Stell: Setting the Stage for Next-Generation Law Firm Ownership

Nothing hinders the growth of law firms more than owners who won’t allow associates or non-equity partners to move into roles of law firm ownership. Is your firm suffering from this condition?

The Cost of Replacing an Associate

There are many studies that project the cost of replacing employees. A 2017 NALP Update on Associate Attrition reports the costs of replacing an associate as between $200,000 and $500,000. That may sound like a lot of money to replace an associate making $75,000 annually, but the scenario below probably sounds familiar.

Once the associate announces they are leaving, the office manager posts the job on LinkedIn, Indeed, and law school job posting websites. Once the laborious work of collecting and reviewing resumes results in narrowing the search to a few top candidates, interviews begin. Depending on your firm’s hiring process, the candidate may meet with the firm owner, the attorney running the team where the associate will work, along with some of the other partners who are concerned with new hires being a good cultural fit. It is not uncommon for the interview process to last several months while trying to accommodate schedules. Once the firm selects their candidate, the new hire usually needs to provide at least two weeks’ notice. After their start date, allow at least 6-12 months before a new team member is acclimated to the law firm and fully busy with billable work.

It’s not hard to see how much lost revenue the firm accumulates during this time.

Why Delaying Retirement Stagnates Law Firm Growth

Many partners are convinced that their turnover has to do with higher salaries down the street rather than what is happening in their own firm. When you have hired an excellent associate, trained, and nurtured them, it can be difficult to see them leave. It can also leave a bitter taste at the thought of going through that time-intensive process again. 

Time after time I’ve asked leaving associates and non-equity partners why they left. It’s less often for the new salary than it is that they cannot see a future for themselves in the firm. The owner(s) simply won’t let anyone else in the ownership rank. While you as the firm owner may say to yourself that you are hiring and training the firm’s next generation leadership and ownership, that’s not the message you project. From the associate’s perspective looking in, the view is clear – the firm is yours; the decisions are yours, and the clients are yours. When you decide to let go is a decision made by you at the time you are ready to make it. 

I get it. You worked hard to be in that position. But it is completely unrealistic to think that the next generation of law firm owners is going to be content to wait forty years to have a voice. The flip side of that coin is that often the lawyers who self-select to remain associates or non-equity partners have made a lifestyle decision that works for them. When you decide in October that you will retire in December and you look to the twenty-year non-equity partner, they have no interest in taking over the firm. You have lawyers to serve the clients, but those lawyers aren’t prepared for a path to equity partnership because you were clear by your actions that you weren’t looking for equity partners.

Transitioning Ownership

It is a different process to hire your next-generation owner than it is to hire associates who may or may not stay with the firm. Hiring next-generation owners means talking about their goals and career path from the beginning of the hiring process and throughout their career development. 

Today’s lawyers are looking for clear steps to ownership. Developing a plan, with defined milestones and clear expectations will go a long way in ensuring your associates remain loyal to the firm. Continued conversations about their development and career goals, along with your input on timeline for ownership helps manage everyone’s expectations.

Plan Your Exit Strategy

Many law firms make the mistake of never discussing retirement or succession until a named partner gets close to what some in the firm would consider “retirement age”. If you wait for this to happen, the discussion is always personal. It’s not about creating a succession plan for the firm; the discussion becomes centered around when the named partner is stepping back.

A likely next step in the conversation is for the senior partner to talk about a 5-7 year “wind-down” while in fact, the other partners think the past few years have been your “wind-down”. You’ve already lessened your workload and billable hours, yet you continue to remain in the largest office and use the most support staff keeping overhead high while your revenues are decreasing.

As you have likely seen for yourself, there is no easy way to address this topic.

Prepare for Life after Law

When I can talk with senior partners about what succession planning or retirement looks like for them, I tell them it’s easier to move towards something than to leave something precious behind. Your firm that you built from the ground up is precious to you. It has provided for you and your family. It has given you meaning, purpose, and relevance. It has provided a livelihood for your employees and has changed the lives of countless clients across decades. Of course, it is hard to walk away.

Because of the work and sweat equity you put into building the firm, you may not have had time for hobbies or outside interests. Your friend circle may consist of your work colleagues and your professional friends. What will you do every day if you don’t go to the office – perhaps the same office you have been going to almost every day for forty years?

As you dare to consider life after law, begin to examine new opportunities. As a lawyer, you are probably well-known and well-respected in your community. There are many boards or community organizations that are looking for motivated board members. Teaching and mentoring may be a part of the job that you loved, how about exploring how to use those skills in a different educational setting such as middle school or high school kids.

Perhaps it’s time for you to become a student again. The Osher Lifelong Learning Institute (OLLI) offers classes in universities across the state for adults who are interested in learning for the joy of learning without exams or grades. UNC-Asheville offers a weekend program that attracts attendees from across the country, the Creative Retirement Exploration Weekend (CREW), as well as Paths to Creative Retirement. My husband and I participated in the Paths to Creative Retirement program at the suggestion of Hank Teich, a lawyer with Grimes, Teich & Anderson in Asheville. We had a great experience with about twenty other attendees who were ready to explore their next act.

Many of you have heard me say that the book Designing Your Life: How to Build a Well Lived Joyful Life by Bill Burnett and Dave Evans was a great help to me as I explored my transition into succession planning, law firm compensation, and path to partnership consulting.

Exploring new paths is challenging. We aren’t always sure where the path will lead or what is around each new corner. But planning for retirement will make the chances much greater that no matter where you end up, you will enjoy the journey.

Resources

Creative Retirement Exploration Weekend – Osher Lifelong Learning Institute (unca.edu)

Paths to Creative Retirement – Osher Lifelong Learning Institute (unca.edu)

Younger Next Year – Turn back your biological clock

Home – Designing Your Life

Camille Stell is the President of Lawyers Mutual Consulting & Services and the co-author of the book, RESPECT – An Insight to Attorney Compensation Plans available from Amazon. Continue this conversation by contacting Camille at camille@lawyersmutualconsulting.com or 800.662.8843.