Creating and Implementing a Successful Law Firm Succession Plan

There can be no doubt that succession planning is becoming increasingly important for law firms. Almost one-half of the partners at the Am Law 200 law firms are Baby Boomers or members of the prior World War II generation. Am Law 200 law firms have on average about 23.5 chairs, executive members, and senior partners whose 40-plus years of experience, client relationships, and leadership must be transferred to a new generation of rising stars. According to Major, Lindsey & Africa, a major legal recruiter, more than 16% of partners will retire in the next five years and 38% in the next decade.

In addition, the legal profession has seen a dramatic rise in the lateral movement of partners from one law firm to another. This likely has been fueled by economic considerations as some firms have greater “PPP” (profits per partner) than others. Lateral movement is also influenced by such factors as changing law firm cultures, changes in law firm leadership and, at times, a lack of confidence in a law firm’s long-term plan. In fact, in 2016 in the Am Law 200 firms, there were approximately 8,500 lateral moves, that included 2,000 partners, about 5,000 associates and 1,300 counsel.

In addition, consider the number of law firms in the United States, many of whom are ripe for a succession planning program. In 2000 there were 47,563 law firms in the United States, which number no doubt has increased since then. 76% of U.S law firms have 2-5 lawyers, 13% have 6-10 lawyers, 6% have 11-20 lawyers, 3% have 21-50 lawyers and 2% have 50-2000 lawyers.

The foregoing statistics underscore the need for law firms to carefully assess their succession plans, if any. The succession process is rarely easy and, at times, it is also involuntary. In this author’s experience few law firms handle succession as thoroughly and efficiently as they should. Yet, it is essential to the continued prosperity of a law firm, especially in an increasingly competitive environment.

There are many consequences following the departure of a senior lawyer from a law firm. Some are quite serious and will be discussed below.

One impact of a departing partner is financial. What amount of money is the departing partner entitled to? How are those amounts to be determined? Will there be a return of capital? How are payments to be structured? What provisions have been made to fund payments to departing partners? This will likely become even more urgent as Baby Boomer partners begin to depart from the law firms in increasing volume.

Moreover, frequently the departing partner or senior counsel has occupied one or more positions of leadership, possibly as a firm or office managing partner, a practice group head, or even the captain of a litigation team, a corporate group or another team of lawyers, paraprofessionals and support staff. These key positions must be filled with successors who possess the skill sets required for them to succeed as leaders or managers.

Another challenge arising from partner departures is determining how to retain the departing lawyers’ clients and the revenues they generate. What procedures if any are in place to ensure client retention? When should the process for attaining client retention begin? How should the client retention practice be staffed, managed and supported. Clients are a law firm’s lifeblood and the answers to these questions may be critical to a law firm’s likelihood of survival. And while some large law firms like Cravath, Swaine & Moore, and Simpson Thatcher have large institutional clients with long histories with those firms, there are never guarantees that a client will remain. This is even more the case with smaller law firms whose clients do not have a long history nor deep relationships with the firms and their partners.

Finally there is the challenge of knowledge transfer that must be addressed. Lawyers who have practiced for 30 years or more have very deep skill sets and expertise which, in reality, are critically important law firm “assets” that have contributed to the departing lawyer’s value and thus the law firm’s success. How have they successfully developed business and maintained client loyalty? What have they done to be successful law firm leaders, practice heads or managers? How have they successfully guided and mentored younger lawyers in their firms? How have they been successful recruiters for their law firms? Why should such a valuable repository of knowledge and wisdom be allowed to simply walk out the door? Law firms should not want departing partners to be carrying tangible assets out the door so why would they not do all possible to prevent intangible assets, like knowledge and wisdom, from simply departing along with the partner?

The inevitable conclusion is that in light of the increasing number of departing partners and other senior counsel, due largely to retirement but sometimes to lateral moves, a law firm needs a well-crafted, staffed and managed succession plan that carefully addresses the four matters outlined above: financial matters, leadership or managerial succession, client retention and knowledge transfer.

To be clear, there is no single plan that will be the best one for all law firms. This is because law firms vary in size from 1 lawyer to 8,000 lawyers, in the number of offices, in the nature of their clients (e.g. Institutional vs. non-institutional) and their practice areas such as commercial, personal injury, real estate and family law. However, although succession plans must be carefully tailored to a law firm’s particular characteristics and needs, there are certain basic elements of a successful succession plan for all law firms, which the balance of this paper will now discuss.

Many companies have a grand succession plan that is to be implemented over a period of years. Typically such plans include creating a long-term leadership strategy, building a future-focused talent model, developing role-specific success profiles, assessing talent in the pipeline, developing successor potential and building the succession process into the overall company culture. What follows is not such a grand plan but rather a plan designed for specific circumstances when law firm partners announce they are departing from the firm, and their responsibilities, knowledge and skills need to be transferred to one or more successors.

