Why early succession planning is key
As baby boomers make way for millennials, how will you plan for the future of your firm? Edward O'Rourke shares his ten commandments for successful succession planning
In my days as a practising corporate lawyer, I – along with their accountants – would regularly advise clients to plan their succession at least three to five years ahead of their intended retirement date.
So why do many in the legal profession behave as though the same advice does not apply to them? What should law firms’ management be doing?
Unfortunately, it appears that many partners in law firms still see themselves as employees.
Speaking to insolvency practitioners looking after failed firms I am often advised that two issues are most common in failure.
Firstly, a failure to reduce drawings at a time of falling income, often citing words along the lines of “I have always been paid this I cannot afford to live off less now”. And, secondly, a failure to put in place succession planning for ownership as well as legal skills.
Maybe partners still see retirement as their ceasing to be an employee of a business as opposed to the selling on their interest in that business.
There may be numerous reasons for this but two, I believe, from my experience, play a part in this.
One is based around fear, and the other arises because the issue has not been as problematic in the past as it is today and thus historically not something to worry about.
The fear arises as some near retirement age and they begin to see this as the start of a decline in their value.
As such, admitting that retirement is close to hand is something they avoid and as a consequence fail to plan for.
The reason the issue is more problematic today is itself threefold. Firstly, we are getting to the point when the last of the baby boomers are reaching retirement age.
Up until now there was no shortage of people eager and willing to step in to the shoes of a retiring partner.
Secondly, the barrier to entry as a partner is today a lot higher than in the past. The historic promotion to partner on the back of delivering good fees is no longer enough.
The prima donna silo operator is no longer tolerated in most law firms and a broader, more balanced range of skills is required.
Finally, some commentators are suggesting that we are now seeing the last generation that will accept paying a large sum in capital with an expectation to remain in the same business for another twenty plus years.
While well run firms seem to have no difficulty at present in finding successors there does appear to be an increasing number of firms who are struggling to keep hold of their senior staff who would ordinarily be the partners in waiting.
There are numerous actions law firms can adopt. My ten suggestions would be to consider the following:
1 Review the partnership deed
The starting point has to be a clear understanding of the retirement provisions in the deed. As partners are not employees they are not, at present, subject to the anti-age discrimination provisions that apply to employees and their retirement.
Many deeds will have an express age at which a partner is expected to give up their partnership interest. Is this clear? Is the age stated still appropriate?
Are there any phasing arrangements allowing a partner to reduce their hours over a period of several years? This needs to be understood and in the minds of those managing the business as well as those approaching ‘retirement’.
2 Map out likely retirement dates
Having a clear idea of who is due to retire when and from which department helps to spot issues before they arise.
I personally use a traffic light system on a spread sheet; those with three years or less to their due retirement date are coloured red; those between three and eight years are coded yellow and all those with eight or more years to go are marked in green.
At a glance I am able to see which teams have succession issues arising soonest.
Having open and honest conversations with partners about their ambitions and plans helps with any planning for all concerned.
3 Offer support to partner approaching retirement
Retirement must be up there with getting married, moving house or having children as one of the big life changing events we face.
To assume those approaching it are not having issues in coming to terms with it would be a mistake
Clearly we all handle change differently. Some will not want support or coaching but others may welcome the chance to chat to someone from outside the organisation about their fears.
Partners about to exit the firm will have given a lot to the business and it is only right the business should support them at what, for some, will be an extremely difficult time.
4 Be clear about what you expect from future partners
I identified above that the barrier to entry as a partner is today a lot higher than in the past.
The historic promotion to partner on the back of delivering good fees is no longer enough.
The brilliant but maverick partner is no longer tolerated in most law firms and a combination of more balanced skills is expected. But what are those skills? Have you published them for all to see?
If the future partners are kept in the dark as to the expectations of them they will naturally look to the existing partners in the business and assume it is these attributes and behaviours the firm wants to see in them.
This may or may not be something you want.
5 Offer mentoring to rising talent
Offering mentoring to talented staff can be an effective method of assessing where those within your business see themselves and where you may feel they still need more development.
Engaging with the employees can, if done right, be a win/win for both employee and employer.
You will often find also that those offering the mentoring gain too from the exchanges with their mentees.
6 Develop early
Becoming a well-rounded partner is a journey akin to a marathon and not a sprint.
