October 23, 2012

Building for the Future: Advice on Balancing Succession and Retirement Planning

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Retirement Special Issue

Your Next Managing Partner

Succession Planning Strategies: Dos and Don'ts.

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December 2007 Issue | Volume 33 Number 8 | Page 52

Law Practice Case Study

Building for the Future: Advice on Balancing Succession and Retirement Planning

In the Law Practice Case Study series, we posit a scenario that many of our readers confront and ask selected experts to discuss solutions. The goal: To provide our readers with practical how-to approaches they can apply in the types of real-world situations that arise in lawyers' lives.

THE SCENARIO   Sandy looked halfheartedly at the memo on his desk. The office administrator wanted a succession plan for the firm, and he was being asked to head the planning committee. The issues were clear. They needed to start training younger lawyers in management and leadership skills. But probably more important to the firm's older members—including himself—they needed to bring in more new partners if they wanted to have a decent buyout for the aging partners.

Building for the Future: Advice on Balancing Succession and Retirement Planning

The firm needed a retirement policy. And they needed to know how they would pay for all this.

The administrator wanted a road map for the next 10 to 15 years—15 years! He'd be retired from the firm by then, and in any event, Sandy barely had the energy to plan to the end of the month.

He also knew that getting the other senior partners to sign on to any kind of plan could be tough. After all, there would be costs involved that could cut into their profits. And there were other issues in play at the firm, too, like the lawyers who were advocating to acquire newer technology. This seemed like a waste of money, since the current systems were working just fine, and he wanted to maximize his draws, just like the other partners.

Looking at the family pictures on his credenza, he thought of the college tuitions he was paying for now. Also his investment adviser had cautioned him to start focusing in on his retirement. He'd always been an achiever and prided himself on being among those who'd pushed the firm to its current unprecedented success. He should feel energized about tackling the issues before him...but he didn't. Instead he felt like his role in the firm and his overall drive had stagnated.

He needed to start making some decisions—quickly. He wondered who he could talk to...

Our experts respond

Allison Wolf
Understand the Dimensions and Accept the New Challenge

Having worked hard to build his practice, Sandy is now in the "golden time" of his career, but the patina of success has worn thin for him. His restlessness and inability to focus are signs of boredom. This is someone who needs a challenge. The question for Sandy is, what will the new challenge be?

Sandy, to quote Dr. John C. Maxwell, is "currently stuck in the shadow of his potential." I would recommend Sandy take himself to the next level, starting by accepting the leadership challenge being presented by his firm. To mentally position himself, here are questions he should ask:

  • Who are the leaders he respects?
  • What kind of leader is he currently, and what kind of leader does he wish to become?
  • What does he ultimately want to be known for, and what legacy does he want to create?
  • How does he wish to lead, mentor and develop the next generation of lawyers, those who will succeed him and his partners in leading the firm?
  • How can he journey from being an average leader who pushes his plans through to one who inspires the people around him to achieve greatness?

The technology issue provides a glimpse into his current leadership approach. Sandy doesn't appear to have a sophisticated understanding of technology. But rather than asking those with knowledge in this area to research the issues and present the firm with recommendations, he is grumbling and likely going to veto any suggestions that the younger techno-crowd might make. This suggests his leadership style leans toward domineering and forceful rather than collaborative and engaged.

Delegation could represent a second dimension to his challenge. It sounds like he is used to constantly grappling with competing deadlines, client demands and management issues. He might be a work hoarder. In tandem with that, partners like Sandy are usually the biggest users of overhead. They have larger offices and use more support staff and resources than their junior colleagues. They also have much higher rates and can generate considerably more income. What's the result when you combine those factors? Using an analogy from Adam Pekarsky, director of professional development and recruitment at Fraser Milner Casgrain, Sandy's practice is like an expensive race car. If he's not delegating the lower-level work, then it's like he's driving a Formula One race car around a shopping mall parking lot. To free up time and mental space for leadership tasks like chairing the succession committee while still keeping his profits high, Sandy needs to employ some effective delegation approaches.