The Elements of a Law Firm Succession Plan

An effective law firm succession plan must have at least four separate features, which are

  1. Financial aspects of succession planning
  2. Planning for leadership succession
  3. Client retention planning and
  4. The transferring of knowledge

While some of these are closely aligned to others, they are, in fact, distinguishable from each other. They will be discussed in detail below.

However, before we turn to the details of the creation and implementation of a law firm succession plan, it is important to discuss and understand how a succession plan should be managed and controlled.

Succession Plan Management Team – Organization and Structure

Like in any successful organization, there needs to be an organizational structure and designation of a succession team with overall responsibility for the project, which here is the implementation of a law firm succession plan. We will call this the Succession Plan  Management Team.

In addition, there should be sub-teams for each of the four subject areas to be addressed.  While not always possible, it is highly recommended that these Teams be selected well in advance of a departure so that they are ready to spring into action like a “Succession SWAT Team” should the circumstances require.

While the structure and organization of the Team and sub-teams may vary from law firm to law firm, the following represents a basic organizational team structure:

Succession Plan Management Teams

Succession Plan Management Team Members

As you can see on the preceding page, the ultimate responsibility for the succession  plan belongs to the firm’s Managing Partner (or, perhaps, the Executive or Management Committee) who, from time to time, may need legal advice from the firm’s in-house counsel, particularly regarding the legal aspects of financial compensation (which may depend on the partnership agreement) and client retention issues.

Below the Managing Partner is the core Succession Plan Team’s Supervisory Board, consisting of the head of Human Resources, the COO and the firm’s retained outside Succession Coach. It is important to have an outside consultant, such as a Succession Coach, who is experienced in these matters and who is sufficiently independent and objective to be the firm’s “Trusted Advisor” in succession planning matters. The Supervisory Board should have available well-documented procedure to be followed when there is a departure by a senior lawyer so that no one is scrambling around searching for direction when news of a departure is learned. This will necessarily involve a procedure for the coordination of the different Teams.

The Financial Team, which deals with the financial aspects of succession, consists of the Head of Human resources, the firm’s CFO, the firm’s accountant, the departing lawyer and the Succession Coach. All will work together to ensure that the departing lawyer receives what he or she is entitled to, in a way which does not unduly burden the law firm.

The Leadership Team is charged with the responsibility of creating a smooth transition in leadership between the departing partner and the successor. It may also involve identifying the successor.  This team consists of a representative of Human Resources, perhaps the firm’s managing partner, ultimately the incoming successor lawyer, the Succession Coach and the Knowledge Transfer consultant. This group will work together to specifically identify the characteristics of the leadership or managerial role that is being transferred to the successor partner. It may also include identifying and recruiting another partner to serve in a leadership or managerial role, perhaps as a Deputy Managing Partner, Deputy Office Managing Partner or Deputy Practice Chair.

The Client Retention Team is responsible for ensuring to the greatest extent possible that the clients with whom the departing lawyer worked continue with the law firm and do not seek legal services from another law firm. This is one of the most critical elements of a successful succession plan because, without doubt, clients are a law firm’s lifeblood.

The Client Retention Team includes the law firm managing partner, the relevant practice head or heads, the departing lawyer, the incoming lawyer, the Succession Coach and the Knowledge Transfer consultant . It may also include the law firm’s in-house counsel to the extent ethical and other issues requiring legal advice arise. Together this Team must identify those clients for whom the departing lawyer has worked and create a carefully orchestrated plan for retention of those clients.

The Knowledge Transfer Team will work to facilitate the efficient transfer of the departing lawyer’s transferable knowledge to the successor.  This team consists of the departing lawyer, the successor, the Succession Coach and the Knowledge Transfer consultant who has special expertise in facilitating the transfer of knowledge from the departing lawyer to the successor.

The four teams – Financial, Leadership, Client Retention and Knowledge Transfer – must coordinate their efforts so that there is no unnecessary duplication of effort and, importantly, so that there are no undue burdens on the departing lawyer and, especially, the successor who also will be involved in the full-time practice of law. Perhaps the Succession Coach is best suited to coordinate the efforts among the four teams so that the succession plan can be crafted and executed in the most efficient manner possible.

The Transition Plan – No “One Size Fits All”

The above Team descriptions set out who the members of each Team may be and, generally, the scope of each Team’s responsibilities in a law firm succession plan when there is a departing partner. It is important to remember that because no two law firms are identical, the succession plan, at least in minor respects, will vary from firm to firm, including whether all four Teams are required, the members of each Team that are required by the particular law firm, and the scope of the responsibilities of each required Team. This paper sets forth a generalized model of a succession plan for large, medium and small law firms, and applicable to both general practice firms and firms with specialized practices.

