Succession Planning: What’s Your Next Step?

Note: This article first appeared in the February 2021 Law Practice Today

Introduction to Succession Planning

Succession planning for lawyers means retiring, a career pivot, perhaps selling a practice, and definitely transitioning clients and open matters to another lawyer. It marks a life-cycle transition point. Psychologically, it means change and change is always hard, even when it’s a choice. Retiring or pivoting forces you to questions you may prefer to avoid.

Do you want to find an internal successor to handle your files? If that’s not an option, will you recruit someone from the outside, perhaps a junior lawyer – someone you have mentored in the past? Do you think your practice is desirable as a merger or acquisition candidate?

What should be on my “to do” list? What are the possible ethical missteps? What is my practice worth?

Law Firm Business Valuation

The underlying and unspoken assumption of succession planning is that there is value in the law firm or practice that someone else would want that outweighs the cost of its acquisition. When the value is greater than the acquisition cost, succession planning is about the logistics of complying with ethical rules regarding valuing a practice and retiring.

Law firm partners with a significant book of business have power.  If they leave without first transitioning clients, the clients will leave too. This means that managing partners have a responsibility to think about succession as a business sustainability strategy. What are the benefits of being a partner in your firm?  What is the cost to become a partner in your firm? Does your firm have a leadership pipeline to partnership?

The best succession plans are started years in advance of an actual transition and incorporate an understanding of the firm’s business model, partnership agreement, and how decisions about practice value are made.

Whether you are in a firm or a solo practitioner, take a moment to value your business. Consider the following:

•       Hard assets: cash-on-hand; property

•       Transferable, valuable, happy client relationships

•       Brand recognition

•       Skilled and committed staff

•       Embedded processes and culture of effectiveness and efficiency

•       Work in progress

•       Long-range strategy

•       Healthy capitalization

•       Receivables

•       Strong community presence

•       Positive office culture

Ethical rules affect valuation. Remember to consult your state’s ethical rules on transferring client matters, referral fees, or fee-splitting. There are often limitations. Look for obligations to keep clients apprised of possible changes in representation and their choice of counsel,  transfer files only to competent lawyers, and limit excessive valuation of good-will.  When discussing a possible acquisition, make sure to protect client confidentiality, consider conflicts, and review fee agreements in engagement letters. These issues may also affect the value a practice or its value to a particular acquirer. 

Law Firm Roles and Responsibilities of the Business Model

When a lawyer leaves a firm affect, it may affect the firm structure and responsibilities of others left behind. Who, in your firm, is responsible for rainmaking, overseeing work processes and attorney assignments, and making sure that bills go out on time and get paid? What processes in your effective and efficient business model will change when a particular partner retires? The connection is often obvious between a particular lawyer and the percentage of revenue that person brings to the firm.  It’s not always as clear who is responsible for recruiting, hiring, onboarding, training and development, advancing, evaluation, compensation, and termination of associates and staff. It’s often even less obvious who is doing what, when, and how to ensure that quality work gets completed on time in different areas of a firm. Use the table below to better understand your firm’s business model and what needs to continue uninterrupted.

Checklist

When a firm closes or a solo practitioner retires, pay attention to ethical rules regarding file retention and ongoing cases with pending court dates. Malpractice insurance coverage is for “claims made,” so even if you are retiring you will need a “tail” policy to cover any legal malpractice claims made after those doors are closed. Make sure to:

·      Finalize any active files where possible. If you can close out a matter and client representation, do so.  Use disengagement letters and include your intention to retire.

·      Advise clients with active files of your intention to retire and their need to retain new counsel. Don’t forget to remind clients of important time limitations and scheduled dates.

·      Active litigation files usually include court or deposition dates. Request extensions, continuances, or new dates where possible. Under some circumstances, ethical obligations may require you to delay your retirement. Remember to follow court rules regarding motions to withdraw your representation and substitute new counsel.

·      Return original documents and transfer electronic files to clients. Advise clients how long you’ll be retaining files, which depends on your state’s ethical rules.

·      Make sure to document any decisions and confirm agreement by your client.

·      Check your state for ethical obligations regarding retiring or suspending your active license, including change of address and contact information.

