Question:

I am the owner of a 16 lawyer litigation firm in San Diego, California. There are 6 non-equity partners and 9 associates. I am 65 and hoping to retire in the next five years. I am planning on offering equity to two non-equity partners next year and possibly offering equity to other non-equity partners in the next few years. In addition to working out the financial arrangements and partnership structure issues that are typically documented in a partnership agreement, what sort of transitional issues should I be concerned about and plan for. Your advice is appreciated.

Response: 

Transitional work typically falls into three general categories:

  1. Legal (lawyering) skills
  2. Client and Referral Sources
  3. Firm Management

Legal Skills

Frequently this is a major issue that requires attention in small sole owner/founder firms. There are no other lawyers in the firm with the legal skills that the owner has and will be required for the firm to be successful in the future. For example, I have worked with some litigation firms where the other attorneys in the firm (associates and non-equity partners) have not ever tried a case. In such situations several years of training and development in this area will be required and seasoned laterals may have to be hired or the firm sold or merged with another firm. In your case since you have several non-equity partners on board I assume that they are seasoned lawyers and this is not an issue at your firm. If this is the case there be no to little transitional time needed in this area.

Client and Referral Sources

This is an area of concern for most firms. Typically, the firm owner/founder has brought in most, if not all, of the client business into the firm and he or she controls the clients and the relationships with clients and referral sources. In these firms if the owner/founder were to leave the firm abruptly it is questionable whether the firm could survive after the owner/founder is no longer there. If this is your situation you will need to begin a focused and planned transition with specific clients and referral sources, tasks, timelines, and assigned lawyers. How long this will take will be dependent upon the number of clients, number of relationships that you have within the client organization for institutional clients, and the number of referral sources that you have that send the firm business.

Law Firm Management

Law schools do not train lawyers in management. Highly competent attorneys do not necessarily make good managing partners or lawyer managers. Some of the best lawyers are the worst managers. It has been my  experience that lawyers who are “loners” have traditionally been poor managers. You are going to have to decide who will be good manager, or managers, and begin training and transitioning appropriate functions over to them.

The following are recommended areas in which the management skills should be developed:

  1. Client relations, including origination, development and retention.
  2. Acceptance of new clients and matters and the management of performance of legal work in substantive practice areas and sub-specialties.
  3. Associate recruitment, training and development of a personal and professional nature, promotion, evaluation and compensation and termination.
  4. Administrative staff organization, relationships and utilization.
  5. Financial management including budgeting for revenue, expenses, capital expenditures; billings and collections; financial and variance reporting and utilization of resultant financial data and management information to manage and run the firm.
  6. Technology including computers, software, other equipment and technical support from non-lawyer specialists.
  7. Leases, space utilization, negotiations and construction.

Techniques for Developing Skills

On-the-job-training is the most effective technique for developing and refining the management skills that will be required.

I suggest that your develop a transition project plan in Excel with a breakout of tasks, responsibility for accomplishment, start date, and end date under the following broad categories:

Legal skills
Client and Referral Source
Firm Management

Under the client and referral source category each client/referral source contact should be listed.

You should also begin bringing other lawyers into your cases in order the your clients can experience working with them. Assign them as co-responsible attorneys on cases and gradually have them be responsible for billing and communications with your clients.

Click here for our blog on succession/exit strategies

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

The post Law Firm Succession Planning and Transitional Work appeared first on Olmstead and Associates.