The Transition Period

A threshold question that must be addressed by the departing lawyer, the law firm’s management and the successor is the length of the transition period. It may be weeks, months or even years. The orderly transfer of clients, the transfer of leadership or managerial responsibilities,  and the transfer of knowledge will occur during this transition period. There is no “one size fits all.” The length of the transition period depends on the departing lawyer’s requirements and plan, the law firm’s needs and, perhaps, the successor’s readiness to assume a larger role. A six-month transition period will, in most cases, be appropriate but certainly not in all cases.

Specific Management Team Responsibilities

Now, we shall turn to some of the specifics of the responsibilities of each of the four Teams.

The Financial Team:

  • Fix the date when the departing lawyer will be withdrawing from his or her current role, understanding that the lawyer may continue to practice law on a different basis such as part-time, senior counsel, etc.
  • Review the Partnership Agreement to see what the departing lawyer is entitled to in addition to the return of capital contributions
  • How will the law firm be making payments to the departing lawyer?
  • Review retirement plan entitlement. Some firms have non-qualified and perhaps even unfunded retirement plans that require very careful planning by the law firm
  • If the departing lawyer will be continue to work on a reduced basis, what is the compensation arrangement including benefits?
  • Will group insurance continue to be available to the departing lawyer? Will coverage change? Who is to pay the premiums?
  • Are there tax consideration that should be addressed?

 The Leadership Team:

  • The successor or successors should be identified as far in advance as possible
  • How is the successor to be selected? What are the criteria for selection of a successor?
  • Work to create support within the law firm and/or practice area for the successor
  • Create a questionnaire for the departing partner that will assist in identifying leadership or managerial information that should be disclosed and transferred
  • Identify the principles of leadership or managerial responsibility that have worked well for the departing lawyer and those that have not worked well
  • Who among colleagues at the law firm have been difficult to handle and how did the departing lawyer do this?
  • What are/were the departing lawyer’s challenges and how he or she thinks they were or would be overcome?
  • Transfer to the successor the leadership/managerial knowledge of the departing lawyer
  • Will the departing lawyer be available for advice? If so, on what basis and with what compensation, if any?

 The Client Retention Team:

  • Identify all clients that the departing lawyer has worked with in the past two years, although this time frame may vary from client to client
  • Create a questionnaire for the departing lawyer seeking relevant information for each such client, which includes, among other things, identifying key client personnel, describing those personnel and their characteristics, a description of the client matters handled and those that may be expected, client payment experience, client business plans, recommendations of junior lawyers to introduce in addition to the successor, recommendations on expanding each client’s business with the law firm
  • Provide client access for the successor and recommended junior lawyers
  • Conduct one or more meetings with the departing lawyer, the successor, the Successor Coach, and the Knowledge Transfer consultant to review and discuss each client to effect a smooth and successful transition
  • Agree on when and how each client will be advised of the lawyer’s departure and the continuity plan for that client.

 The Knowledge Transfer Team:

As the following diagram shows, a departing lawyer essentially has five discrete sets of relationships with those both inside and outside the law firm. These relationships exist between the lawyer, who is at the hub in the diagram, and people or groups at the end of each spoke, including his or her law firm, the law firm clients, law firm colleagues, the community where the lawyer practices and resides, and the public at large.

For each of the five relationships, the lawyer has over time acquired a discrete body of knowledge and wisdom that has made the lawyer successful and valuable as a member of the law firm. It thus is critical that these repositories of knowledge and wisdom not be allow to simply walk out the door but that, to the extent possible, they be transferred to the departing lawyer’s successor(s).

The Hub and Spoke of Lawyering


The Hub and Spoke of Lawyering

Here  are some of the elements of the knowledge that a lawyer with 30+ years of experience has with respect to each of the five relationships described above:

1. The Law Firm

 A. Understanding the law firm:

Who is it?
How is it managed?
What is the “law firm culture”?
What is its history?
What are its short-term goals?
What are its long-term objectives?
What is the nature of law firm partnership?

 B. Understanding the Business:

What financial metrics are important?
What contributes to its profitability or lack thereof?
What are its strengths and weaknesses?
What are its marketing strategies?

C. Understanding the Competition:
Who are the competitors?
What are their strengths and weaknesses?
What are their marketing strategies?

2. The Colleagues:

 A. Knowing the colleagues
Who are they?
What are each colleague’s strengths and weaknesses?
What are their relationships to each other?