Another dimension is financial planning. Part of Sandy's growth as a leader must include a greater ability to look at the long-term picture rather than focusing simply on shorter-term financial needs. Sandy is feeling the pressure of providing enough income to support his family and build up his retirement funds, but given that he is enjoying unprecedented success it's likely he currently bills enough to meet financial goals without draining the firm, especially if he increases his leverage through effective delegation.

The challenges before him will not be conquered overnight. In making his ascent to become the kind of leader this firm requires, Sandy will need feedback and support from inside the firm and also from an outsider like a business coach. He will need to think about the results he is seeking personally and professionally and how best to balance both sides. He's going to have to develop the humility and courage to receive feedback and learn from mistakes; the determination needed to learn new skills and to see the plan through; and the capacity to listen deeply to learn what others in the firm have to offer and how he can help them in meeting their goals.

And what about that succession plan? The administrator is keen for a long-term firm plan, but as a first step a 15-year plan is excessive. Nothing will stop this partnership dead in its tracks faster than the looming gloom of a 15-year plan. Instead, Sandy can take up leadership on this issue by suggesting the partners develop a five-year strategic plan. That planning process will provoke discussions at the partnership level about the long-term goals and future of the firm that will enable them to begin to address the looming succession issues too.

As for finances, a strategic plan will set out the investments the firm will be required to make over the coming years. The administrator will then be able to develop annual budgets incorporating the objectives and investments outlined in the plan. That budget and plan will govern the amount of funds available for partner draws.

In addition, Sandy's new focus on leadership will give him a chance to learn and implement an improved approach to mentorship and associate development. The young future partners of the firm could benefit greatly from the guidance and support of veteran lawyers such as Sandy. Indeed, it is just this kind of investment that reaps the biggest rewards in terms of associate retention rates. Succession planning is grounded in the development of the next generation.

Dustin A. Cole
Shift the Perspective to Team Management

Sandy is the classic lawyer, caught in the "technician" trap of doing, doing, doing, without a vision of how it can be done differently. As a result, he—and his firm—are heading for a crash when he falls ill, retires or hits burnout—which is looming as a possibility. It doesn't strike me that Sandy and his partners have yet created a firm; instead, they work as a colloquium of solo practitioners. There is no real firm underpinning the hard work of its members, which means no certainty that it will continue—and be able to buy out Sandy's and the other partners' shares at retirement. The administrator is right in raising the issue of succession. But it's not about hiring more lawyers. First and foremost, it's about evolving the present colloquium into a true firm.

In fact, most of the profession is caught in some version of this trap—total focus on legal skills and an "hours in, dollars out" mentality that destroys the boundaries between practice and personal life and sets the stage for health and retirement disasters. It also cripples lawyers' ability to safely "land" their practices and enjoy a more financially secure retirement.

On top of that, consider that today some 58 percent of the profession is over the age of 45 and a quarter is over 55. This situation threatens to rob even successful lawyers of a financially secure retirement owing to an inability to cash out at the end of careers.

To step out of the trap, Sandy must first shift his perspective and beliefs about the practice of law and then begin to operate differently. Happily, these basic shifts are congruent with his long-term desires to create a successful retirement scenario.

The needed perspective shift relates to the hierarchy of value that a lawyer has in his or her practice. From most important to least important, the hierarchy is:

  • Client development. This is the horse that pulls the wagon. Without clients, legal skills are irrelevant.
  • Client relationships. Having attracted the client, the lawyer must build and maintain that client's trust, during the course of a matter and afterward, for future business and referrals.
  • Planning and strategy. This means laying out the plan and the steps to accomplish the client's objective.
  • Managing the team to obtain the result. "Managing" is the key word here. The experienced lawyer leverages lower-level work—including the day-to-day oversight and client contact—down to team members and provides quality control and accountability to achieve the result. Without this step, lawyers hit the proverbial ceiling on their capacity to handle clients, on their revenues, and on their physical energy to accomplish the work. This step is especially important as lawyers grow older (or want to have a life). Within a firm, this step also relates to the managing partner's or practice group leader's success in directing the larger team.
  • High-level legal work. As lawyers grow their practices, they increasingly undertake only the highest-level work that only they can accomplish. Everything else gets delegated to a lower level.

