It's no secret that the legal profession is aging. In fact, nearly half of the partners in the nation's top law firms are baby boomers or members of the older "silent generation," and the same is true in the Twin Cities. Major, Lindsey & Africa's 2016 Partner Compensation Survey found that nearly 40 percent of law firm partners in the Twin Cities who responded fit within these two age groups. Nationally, 16 percent of all law firm partners say they will retire in the next five years, and 38 percent say they will retire in the next decade. This demographic shift poses significant risks for law firms if not dealt with proactively and strategically.
The biggest risk law firms face in this environment stems from failing to prepare themselves for what happens after the majority of their relationship partners retire. For a law firm to remain competitive, it must have a carefully crafted succession plan in place to transition firm clients to younger lawyers who will seamlessly pick up the work and maintain (if not grow) these client relationships.
It is never too late—or too early—to create a succession plan. Law firms need to consider who holds the most important client relationships and who has access to these clients outside of the "relationship partner." If one baby boomer partner is the only connection a client has to a firm, what will happen to that client once the partner retires? Young lawyers should be introduced to clients and allowed to develop relationships with these clients, or else firms risk losing those clients when the originating or relationship partner retires. If clients don't see their firms as having multiple key contacts, the relationship is at risk—if not now, certainly in the next decade.
The strength of client transition efforts varies as wildly between practice groups at a firm as it does between firms. The most successful transition and succession plans exist at the practice group level, and no two plans will be identical. The plan needs to go beyond just introducing junior lawyers to firm clients. Senior associates and junior partners should also be rewarded financially for their roles in maintaining and growing key client relationships.
Firm management should undertake an honest assessment of where they stand and ask themselves several key questions, including:
How many key contacts exist for each of the firm's top clients? (Hint: If it's only one person, your client transition plan isn't working.)
Is the firm making sure its young lawyers receive professional business development training? Discussing the topic at a practice group lunch is not enough.
Do partners take associates and junior partners to client meetings?
Is firm management meeting annually with senior partners to discuss transitioning top clients to younger lawyers?
Is the firm adjusting its compensation scheme to reward senior partners who gradually transition their practices to younger lawyers?
Is the firm adjusting its compensation scheme to reward senior associates and junior partners on a level commensurate with their level of responsibility for client matters and client relationships?
Are senior partners sharing matter origination or matter billing credit with younger lawyers?
Is the firm still employing a lock-step compensation system or is it paying lawyers (young and old) based on performance and client relationship-building?
Associates and junior partners pay attention to these issues and consider transition plans vitally important. In fact, among the principal reasons associates and junior partners consider switching firms or moving in-house is their frustration with their firm's inadequate transition plan, or feeling hindered by a compensation system that fails to reward them for their contributions on behalf of key clients.
The impact of the aging partner population will be even more pronounced because of the cutbacks in hiring that occurred during the financial crisis. And as the economy recovers, firms are finding it harder to backfill their bench. With smaller "classes" joining their ranks each fall, the only way firms can fill gaps in their talent rosters or increase head count is through the lateral market. Therefore, the competition for top lateral candidates is fierce, and top senior associates and junior partners with even modest practices are in high demand. Firms are actively looking for lateral talent with a modest book of business but a demonstrated ability to build or maintain a practice.
Similarly, these lawyers are looking for firms that are forward-thinking in how they maintain client relationships and how they reward young lawyers financially. Firms offering clear succession and client transition plans and compensation models that reward performance over seniority will prevail in the contest for top talent.
Top partners are aging out of the profession rapidly, and will continue to do so at greater speed over the next decade. The firms that will fare the best are the ones that are forward-thinking and strategic, and have carefully crafted plans in place to not only fill those gaps, but to build on what the firm has thus far accomplished. With the right plans in place, and the best talent to execute those plans, firms can turn this risk into a significant opportunity.