to share institutional knowledge and deep expertise with the law firm and legal community. We hope the retiring lawyer knows when enough is enough, or those around them should be willing and able to have frank conversations that are respectful but persuasive.

Not surprisingly, many of the big sticking points are around money. Retiring lawyers may not want to be honest about this, but many remain in practice because they don’t have enough, or are worried that they don’t have enough, retirement savings. Some say they want to work forever because they love it, but this seems to be a fading idea for the generations coming up through the ranks. Many younger lawyers think retirement sounds quite grand! It is essential to compensate the retiring lawyer appropriately for what they built, but not to the detriment of the firm.

This is sometimes the point where older lawyers start asking associates, who they haven’t been mentoring very diligently, to buy in to become a partner. Buy-ins are less common in small firms, maybe because it is often the point where associates decide they can do better on their own. Consider other ways to bring a lawyer on as partner: a buy-in over time through a portion of future salaries going back into the firm or a contribution of something other than money, for example. The important thing is to talk. Don’t lose good talent and the future goals of the firm on things that can be negotiated fairly.

Succession planning is essential, as an ethical obligation and for business continuity strategy. It isn’t only for solos or only for partnerships. It’s for all legal professionals in a law firm. Take it seriously. But also, have fun in retirement!