It has been estimated that by the year 2020, 400,000 lawyers will retire. However, that estimate was made before the financial crises of 2008-2010.
Since then, many lawyers had to re-evaluate their financial condition, often finding that savings accounts, stock portfolios and even residences lost a substantial percentage of their values.
Consequently, a high number of lawyers who had expected to retire have decided to continue practicing. However, at some point, even those attorneys will have to seriously consider hanging it up. As one gets older, one becomes wiser, more insightful — and perhaps less patient.
That was the assessment one managing partner of a major law firm shared with me, saying that at the relatively young age of 62, it was time for him to retire. He no longer has the ability, or patience, to stroke the egos of his partners as part of managing by consensus. For his well-being and the well-being of the law firm, in other words, the issue of succession is a critical topic for discussion.
The American Bar Association reported that a national legal publication recently examined pension plans of law firms and found that a number of the country's largest firms have unfunded pension plans; in other words, plans without money to pay their obligations as the lawyers retire.
Increasingly, we will see the bulk of their attorneys leaving in close proximity to one another, hoping and praying that the fewer remaining partners will be willing to fund the firm obligations.
We also will see many situations in which these younger lawyers will find it to their economic advantage to torpedo the existing firm — and its pension obligations — in order to create a new firm with no such baggage. Doing so will give them the opportunity to take on more of the revenue produced by their efforts.
This kind of intergenerational warfare should not be discounted. It is important and it will occur. A managing partner recently said that when a firm gets large, there will be an increased movement of lateral partners to fill in the gaps of practice areas to serve clients better and to increase the depth of their experience within existing practice areas. However, he also noted that when one partner moves laterally, others tend to do likewise, weakening the glue that holds the firm together. Thus, we are not talking merely about one lawyer and his retirement thoughts, but rather we are potentially looking at the restructuring of major law firms if attorneys actively seek firms without large pension liabilities.
Sole practitioners and small firms will not escape the impact of this movement. In many instances, they will be able to attract some of these elite lawyers; in some cases, their colleagues may make demands concerning unfunded pensions that will impact even them. As all clients — corporations, small businesses and individuals — pressure law firms to lower or eliminate their hourly rate billing, something has to give.
For Big Law, as well as many smaller firms, the future may hinge on the funding or non-funding of the firms' pension plans. Like the steel and auto industries before them, law firms will face stark choices: cut pensions, cut people or go out of business.