In this model, lawyers dramatically increase their case management capacity while increasing the level of client care. Operating as team managers and high-level experts, they can actually increase their billing rates, meaning more cases handled more efficiently while billing fewer hours per case—at a higher rate—on more cases.

This model begins to create a "firm"—firstly resulting in a team of lawyers and other legal professionals who are being intensely mentored and trained in legal work, client service and managing others, and secondly leaders who have both the time and the perspective to focus on the larger issues of the firm. I don't believe 10 to 15 years out is too early to begin planning for succession, but it doesn't start with "succession." It starts with the evolution of the lawyer from the technician trap to the manager of a successful legal business.

Karen MacKay
Cultivate the Capacity to Be Open and Honest about the Choices

One of the particular difficulties that law firm leaders struggle with is the conflicting oals within the partnership. There are the partners who see the firm as an institution and take stewardship very seriously. These partners are intent on leaving the firm stronger and richer than the firm they inherited. They invest in people, they invest in technology, and they invest in building know-how that will belong to the firm long after they are gone.

Then there is the other group, of which Sandy seems to be a member—the group that is committed to strip-mining the place every year to maximize their personal profits and build their personal wealth.

This explains why Sandy finds it so hard to support a financial decision regarding the firm's investment in technology, which he neither understands nor recognizes as important to the firm's ability to compete. After all, he has been quite successful working the old-fashioned way, and every dollar spent on technology is a dollar out of his share of the profits.

Of course, Sandy is also facing a number of personal issues. He is facing the end of his career, an unpleasant thought for one who might be defined in part by his career. By extension, he is also facing his own mortality—never a pleasant thought. His concerns about college tuitions and amassing funds for his retirement and providing for his family are certainly understandable.

But now we add to that the fact that Sandy has been asked to chair the succession planning committee, which will deal with a 10-to-15-year time horizon—farther ahead than Sandy wants to contemplate. In the words of my friend Nick Jarrett-Kerr, the formation of this committee is like "getting the turkeys to vote for Christmas." This committee will be charged with finding ways to move personal income from themselves to bring in new partners, and to disengage from older partners who have built their reputations, careers and personal wealth within this firm.

If Sandy truly wants to step up to lead the planning committee and otherwise, he has to make some critical alterations to his mind-set. Who can he talk to for guidance and support? That depends. If Sandy is married or with a life partner, he might begin at home. Also talking to partners within the firm is, of course, an option—but to which ones? One never really knows which camp one's colleagues inhabit. Trust is difficult to find, particularly in a professional firm, and trust is key for him right now. He might also talk to a coach, as Allison has suggested. It's good to get an informed, outside opinion, to go to a place where you can worry out loud and talk it through.

At issue here is Sandy's ability to be open and honest about what the firm needs of him; about his capacity to engage in being a leader while he remains in practice; and about how the steps he and his partners take in steering the firm will ultimately affect both the firm and himself—including what financial resources he has upon retirement.

As he reflects on his future, Sandy might consider some important questions from Marilee Adams's book Change the Questions, Change Your Life (Berrett-Koehler, 2004):

  • What do I want?
  • What are my choices?
  • What assumptions am I making?
  • What am I responsible for?
  • What am I missing or avoiding?
  • What can I learn from this situation?
  • What questions should I ask myself?
  • What is possible (for the firm and for myself)?
  • How can I turn this into a win-win?

