The Right Strategy for Bringing on a Practice Successor

12/01/2013
From California State Bar: The Bottom Line, December 2013

A retirement transition from a solo or small firm legal practice is above all an issue of planning. If the practice is not sold or closed, the best alternative is grooming a successor brought on board as an associate or junior partner. Ideally the succession plan can be structured to proceed over a period of up to five years, as client responsibilities gradually transition to the new lawyer. These five years can be seen as the "red zone" of the retiring lawyer's career – the area right before reaching the goal line of retirement. During this period the retiring lawyer can identify a successor, have ongoing conversations with key clients about the upcoming transition, forge new ties between the successor and both current and new contacts at the client, and ensure that the new lawyer is completely up to speed on what the client needs and expects.

Goodwill Issues

Preparing for this kind of smooth transition can ease problems over the issue of goodwill when the time comes to turn the practice over to the successor. If the new lawyer seeks to buy the firm outright and change the name, and thus deleting that of the retiring lawyer, one might question whether the value of the firm's goodwill is decreased or even destroyed. Often when a firm is bought by outside interests, the buyers assert that clients will not remain with the firm once its proprietor leaves, and thus offer a lower purchase price. The selling lawyer then is left to assert that goodwill means that the reputation of the firm continues beyond the removal of any one individual. With that reputation comes the client list, the phone number, and the on-going nature of the practice (with staff and systems in place). Grooming and transitioning a successor from inside the firm, if done properly, can eliminate discord over this issue.

It also addresses a number of ethical concerns that can arise. For example, unlike other business owners, lawyers face significant ethical consequences for failing to plan for a practice's future. Failure to plan for how clients will be taken care of as a lawyer approaches retirement age can be construed as reckless disregard for client welfare – a true ethical violation. A properly prepared younger successor alleviates this concern. It also resolves a second issue created by some state bar associations (such as New York's), which specifically assert that "a lawyer in private practice shall not practice under a trade name." If lawyers' names must be used in the title of a firm, as this seems to require, any lawyer who takes over a law firm would either have to "retire" the previous lawyer (and keep the name in the firm "trade name") or change the firm name. A younger lawyer whom clients have learned to accept as successor to an older partner can retain both the firm name and client loyalty.

Partnership Perspective

The point here is that, in a small firm, it is essential to ensure that the client transition process to a successor is not only planned, but noncompetitive. The goal is to maintain and nurture the client relationship, allaying any fears that there will be service gaps or other issues that will jeopardize the quality of legal counsel that the client has received and has a right to expect in the future. The successor must be willing to be part of this process, which should be carried out according to a well-considered and thoroughly researched strategy.

Making this process a reality begins with hiring the right person the first time for the right succession planning. It is essential to provide education for potential successors to improve their skills and then involve them in the financial and organizational life of the firm so that they understand and appreciate their role and look forward to the future. It's no longer a matter of guessing what a partner may be telling them to do – it becomes a process of understanding what they ought to do. Lawyers who understand how to grow a career can better assess the value they provide, and better reflect it in their performance. They are prepared to become owners of the firm and its client relationships.

Such preparation demonstrates that the planned transitioning of client relationships should be viewed as a marathon and not a sprint. The earlier the process begins, the smoother it will go. One key question must be answered as early as possible: does the younger lawyer's combination of skill and attitude demonstrate potential for assuming client relationships? Skills are teachable, attitude isn't. And skills include not just knowledge of the law – it's the ability to learn about "The Business of Law"® as an owner of the firm That means understanding the operation of the firm as a business (budget, collections, profit, loss), the firm's billing structure, the firm's and their own profitability, and the importance of clients and their own businesses.

Succession Process

The actual succession process requires identifying desired outcomes for the associate within a given time period, defining the behaviors necessary to achieve those outcomes, and then giving the associate the means to achieve results. For any associate, the future depends on whether the individual himself or herself is committed to success, and whether the retiring partner has developed a strategy appropriate for succeeding. These are the key steps such a strategy should include, from the standpoint of what the retiring lawyer controls and contributes.

