Planning For Retirement of A Managing Partner
THE NEWSLETTER FOR LEGAL OFFICE MANAGERS
LAW OFFICE ADMINISTRATOR
Volume X / Number 7 JULY 2001
(Reprinted with permission of Ardmore Publishing Company)
Put Some Long-Term Planning Into Partner Retirement
Planning for Retirement: How Not To Lose The Clients - Or The Firm
Partner retirement is a watershed event, particularly when the partner has originated a large portion of the business or is dominant in the firm’s management or practice development.
“Many firms go through a wrenching period of adjustment,” says law firm consultant and attorney BOB HENDERSON ofRJH Consulting in Jackson Hole, WY. And often the fallout is lost clients, unsettled management, and even the break-up of the firm.
Retirement is a sensitive issue, but for the firm’s survival, it “has to be faced head-on” and well in advance of the actual event – as much as three years in advance, he says.
The firm has to prepare other attorneys to take over the client matters. It has to transition the clients into the change. And it has to set up a system for passing on the partner’s management authority.
Henderson, who is himself a retired managing partner, points out that it’s easy to deal with retirement when an attorney “is still healthy, vigorous, and productive.” But in the twilight of their careers, “partners have difficulty coming to grips with it.” They don’t want to face it. They don’t want to think about being out of the mix.
The firm, therefore, needs not only to settle the issues but also to create an atmosphere of helping the partner “leave a good legacy.”
First, Protect The Client Base
The planning begins with keeping the clients.
As soon as a partner announces plans to retire, compile a list of that partner’s clients and decide which attorney is best suited to succeed in the representation of each matter.
Then both partner and designated successor need to meet with each client to discuss the turnover of the work. They should tell the client “there are no immediate plans for change,” but that the firm is simply ensuring an orderly transition into new representation of the matter.
Explain that the firm wants the client to have an attorney “who is familiar with the business and can continue to provide the same quality representation.”
Be Careful With Approaching Clients
Approaching clients so far in advance may seem risky, Henderson says. But wait until the last minute, and there’s a great risk of losing them. A change of attorney is far less “unsettling” when the client knows the partner is taking control of what happens.
Gradually include the successor in the representation, and encourage the client to call the new attorney when the partner is not available.
He adds a caution, however, and that is to be careful with the billing. If the new attorney does substantial work, bill for it. But don’t double bill for that attorney’s on-the-job training. And tell the client that won’t happen.
Conversely, explain to the attorney that he or she “will have to spend some time that’s not billable.”
Then throughout the transition, the partner needs to assess the client’s comfort with the new attorney and ask how the client feels about the change. “It may be necessary to move to another replacement.”
Henderson points out that there’s no science to the assessment. “It has to be based on a gut feeling.” At his own retirement, he transferred a major client to an attorney who proved not suited to the matter and so brought in another attorney and kept the client.
Now Who’s In Charge?
There’s also the issue of management to settle.
It may be difficult or even impossible to replace the partner’s management position exactly. “Power in a law firm comes from the ability to bring in business,” Henderson says. If the retiring partner plays a dominant role or is “the benevolent dictator,” there may be no one who can exert the same leadership or who will have the same clout. The firm may have to set up an entirely new management structure.
“Things will be different.” The firm has to decide whether it will be managed by full partnership or by committee, how the voting power will be determined, and so on.
Those decisions are best made while the partner is still on board, he says. In fact, the new management should be in place before the retirement. Wait till the last minute, and expect a power struggle and possibly a break-up.
Plan For The Staying-On Time
Still another issue to resolve is the timing, or whether the partner will retire immediately or slow down to part-time work.
No partner wants to be “arbitrarily cut off on a particular date,” Henderson says. In most cases, the choice will be a slowing down, and the firm will need to set “some kind of reasonable schedule.”
Usually the decision is to allow the partner to assume an of-counsel position. In that case, decide for how long the firm will provide office space and how much staff support will go with it. Also set a compensation amount comparable to the number of hours the attorney wants to work. If the choice is to move to half-time work, for example, compensation might be half the salary averaged over the last several years.
As to announcing the change, the firm will have to change its stationery and possibly the title on the door. But “other than those places,” don’t advertise it. To do so all but tells clients the partner “is over the hill” and no longer able to meet their needs.
Throw Out A Safety Net
The transition process and all the financial arrangements need to be spelled out in the partnership agreement, Henderson says.
Cover every aspect of the move. If the partner plans to assume an of-counsel position, say so, and lay out the working hours and the fees. Determine the overhead costs the new position will entail and tell what percentage of his or her own fees the partner will keep.
Then add a safety net. Put in a provision that the transition agreement will be reviewed every year by both the partner and the firm.
That gives the attorney to right to leave earlier than planned or even stay longer.
But more, it gives the firm the right to cut off the arrangement. It’s not unknown for a retired partner to “lose competence without realizing it,” Henderson says, leaving the firm “stuck with an of-counsel person who is a financial drain.” The clients could leave. Worse, the retired partner could subject the firm to malpractice claims. And without the review provision, that situation “could go on into perpetuity.”
There’s Also The Issue Of Staff
Finally, there’s the question of what to do with the partner’s staff.
Often a long-term attorney has long-term support staff as well. In the best of worlds, those employees can retire with the partner. But if that’s not an option, the firm has to place them with other attorneys.
That may not go smoothly, Henderson says. Long-term staff tend to be excessively loyal to their attorneys and often don’t adjust well to new bosses.
For that reason, their job changes need to be addressed well before the retirement so they know what to expect.