Edward Poll
Look Deeper into the Issues and the Meaning of Wealth

Sandy is facing a typical conflict, and my colleagues are correct that he needs to open up his perspective to resolve things successfully. Sandy looks at the issues quite apart from the firm's administrator. The administrator is looking holistically at the firm, seeking to think of the firm as a whole. If the administrator has any personal agenda here, it would be to preserve his or her job into the future, a future that will exist with this firm only if it survives into the next generation of management. And it can only survive into the next generation if there is a business continuity plan in place.

Sandy, on the other hand, doesn't seem to be considering the firm as a whole, although that's hardly unusual. In most circumstances that I've seen, many lawyers in a firm think of their own turf first (as in, "my client, not the firm's client"). Of course, it's difficult to put together a strategic plan for continuity into the next generation without thinking of the organization rather than the individuals within the organization.

Yes, it's natural for Sandy to think of his own wealth and the protection of his family. But what Sandy is forgetting is that his wealth derives from the firm's success. Moreover, without this firm, his entire orientation would have to change. He is not yet financially (or psychologically) ready to retire from working. At this time, Sandy is merely on the threshold of considering what legacy he wants to leave. Building the firm for the long term, and for the successive generation, will provide greater wealth and satisfaction for him. So is he able and willing to take a lead in building on the firm's current success?

Understanding the firm culture is important here. Can Sandy and the other lawyers pull together as one firm? Are they serious about protecting and enhancing the firm's financial health—now and into the future? Or are they merely concerned about taking as much out of the firm as possible each year, without investing in staff and technology to enhance the firm's capabilities to deliver better service to clients?

If the firm members all agree that they are only here for the short term, then their strategic plan will need to consider selling the firm, merging the firm or simply operating the firm until the last person stands and closes the door. The value of the older lawyers' interest in the firm is an important factor. What is the value of their interest? Given that sum, will the younger lawyers want to buy out the partners' interests, or merely close the firm and start over without paying the departing partners? And what will happen to the clients if this scenario should result—will they stay with the new, younger firm or move their business elsewhere?

Even if the firm merges with another one, what will happen to the older partners? Would they be discarded, or would their interests be recognized and compensated? Is there currently a plan in place that could fund the retiring interests? If not, can one be set up quickly to begin the funding?

There are many questions, more than can be set forth here. Several things are clear, however. One, as famed UCLA coach John Wooden said, "Failure to plan is planning to fail." Two, if a plan is put into place, the lawyers and the staff are more likely to pull together with greater financial success and greater harmony. Three, working together will create greater success for more people in the firm than will working independently.

Clearly, this requires a firm attitude, not an individual attitude. It requires collegiality, not solo thinking. If Sandy and his partners can meet the challenge, they will all be financially healthier.

Lastly, while the foregoing comments are based on the economics of the firm as well as Sandy's personal wealth considerations, there is another aspect to consider: How one's wealth is defined. In today's world, many have begun to think of their "wealth" in terms of discretionary time. In other words, how much time do you have to do what you want to today and tomorrow? Money can always be accumulated, but time cannot. Do you want to travel, pursue a new passion, spend more time with your family and friends? These are important considerations when determining how much time you want to devote to your profession, to the building of the law firm.

Sandy needs to take these considerations into account as he moves forward in the planning process both for himself and for the firm. "There is no free lunch" and "there will always be a larger boat in the water" are two expressions that I take into account when determining how I want to develop my business. Sandy must do the same, or he will continue to feel the disquiet that he's experiencing currently.

About the Authors

Allison Wolf is an executive coach, legal marketing consultant and founder of Shift Works Strategic Inc., focused on using coaching to enhance lawyers' performance and success in key business areas.

Dustin A. Cole is President of Attorneys Master Class, a Florida-based training and consulting firm that focuses on supporting lawyers and firms in building business skills and increasing revenues.

Karen MacKay is the President of Phoenix Legal and a member of the consultancy Kerma Partners. She advises professional services firms on the management and development of their professional talent.

Edward Poll is a coach to lawyers and certified management consultant who shows attorneys and law firms how to be more profitable. He practiced law for 25 years and is author of the ABA book Attorney and Law Firm Guide to the Business of Law , 2nd Edition.