Effective retirement transition planning is an investment in sustainability. The firm that has no retirement succession program risks losing younger partners to competitor firms that do. It’s also vulnerable to competitors looking to disrupt older partners’ relationships with their clients. Designing and executing a succession program takes effort and expense. It’s easy to put other revenue-growth initiatives ahead of retirement succession. But over time, the attrition of lucrative client relationships and productive younger partners inevitably erodes growth. There are lots of reasons for growth erosion that cannot be readily controlled. Loss of revenue from retiring partners should not be one of them.
Younger partners often complain about the pressure on them created by older partner retirements. Suppose that in a 200-lawyer firm with 40 capital partners and annual revenue of $150 million, one senior partner with $3.75 million in business retires every year – a 2.5% loss of gross income. Younger partners must grow their business by this amount each year just to keep profits unchanged. With Baby Boomer partners reaching retirement age in droves, it isn’t inconceivable that two or three partners will retire from this firm every year – a whopping 5% or 7.5% loss of total revenue that younger partners must replace to keep profits from eroding.
In a firm with a retirement succession program, partners who meet this challenge and grow their practices by 5%-7.5% every year can look forward to their compensation increasing by amounts in this range. In a firm without one, these partners’ hard work and success in growing their practices earn them nothing.
Replacing the revenue lost through partner departures is a fact of life all firms have to deal with. But partner retirements can be planned for more effectively than the departures of lawyers for other reasons. When partners decamp to other firms in the ordinary course, efforts by the firm they are leaving to talk their clients into staying are often futile. By contrast, when partners retire, the client relationships and workflows are already in place. If the firm offers a retiring partner’s clients suitable replacements, there is a high likelihood that these relationships and workflows will remain in place. If it doesn’t, these clients will have to go to other firms.
This fact is not lost on competitors. Most lawyers know who practices in their fields and who their peers’ clients are. A savvy marketer remains visible to a competitor’s clients, watching for a rift or vulnerability creating an opportunity to disrupt a relationship. One of these vulnerabilities is a partner’s age.
Recently, one of my clients told me that a competitor had come to him and said “David’s a great lawyer, and I know you’ve had a close relationship with him for a long time. He has to be in his mid-60’s and thinking about retirement. May I come talk with you when that happens?” My client replied that one of my younger partners had already stepped into my role and was doing a good job filling his company’s needs. This episode reminded me that my competitors have been monitoring my age and probing whether I have a retirement succession plan. Had I not already tapped a talented younger partner to replace me, who the client had come to know and trust, my firm would likely have lost this relationship.
At around the same time, a lawyer from a competing firm called me and asked if my firm would require me to retire at a certain age. When I said it did, she asked that if I ever decided that I wanted to keep practicing and needed a place to land, to please keep her firm in mind. This told me that some of my competitors are offering runoff options for Baby Boomers who are bumping up against mandatory retirement provisions in their partnership agreements, but don’t want — or are not financially ready — to retire.
A firm’s sustainability depends on the loyalty and commitment of its junior partners. They are the future. If they feel their work to grow their firm is rewarded, they will remain engaged. If they perceive their work as wasted, because retiring partners’ failure to transition their clients to the next generation is causing the firm to shrink, they will not. An effective retirement succession program can make the difference between having a stable, thriving firm, and being forced to execute an exit strategy when the most productive younger partners leave for firms that do better at inter-generational transfers of retiring partners’ clients.