Five Steps for Succession Planning in Advance

There are five steps for succession planning: (1) Hire right; (2) Develop People; (3) Transition Leadership and Management; (4) Transition Clients; and (5) Reward Departing Partners. Planning for the departure of partners begins several years in advance.

1.     Hire Right 

Recruit lawyers with leadership competencies or develop these skills in addition to top-notch legal skills. These lawyers will be better at managing client relationships, developing new client relationships, and support the efficient and effective running of the law firm’s business model.

Not every lawyer should become a partner; however, hire lawyers that are partnership material.  What are the expectations for partners? Should they show business development potential? Do they need to have an interest in running a department? Do you expect them to collaborate with other departments, like marketing or attorney development? Do you expect them to mentor and train newer lawyers? When lawyers are hired because of the schools attended or honors received instead of their vision of lawyering, leading and legal capabilities, who supports firm sustainability? Hire lawyers that will contribute to a sustainable culture – a diverse, equitable, inclusive culture where well-being and belonging are cultivated.

2.     Develop People

Even perfect hires need development. Train and mentor successors in marketing, client relationship development and management, law firm leadership and marketing, law firm finance, understanding the firm’s business model, and mentoring others. None of these competencies are taught in most law schools.

Make sure to:

•       Expose associates and junior partners to management issues as part of their developmental process.

•       Expose them to the  firm’s financial model and goals.

•       Include them  at regular meetings and discuss progress toward goals.

•       Share information on management decisions. Not all is sensitive or confidential.

•       Delegate issues dealing with practices, technology, marketing to associates or small committees. People learn best by thinking through difficult challenges, making decisions, and implementing those decisions.  Where the outcomes are less than perfect are the opportunities to learn and group.

•       As they develop offer them leadership position on more important issues.

3.     Transition Leadership and Management

People learn to lead and manage others by leading and managing others. Introduce leadership training and create new roles for people to learn these skills.  Have an assistant or co-managing partner or manage with a triad executive committee. People learn by watching more experienced people lead, so give them opportunities to ask questions about and how leadership and management decisions are made and participate in the discussions and decisions.

 4.     Client Transitions

No firm wants to lose clients when a partner retires, and this is preventable with planning. As uncomfortable as these conversations are, talk retirement and know when it is coming. Three to four years before a retirement, a introduce clients to other partners and associates. Allow time for trust to develop with other firm attorneys. Does your business model encourage or discourage this behavior?

In firms with sustainable business models, identify successor lawyers for each client and have them prepare to take over for primary lawyers at retirement.  Include successor lawyers in lunches and client visits and transition portions of client work to successor well in advance of transition.

5.     Reward Departing Partners

Sustainable business models generate partners who support client transitions. They are not worried about their livelihood and power. Return capital – original investment and profits-not-taken. Figure out fair value of a partner’s ownership interest and pay it. Fund retirement benefits. Consider providing compensation through of-counsel arrangement that support the mentoring  and client transition support needed for sustainability.

Conclusion

Succession planning is shifting control of the firm and clients and doing so without going awry of ethical obligations.  It answers questions about the value of retiring lawyers. It provides longevity and sustainability for a firm. Succession planning is an opportunity.  Take it.

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5 Tips to Notice More Business Opportunities

Are you a good noticer? You won’t notice business opportunities if you aren’t good at noticing. If you spend more time noticing what’s happening in the external world or if you spend more time with the thoughts rattling around in your brain, you are probably missing a lot. We need to develop the discipline to do both. Maybe you study your surroundings like you were taught in college to study a painting. That puts you ahead of many people, and yet, you likely miss a lot that could help you notice more business opportunities.

Noticing clearly and communicating effectively seem like obvious, straightforward skills, yet our psychology seems to suggest that we’re prone to make a lot of mistakes. Why is that? Let’s start with an experiment.

Choose a colleague, client, friend, spouse, person-in-case-of, or neighbor. Close your eyes and try to recall the last time you saw that person. What were they were wearing? What was their emotional tenor? Can you recall their tone of voice, body language, and what they said and did? Perhaps you “saw” them on Zoom.  What was hidden from view?

