Tag Archives: new partners

Some Learning for New Partners – Beyond the Obvious

I have just spent the weekend with a smallish firm about to introduce three new partners. These people are currently associates with the firm and have been employed by the firm for several years.

We spoke about the obvious things that new business owners need to be aware of but there are some things that this firm and others I encounter seem to take for granted. These are a few:

Profitability

It is not unusual for firms to look at ‘controlled fees’ (individual billings plus referred fees) as a measure of financial performance. It may indeed be one of the most important hurdles to partnership in some firms. I accept that gross fees solve a lot of problems but profitability must surly be the main game. Measuring and perhaps rewarding controlled fees alone ignores the cost of generating the fees. It may be the case that partners with fewer controlled fees in fact contribute more profit to the firm.

Increasingly, better firms are using profitability as a measure of financial contribution. Incoming partners should be taught how to structure their team in accordance with the profit goals of the partnership.

There are several components to the management of profitability, some beyond the control of many partners – e.g., long-standing occupancy arrangements, IT infrastructure and fixed shared services expenses (HR, accounting, practice development professionals to name a few) – but there are two directly controllable factors that partners should be accountable for.

The first is input relative to fixed cost; specifically, recoverable charged work (regardless of pricing strategy). Most practice overheads are fixed. They don’t vary with production. It follows that the most productive lawyers, those who do and recover the most chargeable time (or gross fees in non-time-based firms) per day, week, month and year, will be the most profitable. No surprises here, I imagine.

The second controllable factor involves the structuring of employed lawyers within the team. Within a fixed-cost environment that is gradually moving towards a fixed-priced environment, the structure of a partner’s team – senior lawyers relative to more junior lawyers – will significantly impact profitability (its basic labour arbitrage).

Constantly improving the client experience

New partners should understand how to delight a client. They should understand that expertise might land them a gig but expertise alone won’t, in the main, build an enduring relationship.

Would that it were as simple as ‘build the best mousetrap and the world will beat a path to your door’. Better mousetraps are being built on a daily basis with the aid of technologies like AI. Building and maintaining outstanding relationships with clients (start by actually caring about them as people, not just clients with a problem) will remain a differentiator.

The brightest and the best will always do well, I suspect, but they’ll do better if they are actually likeable as well.

Leadership for a new generation of lawyers

Many new partners find themselves having to lead and engage people who, until recently, were their contemporaries. In the future they will be leading a new generation with potentially different wants, needs and expectations.

Incoming partners should be open to new learning on leadership, self-awareness and the skills necessary for the engagement of employees. This information is available, accessible and in abundance for those who care enough about these critical skills.

Being a good partner

Partnerships develop their own unique culture either through managed intervention or organically. Some are more supportive and others more competitive. Incoming partners should be mentored through the ‘how to behave without pissing people off’ process. This is far preferable to the traditional ‘throw them in the deep end and see how they go’ method.

Firms may define ‘good citizenship’ differently, but in my experience incoming partners should know that they will be judged by the incumbents (perhaps over a relatively short time frame) and what they could consider if they want to gain the enduring respect of their partners.

Being a ‘good partner’ starts with ‘Do unto others…’. Beyond this sensible element of success, three manageable actions spring to mind: firstly, support for individuals and support of management; secondly, maintaining great communication with all partners; and thirdly, looking for opportunities to share client relationships.

I would counsel senior partners against assuming that these behavioural traits are obvious to or even considered by incoming partners, let alone considered necessary. As partnerships evolve to include three generations (Boomers, X and Y), you will probably experience different attitudes to that which may be seen by seasoned players as simply common sense.

The long game

Let’s start with the obvious. New partners should understand that they have just commenced a reasonably long journey, not arrived at their goal destination. Sustained success will, more than likely, involve career-long learning, embracing innovative technologies while maintaining professional brand. Most people get this, but I wanted to restate it. It’s important.

New partners should be encouraged to plan. Plan for the business, plan for their work group and plan personally. I have observed law firm partners for 30 years. Those who enjoy success with life style balance, good health and every prospect of a long enjoyable life after law generally planned it that way. It didn’t take care of itself.

