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Keys to the Succession Process: A Success Story

By Linda R. Walker

The best approach involves properly choosing and grooming your successor and working diligently together to effect a smooth outcome.

Four years ago I was approached by a former client to help with his succession planning. John Donewel* was the owner of a small, successful litigation practice. In addition to several employees, there was a contract attorney, Jane Wright, who had worked for his office during the prior eight years. Jane was his chosen successor. They shared similar values, work styles, ethics and senses of humor, as well as a healthy mutual respect. In all of these ways, it was a good choice.

It was also a good choice from a business perspective. Jane had an entrepreneurial spirit and could readily see herself running a law practice. Although her managerial and rainmaking skills were yet untested, she was extremely bright and accomplished, boding well for practice development and office management. Perhaps most importantly, she was excited by the proposal and eager to enter into discussions and negotiate a contract.

Because his buyout payments were to be primarily through future earnings, it was critically important to John that Jane become a proficient rainmaker. That was why John asked me to speak with her.

Jane and I began working together on practice development. In addition to how she would build additional client relationships, we spoke about the transition in general and, in particular, how the firm would retain its existing clients during and after the transition years.

I suggested that she and John meet on a weekly basis specifically to discuss the transition. Decisions regarding the announcement of her joining the firm as a partner, modifications to the original contract, staff training and oversight, contact with existing clients, and even who would take the lead on specific litigation cases, were made during these meetings.

Half-day meetings were held with John, Jane, the office manager and myself. Practice development, personnel issues, finances and marketing were all discussed. Significant decisions were made as the firm expanded into additional related practice areas and considered the possibility of bringing in another senior attorney. Changes to personnel were made. Lunches with clients and referral sources were calendared. Augmentation of the firm Web site also gave Jane a larger public presence. In all of these activities, the emphasis was on John and Jane working and appearing together.

Even with the best of planning, of course, the future will hold some surprises. Personal changes as well as an economic recession were both unexpected. There were some setbacks but coupled with glorious successes. Because the partnership was originally based on an open, mutually respectful relationship, the challenges have been weathered well. Jane has grown into the role of managing partner, John is taking significant vacation time, and clients are extremely comfortable working with either of the partners.

Lessons to Take Away

Succession planning is not easy to do well. John and Jane are a success story. What can we learn from their experience?

• Choose wisely the future owner of your law firm.

Jane was an attorney who had been practicing in the firm for years. She knew the work, the clients and the partner. The fact that she was a contract attorney is of significance. An associate will also know the work and the clients, but not all associates are good candidates for ownership. One needs to be both an entrepreneur and a risk taker. Many employees do best remaining employees.

• Develop a five-year transition plan.

John planned on a five-year transition period, working approximately 12 percent less each year. Unfortunately, many attorneys approaching retirement wait until they are beyond ready to leave the practice of law before attempting to find a successor. The more lead time there is, the greater the chance for success. Because the value of a practice is based in large part on the goodwill of the practice, the more transferable that goodwill is, the greater its value. Logically, the more years there are for the senior partner to transfer goodwill, the greater client retention will be.

• Hire and utilize outside help and resources.

It is important to seek the assistance of experts and utilize existing resources. Resources might include someone to appraise the practice, a consultant with expertise in transitioning lawyers, an attorney to draft the contract, a negotiator, an insurance broker for tail insurance or your state bar association PMA.

• Remember that rules of professional conduct vary by state

California became the first state to permit the sale of a law firm in 1989. (California Rule 2-300) In 1991, the American Bar Association altered its opposition and added Model Rule 1.17 to the ABA Model Rules of Professional Conduct. It is critical to review your state rules; not all states permit the sale of a law practice.

• Develop a well-written contract, ideally drafted by someone with contract expertise.

The contract between Jane and John obviously included detailed financial agreements. Fortunately, it also spelled out many of the conditions that they had verbally agreed on. For example, the gradual reduction in John’s hours was included in the contract—as were the conditions for his possible continued involvement on an of-counsel basis.

• Seek a readiness to sell and to buy.

Both parties wanted the same thing. John wanted to sell the practice and Jane wanted to buy it. As simple as this sounds, many lawyers enter into negotiations—even protracted relationships—but are not psychologically prepared to either buy or to sell a practice. Money is often the decisive factor in the sale of a practice. However, being psychologically prepared to buy or sell is often an even more critical component. Unfortunately, this willingness can be difficult to address, as it might not be readily apparent even to the lawyers themselves.

• Seek parties who are realistic, supportive and committed.

John was very realistic in his expectations and extremely helpful in providing support as Jane grew into the role of partner. Jane was very respectful of John’s reduced involvement in the firm. They both worked diligently to make the transition successful.

For John, succession planning was monetarily rewarding and gratifying as he witnessed his life’s work continuing. Jane was able to realize her dream of owning a law practice. Staff and clients also benefited from this smooth transition. The right circumstances, planning ahead and hard work made for a successful succession process.

* All names have been changed to protect individuals’ privacy and identity

About the Author

Linda R. Walker, MBA, has worked with attorneys in transition for over 20 years. Additional information can be found at www.attorneyconsultant.info.