 B. Leading/Managing colleagues
Maintaining and improving  morale
Building and managing teams
Creating loyalties to the new leader/manager
Other leadership/management principles

3. The Clients:

 A.  The Client Intake Process
Whether to accept or reject the matter?
How to document the client relationship
How to effectively manage client expectation
Pricing and profitability
How to manage the account receivable

 B. Managing the client matter
Creating and communicating a case or matter strategy
Assembling and managing the team including support staff
Managing the client
Managing the other side whether in a litigation or transaction

 C. Specific Clients
Who has the lawyer represented?
Who are key client personnel and their characteristics?
What are the client’s past and present matters?
What is the client’s business plan?
What is the client’s payment history?
Recommendations for retaining and further developing client business

4. The Public

What is the departing lawyer’s public persona?
How has the departing lawyer interfaced with the public?
How has the departing lawyer originated business?

5. The Community

How has the departing lawyer participated in the community as a law firm leader?
How does he or she describe the law firm leader’s presence in the community?

Based upon the foregoing analysis, the scope of the Knowledge Transfer Team’s mission should include the following:

  • An initial meeting with the departing partner and the successor(s) to describe the knowledge transfer process and the hub and spoke of lawyering, and the bodies of knowledge associated with each relationship
  • Creation of a carefully-drafted preliminary questionnaire(s) for the departing partner requesting descriptions of his or her knowledge, to the extent possible, for each of the relationships
  • After the questionnaire is completed, perhaps with the assistance of the Succession Coach or Knowledge Transfer consultant, one or more meetings with the departing partner and successor(s) to discuss each of the areas of knowledge in more detail. These may also include meetings with the Leadership and Client Retention Teams due to the close alignment of subject matters.
  • Preparation by the Knowledge Transfer Consultant of a report or presentation identifying specifically the knowledge that is to be transferred, including for the tasks of the Leadership and Client Retention Teams. Clearly much of the lawyer’s knowledge described above will be pertinent to other Teams. More specifically,
  1. Knowledge relating to the Law Firm and Colleagues will be important to the Leadership and Client Retention Teams
  2. Knowledge relating to the Clients will be important to the Client Retention Team.
  3. Knowledge relating to the Public and the Community likely will be pertinent only to the responsibilities of the Knowledge Transfer Team
  • Follow-up meetings as may be necessary with the departing partner and successor(s), and the other Teams, to facilitate the downloading of the departing lawyer’s knowledge to the successor(s) and an open discussion to ensure all the transferrable knowledge has been downloaded and transferred, and that it is fully understood by the successor(s).

The Central Theme of the Law Firm Succession Plan

As you can see, following Einstein’s precept, there is a central theme in an effective law firm succession plan. That is, a departing lawyer who has practiced for 30 years or more is a compendium of immensely valuable knowledge and wisdom that a law firm should want to preserve, and it hopefully can achieve this laudable goal with a well-designed and carefully implemented succession plan, assisted by both a Succession Coach and an outstanding Knowledge Transfer consultant.

The value of the departing lawyer’s knowledge and wisdom deriving from his or her experience is incalculable. Why should a law firm want such a valuable asset to simply disappear into the night? While a law firm’s ROI for a succession plan may not be immediately apparent, there can be no doubt that it will result in additional revenue and profits over the long term when there is effective continuity of leadership and contribute to client satisfaction, lawyer morale, employee retention and attractiveness of the firm to potential lawyers.

Succession planning is not easy for a law firm. There are many pieces to be fit together. But the benefits are plentiful. In addition to preserving, if not increasing, revenues and profits, successful succession planning increases employee morale, continues the law firm’s valued culture, and demonstrates that it is a forward-thinking business organization and not simply reactive.  And, law firms that invest the time, effort and resources required for successful succession planning will have the greatest likelihood of sustained success in an increasingly competitive environment.

In closing, it is important to emphasize once more that in designing effective law firm succession plans, no “one size fits all.” Each firm has its own history, culture, characteristics and admixture of lawyers, paraprofessionals and support staff. As a result each firm should have a succession plan that squarely fits its own individual requirements. This paper identifies  the  critical elements of a succession plan that are likely to be included to some extent in any law firm’s succession plan. However, from firm to firm the Teams and their members may be different, and each Team’s responsibilities may be different or even combined. One constant, though, is the explanation of the knowledge which all senior lawyers accumulated based on their experiences, and it is thus important to identify and understand what knowledge is actually transferrable (much of it is!) and what knowledge may not be transferrable. The Knowledge Transfer consultant can assist in this analysis and also use its tools to enable the departing partner to effective transfer his or her knowledge to the successor(s).

At the outset of this presentation there are statistics which clearly establish an upward tick in lawyer retirement as well as in lateral transfers. These trends underscore the importance of each firm having both a long-term succession plan, which this presentation does not address, as well as a short-term plan to preserve for the firm the knowledge, experience and wisdom of departing senior lawyers. Succession planning for law firms is an idea whose time has come!

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