Among the many ways the Great Recession has made a major impact on law firms is to accelerate the use of de-equitization: the de-facto termination of older partners who may have high billing rates but who bring in less business than their fellow partners. Times of crisis have led many firms to take this step. But de-equitization spotlights a broader issue for the full legal profession, namely the fact that an entire generation of lawyers is moving toward retirement age.
Karen Mathis, when chair of the American Bar Association several years ago, focused her leadership year on developing a new awareness for the legal profession regarding the implications of the aging population. She often emphasized that 400,000 lawyers will likely retire in the next 10 years. That’s equivalent to the entire current membership of the ABA, the largest volunteer organization in the world. Granted, the recession’s impact on retirement savings has led some lawyers to conclude that they must continue practicing past the age they planned to retire. But no lawyer is immortal, and the aging of the legal profession will eventually make large law firms and smaller firms face two entirely different sets of challenges.
Big Firm Challenges
In some large firms, until the de-equitization push began in earnest, aging lawyers were not seen as too much of a problem. The older lawyer simply received the designation of “special counsel” or “emeritus partner,” and another lawyer in the firm took over the client list. But even before the recession, this process was changing. A study several years ago by the Altman Weil consulting firm showed that the closer to retirement a lawyer gets, the more likely he or she is to oppose mandatory retirement ages. Interviews with a number of aging lawyers suggests that they don’t want to retire, but they do want to work only part-time and they no longer (if they ever did) want to be responsible for rainmaking. This raises two concerns: how, on the one hand, firms should transition clients away from these senior lawyers, and how, on the other, they can protect themselves if the older partners choose to fight being eased out the door.
Client Transitioning
Typically, the next generation of lawyers has been accustomed to inheriting business from senior rainmakers and has not adequately developed marketing skills. For older partners at law firms where compensation is based on individual performance only, the business development credo often leads them to refuse to share information about clients or prospects with the next-generation lawyer who might “steal” business before the first attorney is ready to step away from active practice. The client service team concept, with the rainmaker still involved as team coordinator, is one way to avoid this problem. Another is to offer senior lawyers a buyout or capital payout in exchange for sharing clients with younger lawyers. Either way, senior lawyers would remain engaged in the business, but without the fear of financial loss. The firm and clients benefit from a planned transition.
A client relationship management (CRM) database can facilitate either form of transition. A CRM database centralizes a firm's collective knowledge, wisdom and experience about clients and prospects, and makes it available to all authorized users. CRM contact records of rainmakers can be used to develop cross-selling opportunities among younger lawyers according to an overall firm strategic plan, with opportunities targeted to individual lawyer plans. Relationship information that might have been hidden away in the retiring rainmaker’s files becomes the foundation for a smooth transition.
Litigation Risk
It is inevitable, however, that some senior lawyers will resist this process. These lawyers were added to the partnership because the firm had a strategic vision at some point for the clients that the partner could draw. Such partners who are de-equitized or otherwise forced into retirement have likely earned good money during their time with the firm, but they will face many hard questions. Did they save enough to be independent or did their standard of living increase over the years to match their income? What severance package did they receive? Will their egos be able to gracefully handle the psychological impact of being told “you're no longer wanted here?”
If the answers to such questions are negative, firms must prepare for the possibility of litigation.
There have already been successful age discrimination actions against law firms. In the most highly publicized one several years ago, the EEOC accused Sidley Austin of firing a group of older lawyers strictly on the basis of their age. The firm contended that its action was based on decreased productivity, but still agreed to a reported $27 million settlement with the dismissed lawyers. More recently however the U.S. Supreme Court, in its 2009 Gross v. FBL Financial Services, Inc. decision, said that the burden of proving age discrimination lies solely with the plaintiff. In previous cases, the plaintiff merely had to prove that age was a factor, and then the employer had to show that there were legitimate reasons for the termination. The Gross ruling suggests that older partners who have been terminated or demoted will have less room to claim discriminatory intent on the basis of age.
Humane Alternatives
Is there a way to handle the dilemma more humanely? One firm, Wilmer Hale, has been among the many that have asked more senior lawyers to seek employment elsewhere. But this is actually a part of a career counseling program that the firm has had for several years that involves a series of mentoring meetings with underperforming older lawyers to tell them whether they are meeting firm performance standards, and to give them opportunities to upgrade their skills or prepare them for departure. Other firms have created an alumni club of retired partners similar to the formal alumni of associates created by some larger firms, and have found these groups are good networking and referral sources for future business. Such efforts typify the solutions that larger firms must consider.
Small Firm Issues
The issues are different for lawyers in smaller firms or solo practices. Older lawyers in these contexts should plan for transitioning their practice well before the necessity is forced by age or ill health. Failure to plan for how clients will be taken care of as a lawyer approaches the age of retirement can, according to some authorities, be construed as reckless disregard for client welfare – a true ethical violation. Such concerns are behind the proposal now before the State Bar of California that would compel lawyers to have an “estate plan for the law practice” providing for succession in the event of a lawyer’s death or disability.
Sale or Succession?
For the small firm, and especially the sole practitioner, selling a law practice to another qualified lawyer can alleviate a host of problems associated with an aging partner or partners. Not only do the buying and selling lawyers benefit, but the clients also benefit when they are smoothly transitioned to receive competent representation from a qualified buyer. Lawyers shouldn’t have to quit their practice and warehouse themselves until they die. They should be treated as every other profession and business. There are safeguards already built into the system to protect clients in the event of a sale. With proper planning, sale of a practice is a win-win proposition for all concerned.
Transitioning out of a legal practice is above all an issue of planning. If the practice is not sold or closed, the best alternative is grooming a successor brought on board as an associate or a lateral partner. Ideally, the succession plan can be structured to transition over a period of up to five years, as client responsibilities gradually transition to the new lawyer. These five years can be seen as the “red zone” of the senior lawyer’s career – the area right before reaching the goal line of retirement. During this period, the lawyer can identify a successor, have ongoing conversations with key clients about the upcoming transition, forge new ties between the successor and both current and new contacts at the client, and ensure that the new lawyer is completely up to speed on what the client needs and expects.
Avoiding Risks
Either the sale of a practice or transition to a younger successor is the best way to avoid one of the most insidious aging problems in a small firm. This is the danger that aging lawyers or lawyers committed to closing their practices may emotionally leave their clients long before they close their doors. This can result in less effective representation well before the lawyer retires. A related problem is that such lawyers may also be behind the curve technologically – whether by not having kept their office technology current, or even to the point of not using email or not keeping electronic files of client records. Whether through disinterest or obsolescence, such aging lawyers are failing to meet the necessary standard of care, and that is considered malpractice in any jurisdiction.
Why take such a risk? To repeat, lawyers are not immortal. Older lawyers who continue to apply the client service lessons presumably learned throughout their careers, and who keep up with evolving professional rules and trends through continuing legal education, should not automatically feel that reaching a particular age requires them to retire. However, at some point any lawyer must confront the issue of transitioning the practice to others. After investing years of hard work and financial resources in growing the practice and building goodwill, why forego the opportunity to reap the benefits of that investment? The short sighted viewpoint is that succession planning is more bother than it is worth, and that the better course is to stay in practice and “die your boots on.” A planned sale or transition of a practice is far preferable, because it allows lawyers to spend the final years of their lives enjoying the fruits of their labor as they choose. That’s the kind of wisdom that comes with age.
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