If you aren’t good a noticing what is in front of you, you’re going to miss the next, best opportunity that comes your way. It probably will not appear like an opportunity at first glance. It may seem like too much effort, not right for you, or not interesting. If you want to notice more, you’ll need to change your habits and learn new behaviors.  Changing old habits and forming new ones is never easy. Put these 5 tips on a Post-It or Smartphone Note, in your calendar, or do this with a buddy for mutual accountability “check ins” until they become new habits.

1. Stop and Notice.

Notice, using every sense available. See, hear, feel, smell, taste, and the others.  What others? We have a sense of space and time, movement and position. How about noticing how awake and alert you feel or how tense or relaxed your muscles are? Add in expanding your awareness of emotions in yourself and others. There’s a lot to notice and most of us notice little.

Practice expanding your perception of what “is.” Maybe start with the room you are in. List what you notice and what you remember noticing with your eyes closed.  Practice regularly, until you notice more.

One of my trainings is problem-solving for leaders. It starts with noticing one’s internal context.  I ask people to notice feelings in their body and expand awareness of emotions. It takes practice and an expanding vocabulary for your emotions.  If the only words for emotions you know are anger, happiness, joy, love, and sadness, you may not feel contentment, pride, excitement, peace, satisfaction, or compassion.  If you don’t know what compassion feels like, you may miss out on a business opportunity to empathize with a prospective client. Also, it’s easy to have your cognitive, analytical thinking skills hijacked if you aren’t noticing when you’re feeling anxious.

2. Notice the “big picture” in addition to the details.

The patterns, relationships, concepts, and connections that we call the “big picture” in contrast the details are less noticeable to some people than to others. Perception tendencies or preferences, like communication defaults and preferences are part of being human. Maybe you pay attention to the strength and style of a handshake, the tenor of a voice, the scent of a person and a room. But, do you also look for patterns and relationships? The connections between people, people and resources, or people and power? Culture and power dynamics show up in patterns of behavior, not in the employee handbook. Do you notice who gets attention and who seems invisible in a group? Maybe there’s a business opportunity hidden there.

3. Be curious.

Think like a journalist, psychologist, anthropologist, artist and so on. Our ability to be curious, depends on our history of experiences and what we know. Everyone has binoculars and microscopes in addition to blindspots. Leadership of oneself and others requires a big dose of curiosity – the desire to be open and keep learning. Experts in innovation point to the combination of curiosity and hard work as the catalyst for experimentation, innovation, and intentional change. Changing up routines, acting spontaneously, shaking up your thinking is how to find new connections and opportunities. It’s how to notice gaps to fill with your expertise and effort. It’s how to notice the human side of problems. These are the ingredients for finding new business opportunities.

4. Avoid assumptions.

It’s easy to fall into the trap of thinking you know the answer or have collected all the data that matter. Innovation intelligence and noticing more means testing your assumptions and reaching conclusions much more slowly. It doesn’t mean hesitating to reach a decision when the data is incomplete or ambiguous. The nature of complexity is that systems often have incomplete and ambiguous information. Living with a lot of complexity should not stop us from making decisions and experimenting to find solutions to problems. It does mean developing a heightened awareness of your unconscious assumptions. Everyone has them. It does mean knowing the difference between perception and data on the one hand and judgments, assumptions, and conclusions on the other. Suspend your judgment until the time is right to make a decision.

5. Change intentionally.

If you are stuck and not finding more business opportunities, it’s time to change what you are doing, how you are doing it, and when you are doing whatever you are doing. Let’s say you are right-hand dominant. In that case, you prefer to write with your right hand. With practice, you could learn to use your left hand, but it would take time, more concentration, and the early results wouldn’t be as good as with your right hand. It’s the same situation with intentional change. Do you prefer to notice and collect data or reach conclusions? Do you prefer to notice the details or the big picture? Do you prefer curiosity or making decisions?  If you have ever explored your personality using the MBTI, then you know that expanding what you notice, how you make sense of what you notice, and the way you decide and act are preferences that have become habits.  We can change our habits, expand into new habits, or replace old ones with new and better habits. If you are not getting the business opportunities you want, it’s time to change.

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