  1. Document a complete portrait of each client. Whether or not the client has their own financial reports or website, some Internet research and the lawyer's own background knowledge should be sufficient to document the client's size in terms of revenue and number of employees, the products/services they provide and who they provide them to, and their major competitors. Make sure to describe the client's culture – are they a hard-charging sales organization, a company of low-key engineers, or off-the wall entrepreneurs?

  2. Create a client map by identifying each individual worked with (even if it's only one person, such as the owner), the length of the relationship with them and how the relationship was first established. Include any personal information known about the individual – sport and hobby interests, family members and charitable causes, for instance.

  3. Create a matter map that identifies the specific recurring matters that arise with each individual in the client organization. There should be a separate listing of significant one-off matters resolved, but segment these into broad practice categories that can indicate the type of concerns that could arise in the future.

  4. Create a relationship tree that shows mutual contacts among specific individuals associated with the client, and others in the wider community who are shared acquaintances – bankers, accountants and the like, as well as board members who are mutual contacts on social or charitable boards. Use of the social networking platform LinkedIn is ideal for this, and Facebook pages can help to a lesser extent.

  5. Create a service checklist that documents every specific of client "care and feeding" – what kind of detail does the client want in budgets and invoices, how often and when is the client invoiced, what credit terms are extended to them, how much or how little information does the client like to receive about matters. The goal is to for the successor to continue providing this level of care seamlessly.

  6. Develop scenarios for where gaps in the client relationship could occur. Such gaps could be clients with whom only you have a relationship at present, and any key member of the client organization in which the key contact or others you have worked with may be nearing retirement as well.

  7. Work with the successor to ensure he or she has developed complete mastery of all this information. Before the first meeting to introduce the successor to the client, that individual should internalize everything about the client and have instant recall concerning it. Never leave the new lawyer to look like a rookie quarterback in the NFL, consulting a playlist strapped to his wrist.

  8. Develop an accountability plan and a written timeline for all the discrete elements of the client transfer, working backward from the actual retirement date. This is a plan that lawyer and successor should agree upon before meeting with the client, so it can be presented as a transition framework to which the client can have full input for modification.

  9. Implement the communication process of meeting with clients to introduce the successor, with the goal of seeking open input from both sides to make sure there are no mismatches in personalities, perceptions, or understanding of what is to happen. Make clients aware that this is just the start of a mutual effort to continue meeting their needs, one in which all sides will continue to evaluate on a regular basis how well the transition plan is working and to make adjustments as needed. Be very alert to unspoken client signals and messages about how well the process is going. Don't be caught in a situation where a client who is not satisfied about the transition says nothing to that effect – until transferring their legal business to a new firm.

Suitable Perspective

The important point about this planned succession process is that it is so unlike what happens in too many small law firms, and so much like the transition in a small medical practice. In the latter, Young Dr. Kildare works in a medical internship, learning the trade and then takes over a practice as the older doctor who had it gradually transitions into retirement. There generally is no discussion of money; the young doctor is happy to have a job, likes and respects the older doctor, and is eager to learn as much as possible from that doctor's experience. The older doctor, meanwhile, is happy to have a younger person to train and mentor so that his or her patients will receive both the experience of an experienced practitioner and the new learning coming out of a recent medical graduate.

In a small firm, too often, a young associate works for a few years, and feels entitled to become a partner. While a good lawyer, this person has yet to develop rainmaking skills and still has no personal client following, or book of business. The result is a classic "Catch-22" – the associate cannot become a partner to whom the practice can be transitioned without having clients, but is precluded from opportunities to do so by virtue of associate status. Associates who don't know how to develop books of business will not be suitable for transitioning to the future "ownership" of client relationships. However, the planned transition outlined here provides steps that include tactics to ensure that worthwhile younger lawyers can become effective business developers with a suitable perspective to assume future client relationships as owners of the firm.

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