Succession Planning: Clients demand transparency on  law firm succession plans

By Categories: Management

Succession Planning: Clients demand transparency on  law firm succession plans

By David Wood

In-house lawyers are increasingly sensitive about the risk of a relationship partner leaving a law firm without any succession plan in place. Clients are particularly apprehensive about the retirement of partners – a foreseeable event for which, in their view, succession planning should be easy. When partners are managing major litigation or transactions, the absence or failure of succession planning when they retire can disrupt law department operations. As a result, corporate counsel are beginning to demand more transparency from law firms about who is being groomed to replace team and practice group leaders when they retire.

Simply put, in-house lawyers are not getting the transparency they want. At many law firms, there is no openness with clients about retirement succession planning because so many firms do it half-heartedly and, therefore, ineffectively. Or they do not do it at all. Without such planning, the retirements of senior partners divert in-house counsels’ time from performing the vital tasks for which they were hired – and clients do not like it.

In the past, firms could get away with this because retirement was a third-rail issue no one, clients or firms, wanted to talk about. This is changing. Clients now understand that partner retirements are – or should be – foreseeable. They want to know how their law firms will provide uninterrupted service when relationship partners retire. They are beginning to ask law firms’ managers and relationship partners to disclose their succession plans, often on the  inaccurate assumption that all law firms have them.

To date, the conversation about why law firms should invest more time and money into retirement succession planning has been about how to retain the revenue streams retiring partners’ clients represent. This too is changing. The push for greater candor is not coming from law firms working to improve succession planning. It is coming from in-house counsel concerned that law firms’ inattention to succession threatens the operational functionality of corporate law departments.

In-house counsel pay the price

A 2016 ABA Journal article, “”As Baby Boomer Partners Retire, Law Firms Face Increasing Costs and Client Issues, reported that many partners at big law firms are reaching traditional retirement age – so many that the “wave of upcoming retirements . . . will be the most ever experienced by BigLaw.”  These partner retirements are causing a problem for corporate law departments: The risk of service interruptions, decreased efficiencies, and possibly less effectiveness. In-house lawyers are baffled by law firms’ apparent indifference to keeping their companies as clients. They wonder why this is their problem. Clients would much prefer that law firms bring them plans for maintaining service continuity when relationship partners retire and they are frustrated that few firms do so.

When a partner retires without having trained a successor to work with the client, the client must find new counsel – often a lawyer who lacks the exiting partner’s institutional knowledge. This requires a lot of work for in-house lawyers who are already extremely busy. Long gone are the days that private practitioners joined corporate law departments to work fewer hours and lead quieter lives. In most companies, in-house attorneys work every bit as hard as their outside counsel. Having to replace a relationship partner with a senior lawyer from another firm means soliciting recommendations from other in-house lawyers, composing an RFP, reviewing responses, conducting interviews, onboarding the winning candidate into the client’s accounts payable system, and paying the new lawyer to get up to speed on the client’s business and problems. To corporate counsel, this feels like needless work and unnecessary expense imposed upon them by inefficient law firms unconcerned about their needs.

Justifiably, clients believe this should never happen when a partner retires. They expect that a retiring partner’s firm will know, well in advance, when the partner will leave practice. Clients assume that the law firm will have plenty of time to bring up capable younger partners. Clients also understand that they may get very little notice when a partner moves laterally to another firm, but are far less understanding when a relationship partner abruptly retires without successors ready to step in. When this happens, experienced corporate counsel know why: Either the law firm did no succession planning, or its succession plan failed.

A sensitive subject

There used to be a tacit understanding among in-house lawyers that a senior partner’s retirement plans are private, and that asking about them was a faux pas. The partner may not yet have saved enough to retire, may be straining to support multiple families, or may be psychologically resistant to any suggestion of mortality. In-house lawyers politely avoided the subject, recognizing that if they raised this topic in casual conversation, they might get less-than-candid responses.

A similar understanding exists in law firms, although other considerations are also in play. Law firm managers may feel they are invading the financial and psychological privacy of aging partners by asking when they plan to retire. But management may have greater concerns if multiple big producers retire in a single year. If retiring partners’ clients are not retained, gross revenue may drop precipitously. Large checks returning capital to the retirees will have to be written. Managers often believe that it is easier to avoid talking about retirement than it is to plan for it.

Moreover, managers may sidestep the topic because they prefer not to tackle the political obstacles to effective retirement succession. A collegial culture that honors sacrifice may not be enough to motivate partners with big practices to do the considerable work that good retirement succession requires. Firm managers may not have the votes to persuade the partnership to compensate these partners for doing all this nonbillable work. Older partners who cannot afford to retire may resent peers who can. Managers may conclude that their time is better spent on less controversial ways to increase profits, and that retirement succession can wait.

Clients are demanding answers

Because unplanned-for senior partner retirements can have such ill effects, some clients are beginning to ask, or demand,  that their law firms be more transparent about succession.

Corporate counsel recognize that lower-level lawyers move on and off teams constantly. They are not troubled by this. What they want is a guarantee of uninterrupted service from lawyers they know and trust when their lead partners retire. Clients want to know which second-in-command is being groomed to step into the leader’s position, so they can readily identify the designated successor if a sudden need to do so arises.

Some clients are going a step further. They are amending their outside counsel guidelines, which contain companies’ service expectations and administrative requirements for representing them,  to mandate the submission of a written description of their service teams’ chain of command. This statement must be updated annually and when there is any change in senior personnel, it must identify who will step up as team leader when the relationship partner becomes unavailable.

That some clients are so frustrated that they are making transparency on law firm succession planning a condition of engagement should make every firm sit up and take notice.

If this approach develops into a trend, law firms will have to designate successors and  integrate them into the service team long before the relationship partner retires. Whether and how to compensate partners for this work will become less relevant, because those with big practices will have to invest time in grooming successors just to keep their clients in place and maintain their incomes. Walking away from practice without planning for succession will no longer be an option. The firm that remains apathetic about retirement succession will risk the loss of clients.

The takeaway for the legal industry is this: Clients fed up with law firms’ inadequate retirement succession planning are beginning to think about creative fixes for the problem, which involve less work for them and more work for retiring partners and their firms. Law firm managers who get out ahead of these fixes, with proactive retirement succession planning aimed at saving their clients time and effort, will be perceived as innovators.

David Wood is a retired trial lawyer who helps law firms and senior partners plan and implement retirement succession programs. He can be reached at [email protected].

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