Successful Succession

As has been predicted for a while now, the legal profession is undergoing a significant transfer of ownership and clients from one generation to the next. This is happening whilst the pressures arising from the oft discussed ‘new law’ models make their presence felt.

Many ageing lawyers look blankly when asked about their succession plan. Given the demographics, it’s fairly obvious that small firm lawyers who fail to plan for their succession are likely to find themselves confronting a very crowded marketplace when eventually they are ready to test the market.

Equally, it’s highly likely that younger lawyers may be apprehensive about parting with good money to buy an interest in a firm. Many younger lawyers are already saddled with university debt, and have young families to support and substantial mortgages to service.

Successful succession requires careful and unhurried planning for the transition of clients from one generation to the next and the transition of firm management to a new generation, coupled with the associated transition of equity and the financial machinations that come with it.

Options for Small Firms

Anecdotally, discussion about succession issues in small firms is more difficult than in larger ones, as succession has a much more personal focus. As a result, discussions about principal intentions are often delayed or avoided, resulting in a less than satisfactory transition for all parties. If succession within the firm is not realistic, there may be other options worth considering.

Sell the Practice

Well managed, profitable, organised law firms with repeat clients are worth real money. With organic growth proving to be difficult, many firms are looking to grow by merging with or acquiring complementary practices.

Practices considering selling their equity externally would benefit from conducting an “operational due diligence” to identify what needs to be done to maximise the sale price.  Small practices seeking an eventual sale would do well to focus on:

  • developing a track record of annually increasing profitability;
  • ensuring that as much legal work as possible is systemized and process driven, and where possible delegated to employed fee earners;
  • having robust management accounts as well as an up-to-date and accurate client data base;
  • repeat clients who can be readily transferred to a nominated successor or new owner of the practice.

Devolving Equity

Instead of waiting until retirement is imminent, another course of action is to implement a staged sale of equity over a number of years.  A price is struck and the sale takes place as equity is transferred. This approach benefits both the vendor and purchaser as it enables, among other things, a smooth transition of roles and responsibilities, certainty for clients, and easier payment terms for the purchaser. The options are many and various and limited only by the creativity of the participating practitioners.

Options for Larger Firms

For larger practices with a number of partners that haven’t yet established a formal succession model, a sensible starting point is to identify when senior practitioners and managers are likely to retire. This will at least set a timetable for discussions and identify when and in which practice areas the firm may be exposed. These gaps can then be translated into a plan that addresses the firm and individual approach, and hopefully leads to a well-managed transition.

Set an age to begin discussions

The first step is to set an age – say 58 years – when the firm will begin work with a partner to develop a plan for the eventual succession.  By developing a firm-wide succession plan, an individual principal need not feel threatened – after all, it is firm policy and everyone is subject to it.

Equally, there is no reason for the plan to spell the end of a principal’s working life. The plan is in place should they decide to depart; if they decide to stay, then the net result will be better trained and more productive junior lawyers.

The best outcomes are achieved if there is a minimum of several years, and sometimes as long as five years, of preparation.

Developing Successors from Within

At its most basic level, an effective succession plan should address six key areas:

  • Technical expertise and range of specialties offered
  • Client retention
  • New business development
  • Firm and departmental management
  • Profitability and cash flow
  • Options for the departing partner

The transition of clients from one generation to the next is not an individual responsibility but a firm responsibility, as clients should be thought of as clients of the firm, not clients of the individual lawyer.

Many practices are complacent regarding the relationship between the responsible lawyer and the client. As such, it is common that the only person with information regarding the client is the responsible lawyer. This makes transition difficult and a ‘my client’ culture can develop.

Conclusion

Successful succession will involve the firm’s ability to develop a plan for retiring partners and develop the skill sets of the existing personnel. For those lawyers who don’t consider a structured internal succession plan as feasible, there are a number of external succession options such as selling the firm, the chambers practice model, or the outsourcing of management.  Any of these options may make the transition to retirement easier.

As is said so often, failing to plan is planning for failure, and this applies particularly in the succession of law firms.