Succession Planning: Getting retirement succession right
By David E. Wood
Baby Boom generation law partners are not doing a particularly good job of retiring from practice. They know they will have to leave the profession someday, but cannot imagine what their lives will look like in retirement, so they avoid discussing the topic with their law firms. Many times, their firms do not ask, not wanting to bring up a sensitive subject. In a “don’t discuss” environment, revenue losses from partner retirements and strategies for mitigating them may not factor into a firm’s strategic planning.
When partners decide to retire, they need and want guidance about how to transition their clients to the next generation of firm partners. Without this guidance, many assume their firms are not interested in keeping these client relationships in place. This creates a headache for firm managers tasked with anticipating and reversing dips in revenue — a major component of a strategic plan.
Many partners want and need advice and support about how to exit the profession in a healthy way: Becoming productive in a non-lawyer role, ensuring service continuity for their clients, and helping their firms preserve the revenue streams. Firms that are serious about stopping losses caused by partner retirements have carefully planned and well-managed succession programs and make effective retirement succession a key ingredient of their strategic plans.
Predicting and reversing future losses of revenue
Law firms lose revenue sources all the time. Clients leave. Partners and practice groups decamp to other firms. Senior lawyers who control big practices retire without transitioning their practices to others. Firm leaders are hyper aware of revenue attrition because it represents ground that has to be made up every year. Part of firm managers’ strategic planning is identifying trends that are causing these losses and conceiving programs and initiatives to arrest them. Doing this right is difficult and time-consuming, and some causes for revenue attrition are easier to overcome than others.
Suppose a firm is losing labor and employment partners to other firms due to rate pressure. Reducing rates, by itself, is rarely a satisfactory solution. A more typical initiative for reversing this trend may involve finding ways to increase client satisfaction to justify existing rates, improving efficiency to make the practice group more profitable, and restructuring fees to reward value achievement. Solving a systemic problem like this one may take years. If asked to predict how many partners will leave the labor and employment department in the next 12 months, when the revenue loss will directly impact partner compensation in the near term, many firm managers would demur.
Predicting a firm’s annual loss of revenue from partner retirements ought to be a simpler strategic planning exercise. It requires one piece of information: Who among the partners will retire in the coming year? Adding up the revenue these partners brought in the previous year yields a gross loss to the firm’s partners in the next compensation cycle. If nothing is done to retain the retiring partners’ client relationships, this figure is the revenue the rest of the partners must replace in the coming year to keep compensation figures where they are now (for which they will receive no additional pay). If this condition persists, with nothing done to prevent revenue attrition from retirements, productive younger partners will become a flight risk.
The antidote is an effective retirement succession program. Such a program educates and supports partners about how to navigate the emotional challenges of retiring – especially how to set retirement dates they can stick to. A strong program also helps retiring partners propose thoughtful succession plans to their clients, so the firm retains the service relationships.
Three components of strong succession plans
While good succession programs have features unique to the firms that implement them, many share three essential elements.
First, firms with effective succession programs treat a partner’s retirement as a client service opportunity – a milestone employed to connect with clients about how to improve and expand services. Clients know how old their lead partners are and appreciate thoughtful succession proposals well in advance of what they understand are eventual, inevitable retirements. In a meeting convened to discuss such a proposal, the transition team – consisting of the retiring partner and successor partners tapped to step into the leadership role – can count on having the undivided attention of client decision-makers. Typically, they are predisposed to stay with the firm, given enough time to work with and come to trust successor partners. Firms that get succession right use this contact point to ask clients how the firm can do better, making relationships closer. Often, new needs are identified, opening the door to other service opportunities.
Second, firms with strong succession programs have cultures that honor the considerable work a retiring partner must do to migrate clients to the next generation. They have a tradition of celebrating success in perpetuating client relationships when partners retire. They engage their partners post-retirement as advisors to help currently retiring partners achieve effective and lasting client transitions. They provide retirement wellness support to partners preparing to retire, helping them redefine themselves. When a firm provides retiring partners this kind of support, it sends the message to younger partners that it is committed – in the broadest sense – to a healthy, holistic passing of the reins to the next generation.
Finally, firms that do retirement succession right begin the retirement discussion early, as part of conversations about other regularly occurring topics, like compensation. Every partner is asked about retirement plans beginning well ahead of retirement age (i.e., in a partner’s 50’s). In many firms, this question is not a request for a commitment. Older partners sometimes are reluctant to share when they will retire, in case their fortunes change, or they decide to continue working longer than previously anticipated. Some firms reduce the uncertainty by requiring retirement at a certain age, but many permit waiver of this requirement where the partner’s continuation in practice is good for the firm. In most cases, a regular conversation about a partner’s aspirations for retirement, if all the stars align, helps the partner decide the difficult question of when to retire. It also gives the firm the information it needs to predict revenue losses if the partner’s client transitions are unsuccessful.
When a law firm puts in place a retirement succession program with these components, its Baby Boom partners are given the tools they need to retire well. Clients’ service needs are met. Firms predictably retain revenue streams. When firm managers sit down to plan how to reverse losses from unpredictable causes, they can be confident that partner retirement will not be one of them.
David Wood is a retired trial lawyer who transitioned his practice to successor partners when he retired from his AmLaw 100 firm. Now he helps law firms and their partners plan and execute effective retirement succession strategies. He can be reached at [email protected]