During the training contract and the early years post-qualification the focus is on the technical ability.
Once these have been attained I would recommend that the focus of training should then switch to those skills that are reflected in the expectations you have identified for future partners (see 4 above).
There is increasing realisation that there should be multiple tracks to partnership. We cannot be all things to all people and we all have different strengths.
As we shift from demanding that the big biller be the criteria for partnership – along with an expectation for those fee earners to maintain their levels of billing while effectively managing a team – we should recognise there is more than one way of contributing to the success of our businesses.
Some future partners may be the high-billing technical specialists while others may largely give up fee earning to be more involved in the managing of people and the business.
7 Invest in technology
Every generation is more technology savvy than the generation before them. Future partners are likely to see technology as the enabler to innovation, boosting revenues and increasing productivity.
Firms which younger generations consider to be operating in the dark ages will have a harder time attracting talent than those that have kept pace with technology changes and incurred the necessary expense.
Anyone looking for a long-term career in one place will want to have confidence that the business is a sustainable one.
8 Be open minded
If commentators mentioned earlier prove to be correct in that we are now seeing the last generation that will accept paying a large sum in capital with an expectation to remain in the same business for another twenty plus years, then consideration has to be given to future ownership structures and business models that can accommodate this shift.
I regularly chat to managing partners and CEOs of other law firms who tell me of their challenge to replace the one individual from their business with a suitable successor. This can be closed thinking.
Why should we be looking to do today the same as we have done before, why should it be one-for-one succession?
Ownership has historically been intrinsically linked to level of qualification as a lawyer but as alternative business structure models recruit increasingly larger numbers of non-lawyers and ownership of the business becomes more separated from your role within it, perhaps now could be the time to do something different.
9 Sense check emotive judgements
There is a lot of hype as to what millennials (sometimes pejoratively referred to as ‘snowflakes’) want but we should take care to truly understand what they want and not make judgements.
Consider statements such as these: “They - Young People have exalted notions, because they have not been humbled by life or learned its necessary limitations; moreover, their hopeful disposition makes them think themselves equal to great things - and that means having exalted notions.
They would always rather do noble deeds than useful ones: Their lives are regulated more by moral feeling than by reasoning - all their mistakes are in the direction of doing things excessively and vehemently.
They overdo everything - they love too much, hate too much, and the same with everything else.”
Such views may seem true and familiar today but this one was made by c.4th BC Greek philosopher Aristotle.
Every generation seems to complain about the laziness and entitlement culture of the generation below them.
Many of the things attributed to the desires of millennials are not a reflection of their age but of the digital world we all live in.
Greater autonomy, a say in how things are to be done, flexibility in how, when and where we work I would suggest are not novel to the younger generations
10 Recognise the world has changed
Unfortunately I often hear pronouncements such as “well I had to do it so why shouldn’t they”, “it did me no harm” or “it is the way we have always done things”.
I know lawyers my age who tell me that they spent time during their training contracts washing the partners’ cars – I fail to see how this is good training to be a lawyer.
Just because it was what they went through does not make it right to apply the same ideas today.
Thankfully, I do not see such extreme examples. However, milder forms of old school behaviour can still be just as damaging.
How much good talent has been let go because the sink-or-swim mentality has been allowed to exist? What about the supervising partner too busy to offer any true supervision or guidance but who is given a trainee every six months because they demand one due to their busy workload?
We are all different, some may thrive in this kind of environment but, equally, good talent may be seen as failing.
This does not only apply at the junior end of the profession. At the senior end you have statements such as “I had to be billing £x before I was made partner”.
This again reflects a mentality – that a good partner is one who bills highly regardless of all other attributes – that for many firms is now behind us.
Putting in place these measures helps not only identify when issues may be arising but also to have in place plans that minimise any disruptions that may otherwise be caused by a high-profile retirement.
They also allow the business to take a weather check and see what direction the business is heading in and to compare this as to where it should be heading.
We are living in an era where four generations of workers are operating side by side and if we want to get the best out of all of them and ensure the future of our businesses are in good hands of competent individuals who want to be a part of our story then we must invest time and plan.
As the old adage goes, failing to plan is planning to fail.
Edward O’Rourke is a partner and CEO at Ashtons Legal www.ashtonslegal.co.uk @AshtonsLegal