In 2015 one of our client, co-founder of a midsize London solicitors’ firm, found out he was ill, he called us to help him to figure out how the business that he helped build since 2002 could move forward without him.
Bob died April 8 after a hard, 22-month battle with cancer. He was 53.
“Losing Bob was a shock. Even if it was expected, as he had been sick for some time, ” said firm co-founder and Bob’s business partner, Tony. “We lost a significant piece of our business. Fortunately, we had assessed the situation before his death and started to implement actions to remain a viable stand-alone law firm.”
The legal industry is greying. With law firms predominantly led by ageing, baby boomer lawyers who like to work until their bodies give out, more companies are feeling more urgency in the need for clear continuity plans to move on as firm leaders and those with significant parts of business retire, pass away or simply leave.
Unfortunately, lawyers tend to procrastinate on continuity planning, for some reasons the conversations are hard to have or may be contentious; no one likes to talk about death or illness, and some lawyers simply don’t want to retire. However, jolting off those conversations could be to the detriment of firms and their clients. With the ageing of the industry in mind, many businesses are revisiting continuity plans today, to prevent potentially damaging consequences in the future.
Tony and Bob, who was managing shareholder before his death, were the last two of the firm’s original four founders. That leaves Tony as the only connection to the formative years of the company.
As part of the continuity plan in place, junior lawyers had already begun working with Bob’s clients during his illness, though Bob stayed quite busy throughout it. The transition was smooth, and seamless said, Tony, thanks to the plans we have implemented in the last eighteen months.
Tony was clearly ready to take on managing duties. Before Bob’s departure, the shareholders agreed that the business should remain independent. Those were good starting points in running the firm post Bob.
Bob stayed active in his business up until mere weeks before his death, But thanks to the planning efforts he put in all the large clients whom he continued to serve through his illness, relationships were deeply connected with other lawyers in the firm.
“Bob staying involved, it was sometimes difficult to sit down and discuss the future,” said Tony, praising Bob’s leadership and impeccable track record in litigation. “You did not want to do these things behind his back. That seemed disrespectful. We have been lucky that when Bob understood what could happen, He let us know, so we could make the necessary plans to run the firm in the future.”
According to consulting group Altman Weil Inc.’s 2016 Law Firms in Transition survey, more than 58% of law firms interviewed in the USA reported either moderate or high concern about their company’s preparedness to deal with retirement and continuity planning.
The economic impact of a failure to plan could be fatal for law firms. According to Altman Weil, in 63% of law firms, partners 60 or older controlled at least 25% of their company revenues.
That means businesses without definite plans in place could be at risk of losing lucrative trade and big clients if the relationships, managed by those old, outgoing lawyers, were not transitioned to others, said Altman Weil principal and report co-author Eric Seeger.
“We see a huge uptick in succession planning projects driven partly by demographics,” he said. “There are lots of attorneys today in their 60s and 70s, and some of those senior lawyers are proving slow to retire.”
This survey is in line with what we see in the United Kingdom; firms are so slow with their planning. Mainly because some partners are working because they do not have the retirement savings they had intended to at their ages. Others just simply like to work and don’t care to stop.
Meanwhile, the trend of law firms having mandatory retirement ages has run down through the last 10 to 15 years.
The delays could also be the function of law firms’ highly autonomous cultures.
They defer to the wishes of individual partners, and law firms tend to be nonconfrontational, particularly when a senior lawyer in question is a longtime member of the enterprise and nobody wants to feel like he or she is shoving him or her out.
The legal market is putting more pressure on firms to have those plans in place.
Demand for legal services stagnates and competition for market share hits a premium; companies are required to think creatively and proactively about their business to maintain the levels of profits to which they have become accustomed. That is putting direct pressure on margins, especially since retired partners continue to collect on relationships and business they once controlled.
At the same time, while older lawyers are slow to retire, their productivity, naturally, tends to go down.
Firms are deciding they do not have the luxury of compensating their senior people at the same high levels as they become less productive as they go while still commanding high compensation.
The detriment of not having those plans in place is evident.
Besides problems that could arise and damage a firm’s culture when clear continuity plans are not in place in addition to the questions surrounding compensation and profits, businesses that do not transition work to younger-yet-experienced lawyers are seeing those people becoming frustrated and leaving.
So poor planning today could exacerbate retention struggles in the future.
I have seen some firms midlevel lawyers leaving because they perceive a lack of opportunities due to senior partners hanging on well into their 70s.
In our review of Bob and Tony’s firm, we found out that the pyramid of age was adequately balanced, several partners were in their mid-60s and late 50s, and there was a younger generation in their late 30s, but there was a civil “push and pull” between those generations.
Having a clear plan in place is not just helpful for lawyers, but the entire administration. The review gave us a better sense of where the firm needed to add strength moving forward; we recommended hiring an office manager to handle a variety of duties, from human resources to employee benefits, working with her outgoing counterpart. The firm also set a goal to review leadership development possibilities.
The planning process involved settling hard-to-discuss questions on everything from compensation to who will take on clients following a lawyer’s death or retirement.
If someone dies, for instance, his or her family is paid a certain percent of his or her customers’ revenue — assuming the client stays — for three years (which comes in addition to an insurance-funded death benefit).
This way, there was a lesser financial burden on the firm.
Relieving stress over questions about things like compensation was essential to maintaining a healthy culture.
The tension was palpable, younger lawyers were looking at all this and wondering, how does this affect me? They did not want to be sitting there paying for and working for a retired or deceased partner. Because we introduced something tied to pounds collected from clients, we relieved the tension — our recommendation was 15% in this case — and we also added a scale on retirement. We were able to avoid a financial strain on the firm.
Tony is happy to see the business flourishing he said: “I see this as a business that I and others helped grow, and I want it to be sustainable, we are all asking these same things: What happens here if something happens to you or someone else? Well, those are good questions. However, no one asked them until now.”
Not having those plans in place could be devastating to a midsize firm like the one of our client.
Besides now having a clear continuity plan for customers and businesses as partners leave, Tony said the company is feeling a renewed sense of confidence in the future.
“The younger lawyers now know there is a plan in place. They see there are leadership development programmes put in place and we have started steps to implement those,” Tony said. “From a sustainability perspective, I think people are feeling more comfortable. It shows we are in good shape today, and I believe that it will make us even more competitive in the marketplace.”
Can your business survive without you?
If you wish to build up the value of your business and would want to explore what you could do to make it sellable, please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or email him, firstname.lastname@example.org