Succession Planning – the Elephant in the Room
Stephen P. Gallagher
Aging has always been seen as a personal matter, rarely discussed outside one’s immediate family, but in today’s law firm setting, anxious younger partners may be the first to bring up succession planning as a topic for your next Partners Meeting.
Given the decline in replacement income provided by Social Security and employer pension plans, and the limited extent of other savings as a source of retirement income, the only alternative to sharply lower living standards for many lawyers will be to remain in the labor force longer. Firms need to find out how many of their partners may want to stay active longer – if that option were to be made available. In today’s volatile legal marketplace, mid-career lawyers are just as exposed to career transition challenges as more senior lawyers looking to move away from full-time law practice.
In the past, career paths were predetermined and individuals made fitting choices. As a consequence, many loyal and dedicated lawyers who are now facing traditional retirement age have followed predictive paths by working in one or possibly two law firms their entire careers. Law firms were able to respond by offering job security. Today, the idea of a pre-determined career path for lawyers no longer exists. Rather than looking at career growth as a fixed sequence of stages, 21st-century theories now approach career development as individual scripts shaped by societal needs over an extended period of time. I believe law firms are in an excellent position to help lawyers develop new skills for career transition that may extend well beyond traditional retirement age. This begins with a firm-wide Succession Plan.
Why Succession Planning is Needed?
Altman Weil, Inc. has been conducting Law Firms in Transition Surveys for the past nine years. In their most recent survey, they found that law firm leaders are acutely aware of the changes that the legal profession is facing; however, there has been scant evidence of tangible changes in how law firms are operating.
In one of their earlier reports (2015), Altman Weil researchers found that in 63% of law firms, partners over 65 contribute at least one quarter of total firm revenue, but only 31.3 percent of firms’ report having a formal succession planning process in place. Another 39.7 percent of firms reported having an informal or ad hoc process in place. It was believed that these informal/ad hoc plans often indicated that the firm and individuals were not sure how and when to proceed, are uncomfortable discussing the topic—and, when they finally act, find their efforts are “too little, too late” to effectively execute a meaningful transition process.
In September, 2016, new research about lawyer retirement was published by the Oregon Attorney Assistance Program. Oregon invited 6,000 of their members 50 years and older to participate in their survey. Fifty-three percent of their survey participants were between the ages of 60 to 69 years old, and of these more senior respondents, fifty percent reported that they were planning on retiring from the legal profession in the next five years. The data from the Oregon retirement study suggest that the elephant in the room can no longer be ignored.
Aging can no longer be seen as just a problem for lawyers 65 and older, but is a much broader challenge than previously thought. With the large number of experienced lawyers positioned to leave the profession over the next five to ten years, it stands to reason that for many law firms, their future success—and even survival—may depend on how well they can manage the transition of clients and revenue to the next generation of owners. With 10,000 Americans turning 65 years of age every day, this potential “brain drain” of legal talent can only get worse before it ebbs. How much longer can this crisis be ignored?
Throughout all of society, we are seeing a much greater search for meaning in everything. All people, including lawyers, are looking for new ways of knowing and being. Increasingly, mid-career professionals are looking for new ways of experiencing the world. This type of transition can occur at any point in life – whenever one comes to a gradual or sudden realization that one’s career or marriage or lifestyle is no longer satisfying. This can also be triggered simply by the recognition that there are alternatives to the status quo.
Law firms that have a better understanding of their partner age profiles in each practice area and office location will be in a much better position to take appropriate steps to design a succession plan that can serve both their aging workforce and the needs of the firm. I have a friend who is a senior partner in a mid-sized law firm in Upstate New York, They just began working on the firm’s succession plan, and she learned that six of the twelve partners who are already over 60 had not been contributing to the firm’s, very generous, 401 (K) program. The money that should have been set aside for retirement was going towards college tuition payments, unanticipated health expenses, and any of a number of other expenses attributable to second or third marriages. Where, in the past, this topic was rarely discussed outside one’s immediate family, my friend wanted to know if the firm had a problem. Each of the partners were planning on staying active longer to be able to put money away for retirement. Should the younger partners who put succession planning on the agenda for the Partners Meeting have voice in such a decision?
The advice I gave to my friend included several recommendations that readers may find helpful.
- The firm should designate a partner or partners in leadership who will work one-on-one with senior partners to help structure his or her personalized succession plans?
- The firm needs to discuss succession planning with all partners in order to reach consensus on what the firm’s approach should be?
- Compile a list of lawyers including: age, practice group, office location, client responsibilities, and time-line for transitioning away from full-time practice.
- Find out if the firm has adequate mid-level partners to transition work to.
- The firm should make sure all lawyers understand that succession planning is underway. Everyone will want senior partners treated fairly, and everyone will want to know when opportunities will come available for them to grow.
 Conducted in March and April 2016, the Law Firms in Transition Survey polled Managing Partners and Chairs at 800 US law firms with 50 or more lawyers. Completed surveys were received from 356 firms, a 45% response rate. The survey has been conducted annually since 2009.