May 12, 2021
Overview
Forging relationships and building expertise are the life force of nearly every business. Yet, for those companies that fail to prepare, the retirement or exit of a key employee can see that energy quickly dissipate.
The issue has grown even more acute for many organizations as baby boomers head into retirement — a trend accelerated by the COVID-19 pandemic — and especially for law firms.
“Lawyers build their revenue on people relationships and client service,” says George J. Wolf, Jr., Managing Director, Law Firm Advisory Team – Professional Services Practice at Aon. “Whether you’re a small firm or a large firm serving institutional clients, there has to be a relationship between the lawyer and the corporate decision-maker. Protecting relationships means eventually passing them on with care and intention.”
Developing an organization’s future leaders and guiding smooth transition of client relationships are the essence of succession planning. As client demographics and expectations change, law firms are learning to approach succession planning strategically and consistently. And these lessons can be valuable for any business that counts client relationships among its most important assets.
In Depth
A survey of midsize U.S. law firms found that just 40 percent felt prepared to deal with the retirement and succession of partners, and only 37 percent had a formal succession plan in place or were in the process of creating one. Significantly, about one-third of the equity partners at the firms surveyed were at retirement age.
“Midsized firms and smaller firms are facing the baby boomer challenge,” says Wolf. “And as demographics like age, race and gender shift in their corporate client base, firms are asking, ‘Do we reflect the clients we serve?’”
“Succession planning is important for the long-term stability of a law firm and to its clients,” Wolf says. “When lawyers decide to retire, ideally they have spent a number of years transitioning their relationships and expertise to younger lawyers within their firm. That’s succession planning, pure and simple.”
Here are a few things law firms have learned about doing succession planning well.
Leadership Development
For law firms and other businesses, a key part of succession planning is developing the next generation of leaders. Constructive feedback plays an important role in this process.
“It’s about communicating with individuals and speaking honestly about their potential, their future, their opportunities, and how we can support them on that journey,” says Scott Fisher, managing partner of U.S. law firm Neal Gerber Eisenberg. “Likewise for areas of improvement.”
Businesses that are successful in succession planning will give responsibility to younger employees and watch future leaders “self-select,” says Wolf.
“You cannot just say, ‘We’re going to grow leaders,’ ” Wolf says. “You have to give potential leaders real responsibility and allow them to make mistakes. Watch the leaders emerge. They will self-identify, and you have to give them the opportunity.”
And it’s important to remember: Technical expertise is not always a steppingstone to leadership. “Not every good lawyer will make a good leader for the firm,” Fisher says. “Leadership qualities extend beyond subject knowledge and skill, into personal characteristics and values.”
A Structured Approach
Some firms regularly conduct succession-planning exercises, identifying individuals in the organization who might be well-suited for particular leadership positions. Fisher says his firm does this at the board level.
“During the pandemic, I identified all of the leadership positions within the firm and set the executive committee on an exercise to match candidates to the roles,” says Fisher. “The guidelines were very clear: think long term, not necessarily who would be ready tomorrow; think of characteristics, not just who has the biggest book of business; and be mindful of your own biases. Challenge your stereotypes.”
Formal mentor relationships between current and potential future leaders can help prepare younger employees for a role in an organization’s succession. Such an approach can also provide an opportunity to engage employees who belong to groups underrepresented in current leadership, driving greater diversity and building stronger businesses.
Fisher says his firm introduced an informal “business pod” arrangement, matching a few up-and-coming leaders with members of the executive committee for informal 30-minute meetings to work on business development skills, troubleshoot real challenges and build better relationships.
“Clear facts and perfect scenarios are not representative of real business, so grasping the challenges and handling risks responsibly is absolutely critical to developing these leadership skills,” says Fisher. “Younger associates haven’t had 15 years to learn from their experiences. This exposure to the real world and access to support is vital to prepare the next wave of leaders to navigate confidently when their time comes.”
Change Management
Succession planning may mean asking successful lawyers to leave their practice behind to focus on the business side for the good of the firm. That kind of change in identity is scary on a human level, Wolf says, and goes best when firms acknowledge that and offer support throughout.
Effective succession planning also requires a “we” versus “me” mentality that sees individuals focusing on what’s best for the firm. Law firm compensation has historically heaped the highest rewards on rainmakers — lawyers who bring in many clients to the firm — in a process that creates obstacles to embracing “we” thinking, says Wolf. The challenge today is designing rewards that recognize everyone’s contributions. Wolf says some firms are rethinking their compensation programs to offer security to lawyers who trade in their book of corporate clients for just one: the firm itself.
A Commitment to the Future
Succession planning requires a commitment to preparing for a transition to the next generation of an organization’s leadership. It should be part of the organization’s culture, starting at onboarding.
At law firms, for example, “You need to start your process from the day your lawyers walk in the door as first-year associates. You want them to embrace the firm, the values and the firm culture, and think of the firm before themselves,” says Wolf. “The ‘we’ mentality as opposed to the ‘me’ mentality.”
The development of new leaders can improve the leadership diversity — at law firms and across industries — strengthening the business and helping it reflect a changing client base.
“You’ll know the people who are emerging as leaders because colleagues are getting in line behind them. They’re energetic, they have great ideas and they’re diverse, which is a wonderful thing,” Wolf says. “Good succession planning broadens the gate for leadership opportunity for all, and organizations that prepare and groom leaders early stand to benefit.”
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