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The challenges of succession planning: nothing lasts forever
Practical Law UK Articles 4-630-2645 (Approx. 4 pages)
The challenges of succession planning: nothing lasts forever
by Barry Wilkinson, Wilkinson Read and Nicola Jones, Athena Professional
| Published on 30 Jun 2016 • United Kingdom |
Barry Wilkinson of Wilkinson Read and Nicola Jones of Athena Professional discuss the benefits of effective succession planning and the key factors to consider.
Commercial pressures on law firms are highlighting different aspects of business practice which, in the past, have not appeared all that relevant to the legal sector. Succession planning is one of those aspects. Traditionally, maintaining a law firm over time has meant securing continuity in a timely manner, with little expectation of change and every confidence that willing and well-funded successors awaited their moment. However, this approach is less appropriate in these financially challenging times.
Those same commercial pressures mean that managing partners have a wide array of issues competing for attention at the top of their priority lists, and it would be unusual to find succession planning at the top of that agenda. And yet, the consequences of failing to address succession planning adequately and in good time can be severe (see boxes "A sudden void" and "A slow decline").
Human and financial dynamics
Often, issues around retirement are made complex because of the human and financial dynamics of the situation. The retiree may be reluctant to withdraw from a professional life which has been his whole focus for decades, so he will want to go with good grace and dignity. Equally, he will wish to leave on advantageous financial terms, which might set him up for a bit of a fight. For those negotiating the exit, meeting both the human and monetary expectations of the retiree will require time, patience and great people skills.
Planning ahead makes the whole situation much easier to deal with, but every plan needs a purpose and that comes from a clear, well-communicated and understood strategy.
Clear strategy for the future
Every law firm should have a clear strategy for the future. Partners should regularly be asking: where will I, and the firm, be in five years' time? A crucial part of that vision is a clear idea of who will be leading the business, and who will need to be developing the skills to become leaders in the future. The business strategy should embrace both planned and unforeseen succession issues, focusing on the question: what is the cost to the business if there are no successors in place?
An attractive investment
All law firms need to be conscious that they are now not only in the market for clients, but also in the market for staff and for funding. When it comes to partner-level recruitment, it is not only the individual and his legal skills which need to be replaced. A partner's management skills, client relationships and contacts, and, by no means least, funding all have to be weighed in the balance. Part of managing a law firm successfully is making it attractive and viable for talented people to invest in.
Dealing with all eventualities
Just as contingency plans address potential crises or disasters, such as IT failure, fire or flood, so a law firm needs to protect itself against the eventuality of the loss of key people. If a senior partner is run over by a bus, the business still needs to continue. A succession plan enables the firm to identify critical roles and activities, and to identify whether it has the right talent ready to step in to maintain business continuity.
Getting everyone on board
Succession planning cannot be left solely to the senior and managing partners. It is particularly important to the junior partners because, if the succession goes wrong, they will be in the most exposed position. It need not be a lengthy or complex process: routinely including succession planning in business strategy discussions will take the sting out of issues and help set expectations.
Thinking ahead
Succession is an opportunity for change. It is important to ensure that the law firm has people with the right skills and attributes for the future, rather than equipping people to replicate the past. It is unlikely that these individuals will have the same balance of skills as the current and previous partners. In any event, each prospective partner should be encouraged to develop his own approach. Succession is an opportunity to review the structure and roles, and to create opportunities based on the skill sets of the people who remain.
It is, however, important to ensure that all of the necessary bases are covered. For example, in order to maintain income streams, key client relationships must be carefully transferred, and the dynamic between firm and client must be considered, not just the legal capability. Above all, the later that these issues are addressed, the more difficult it is to deal with succession successfully.
New factors
Succession planning has always been important, but there are several reasons why it is becoming increasingly key to maintaining a law firm's success:
- As the pace of change accelerates, the traditional approach of using highly structured, mechanistic, confidential, top-down succession schemes to grow and develop talent within law firms is too cumbersome and inflexible. A succession plan needs to be a live document which is updated in the light of, for example, changes in market needs or IT capability.
- As generation Y matures early, it expects a lot from the workplace, and workers in this generation are likely to move jobs more frequently than past generations. A job for life is a thing of the past. Using succession planning to provide opportunity and promotions based on ability, rather than time served, is likely to attract and retain the brightest and best people.
- The economic downturn and delayed retirements mean that a tier of senior practitioners will be exiting the profession over the next ten years, which will have a knock-on effect on the structure of many law firms. Law firms need to be prepared for the financial, personal and professional dynamics of retirement.
- A maverick partner might bring in the fees, but his strong personality may upset other individuals working at the law firm. The ability to tackle poor performance of this kind depends on having confidence that the firm can do without that person if need be.
Being part of a bigger story
Succession planning is a key aspect of people management which can provide excellent opportunities for creating business change and growth. In an increasingly dynamic recruitment market it is critical to be able to develop internal capacity, retain high-flyers (or attract them back if they move on) and, above all, to be alive to the possibilities for shaping the business over time. Succession planning needs to be part of a proactive, strategy-led approach to business. No one wants to feel dispensable: lawyers need to feel that they are part of a bigger story. Each individual makes a contribution and tries to belong, but the story will continue with or without them.
Barry Wilkinson is the founder of Wilkinson Read, and Nicola Jones is a co-founder and director of Athena Professional.
A sudden void
A small but profitable law firm had three partners aged about 60, and 20 staff. One partner wanted to retire, while the other two intended to carry on. Little thought had gone into succession planning. Unfortunately, a few weeks after the first partner retired, one of the other two died suddenly, leaving the other in sole charge without adequate support. This made the firm an unattractive proposition to potential equity partners. There were no internal successors willing or able to step up, and a year later the firm had to close down. Almost all of the staff lost their jobs, and the remaining partner had to fund the closure costs, which included a substantial professional indemnity insurance run-off premium.
A slow decline
A successful law firm had ten partners earning well above benchmark profits, who allowed the senior partner to take on the whole of the management role. However, four partners approached retirement age at the same time. Unsurprisingly, in this period there was very little appetite for investment, as those partners were more concerned with preserving and extracting from the capital accounts than with building the firm for the future.
The senior partner had performed admirably and shielded the others from the management burden, while making the role appear straightforward. So when he left, his successors were unprepared for the task of management. The senior partner role passed to the longest serving colleague, who was uninterested in management. This left a vacuum in leadership and management, which was eventually filled by one of the younger partners, but not before significant damage was done. Four of the partners then left. The firm managed to repay the capital but this severely weakened the balance sheet, which prevented investment.
Unfortunately, the remaining partners retained tight control, leaving the new generation frustrated. The firm was increasingly appearing to be behind the times and it became difficult to recruit at the right level. The firm is now downsizing significantly, with adverse consequences for partners and staff. Ironically, the original partners who failed to plan have been left largely unscathed.