The Firm: Small firms face big challenges when leaders retire

John Bruch, The Daily Record Newswire

Transitioning a small law firm from one leader to the next is a challenging and complex process, encompassing the transfer of clients, negotiating financial terms of the partner’s departure and choosing his or her successor. Unlike larger firms with a plethora of experienced attorneys ready to step up and fill the gap, smaller practices often have an “elder statesman” or “stateswoman” who forms the backbone of the practice and has strong personal bonds with clients. Without a solid succession plan, their departure could alienate clients and harm the practice.

The best predictor of a successful transition is planning. Smaller practices should lay the necessary groundwork for an orderly succession that protects the value of the firm and its reputation in the legal marketplace. Below are essential steps to prepare.

• Analyze: Identify an approximate time-frame for leaders to step down. The first step in the planning process is to determine when the firm’s current leader is expected to retire. This process should begin five or even 10 years prior to the person’s retirement. This timeframe provides breathing room to thoroughly analyze the options available and create a plan of action. Even if the expected date is more than 10 years out, firms should consider developing a succession plan that accounts for unanticipated events, such as the death or disability of key attorneys.

• Research: Assess competencies of existing staff. During the research phase, leadership should candidly assess the strengths and weaknesses of its attorneys and determine whether to groom individuals from within to take over, hire new attorneys with the right mix of legal experience and management skills, or eventually negotiate a merger. This internal assessment should also account for the “rainmakers” so that appropriate retention strategies can be developed to ensure they stay with the firm. If the retiring partner is primarily responsible for winning new business and nobody can fill this gap, alternative strategies should be considered, such as merging with another practice.

In addition, conduct a broad analysis of the experience levels and expertise of attorneys at the firm. In order to build up the practice to better weather the transition or transform it into a more attractive partner for a future merger, consider adding new legal specialties or making strategic hires that bolster the firm’s expertise in key areas.

• Plan: Succession, new talent or merger? Based on the firm-wide assessment, leadership should have a clear picture of whether they want to hire new talent, groom from within or pursue a merger. If hiring talent is the best course of action, take a closer look at the ages of attorneys to ensure there will not be a cohort retiring at the same time. Staggering the age and experience of staff will also clear the way for better career progression among younger attorneys.

For firms that plan to promote younger partners to the top job, the transition should be gradual so that clients feel confident they will continue to receive the same level of service. Before transferring clients to the new attorneys, there should be an agreement outlining an equitable division of revenue and billable hours among the retiring attorney and up-and-comer.

If a merger is the best option, begin a search for suitable partners with complementary clients, locations and specialties. Law firms have widely varying cultures and this factor should be considered carefully. Finding the best fit is crucial to the merger’s success.

• Transition: Keep retiring attorneys involved and invested in the firm’s success. The transition phase ideally begins after years of planning. While unanticipated hiccups in the process are unavoidable, a well thought-out plan can make the execution phase relatively seamless. One especially important aspect is retaining retiring attorneys as of counsel or in a consultant role. This should be a formal agreement with the retiring attorney and should also include remuneration strategies that keep them invested in the ongoing success of the practice.

Attorneys who have spent decades at a small firm — or even founded the practice — want to see it succeed in the future, both as an ongoing legacy of their career and/or for financial reasons. The best way to protect the firm during this period of change is through careful deliberation well in advance of the leadership change. The stakes are high during a transition and clients are more focused than ever on the quality of service they are receiving. However, with proper planning and careful execution, small firms can successfully transfer leadership to the next generation of attorneys.

—————

John Bruch is a senior vice president and client advisor at SunTrust Bank, and registered representative of SunTrust Investment Services, Inc. He has over 30 years of industry experience and specializes in working with the unique planning needs of attorneys, associates and law firms of all sizes. Contact him at John.Bruch@SunTrust.com or 410.986.1041.

Comments

  1. No comments
Sign in to post a comment »