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Succession planning is a key challenge for all business. Lawyers are often involved in the process of succession with their own clients, yet incredibly still only 35% of firms who completed our 2017 survey have a documented succession plan.
Succession planning could be defined essentially as identifying and developing new leaders to replace leaders when they leave, retire or die. However in the context of legal firms it may also mean anything from sale of a sole practitioner practice to a merger of international legal firms. According to our survey respondents, the biggest challenges in succession planning are partners not wanting to hand over or partner candidates/younger professionals not wanting to step up. Not a great combination of hurdles.
Getting started on succession planning
Firms often know they should have a succession plan in place, but may not know where to start. To avoid a haphazard approach to succession planning, firms should consider the following:
- Make succession planning an integral business process by linking it to the firms’ overall business strategy. This will allow succession planning to affect the firm’s overall long term objectives and vision.
- Legal firms are complex and keeping them running and growing takes a unique set of technical, professional, client and leadership skills. It is easy for experienced practitioners to take these skills for granted and overlook the serious challenge they present to junior staff, especially in smaller firms. Therefore, if your succession plan involves progression of existing staff to leadership, you need procedures in place to identify and engage Junior Associates with potential. Firms that have specific, individual development plans for their staff will attract and retain the right people to take over the firm.
- If it is unlikely succession will come from within, firms should consider the factors which make them attractive to potential mergers or sale. These can include:
• Low staff turnover
• Long term client base as attached to the business as opposed to an individual partner
• High gross profit margins
• The impact of “goodwill”
• Ability to complement other law firms’ services
- Planning for life after partnership and making it part of the business strategy may assist when partners do not want to hand over. Firms may have a clearly defined role to refer to or an agreed consultancy role for retiring partners.
- An often overlooked area of succession planning is the legal structure. Firm structures should allow for ease of admission and exit of partners. It can often be difficult to change the structure of a firm and the consequences of a bad structure can be costly. The small business restructure rollover, introduced 1 July 2016 may allow small businesses to transfer active assets from one entity to one or more other entities without incurring an income tax liability.
With many equity partners now fast approaching retirement age, it is essential firms have a succession plan in place to prepare the next generation of management. Firms who do not have a documented succession plan should at least begin talking about succession planning and the future, either among themselves or with their junior associates. Leadership succession isn’t a matter of if, but when and while we can’t predict the future, documenting a succession plan can provide firms with a level of protection.
Download the full report here.