Law firms are about to be hit with a wave of baby boomer retirements, and most firms are woefully unprepared. Baby boomers comprise nearly a quarter of the U.S. population and range in age from 54–72. Lawyers in this category graduated from law school in 1990 or earlier. Major, Lindsey & Africa’s most recent Partner Compensation Survey reflects that nearly 40 percent of law firm partners expect to retire in the next decade. What should be particularly disquieting is that these soon-to-be-retiring partners control the majority of many firms’ client relationships and in most cases run their firms.
What can law firms do to address this looming loss of both talent and revenue? Proper succession planning is the only real answer. But a majority of firms simply have no formal succession plan in place.
This is somewhat understandable. For one thing, law firms are often run by lawyers, not business people. Moreover, regardless of who is at the helm, law firms necessarily struggle with the tension of continuing to incentivize and reward partners who generate business on the one hand while simultaneously encouraging those same partners to transition those relationships to the younger generation on the other. Given these tensions, without proper incentives, partners will often jealously protect their clients, expertise and opportunities until the day they retire.
It is thus not surprising that when a partner retires, more often than not his or her law firm loses a substantial portion of that partner’s business. To maintain client relationships, firms must adopt a formal succession plan that both puts talent in place ready to inherit client relationships while simultaneously incentivizing retiring partners to transition those relationships well before retirement.
A successful succession plan includes four key components: analysis, client considerations, incentives and execution.
It is difficult to fully understand the extent of the risks and the best solutions without first undertaking a deep analysis. Law firm management must answer critical questions about client staffing, revenues, workload allocation, teams, team diversity, client contacts, unserved needs, billing credit allocation and potential successors to ensure a smooth transition when the primary relationship partner retires:
Statistical analysis can help provide more robust answers to these questions, but law firms are typically behind the curve in utilizing advanced analytics. Using Big Data can help firms pinpoint which client relationships are at risk due to a retirement while simultaneously helping the firm identify and focus on unique solutions for each client.
Once a firm identifies at-risk clients and potential solutions, it must remember the first imperative of client service: human contact trumps high-tech solutions. The relationship partner and other members of the client service team must meet regularly with the client’s in-house legal team to identify ongoing needs and solutions. This will help the firm better understand how best to service existing and previously unidentified client needs and identify additional attorneys who will best fit the client relationship.
As part of this process, the relationship partner must be required to introduce their best-suited colleagues to the client’s entire legal team. Multiple points of contact enhance client retention by providing the client with several “relationship attorneys” with whom they will feel comfortable when the primary relationship partner retires and help assure the firm has a relationship with key client decision-makers well into the future.
The tension of continuing to incentivize and reward partners who generate business while simultaneously encouraging those same partners to transition those relationships is often aggravated by the senior partners’ imperative to maximize their own nest eggs prior to retirement and the firms’ desire to maximize profits this year.
Law firms that cling to a formulaic rewards system based largely on business originations will continue to see partners hoard those relationships. A successful succession plan must be supported by a more subjective compensation structure that incentivizes mentorship, collaboration and transitioning clients – with a sliding scale that emphasizes different components as partners approach retirement age.
Firms regularly tout their culture, collaboration and collegiality, but to be truly successful, they must put their money where they would like their culture to be by rewarding behavior that is in the long-term best interest of the clients, the firm and the firm’s current and future lawyers.
Execution does not mean simply suggesting that senior partners begin transitioning clients to the younger generation. It means incorporating a concrete and specific plan into the very fiber of the firm and making it part of the way the firm does business. It should be client-specific and part of every new client intake. Succession planning should be developed and progress monitored firm-wide and at the practice group level.
Baby boomer retirement will result in an unprecedented number of senior lawyers leaving the profession. Relationship partners must understand that their goals, their client’s goals, and their firm’s goals are all aligned, and to provide the best service for the client means staffing the client with the best team, including younger attorneys who will eventually succeed to the client relationship. Firms that take this seriously will better preserve their client base and benefit financially as the wave of baby boomer retirement sweeps the industry; those that do not will struggle to keep up.