Professional Practices News talks to Richard Green, head of professional practices for the South East, about the importance of succession planning and the dangers of leaving it too late.
Q Why is succession planning such a big issue for firms?
A. Whenever I meet with a new professional practice, one of my first questions is always about the age profile of the partners. The answer tells you a lot about the practice and whether it has a good succession plan in place.
In our most recent survey of law firms, 62% said they have an informal succession planning process. About a third said they have something more formal. If you add that to the fact that the average age of partners at nearly three-quarters of professional firms is between 46 and 55, you can see why the issue of succession should be high up on the agenda.
Q How should firms tackle the issue of retirement age?
A. It's important to put yourself in the shoes of the retiring partner. Many are reluctant to give a definitive date because of concerns about the amount of money they'll have for their retirement. Age is not the critical factor – it's the partner's ability to continue working at the high level required.
But someone has to decide when it's the right time – is it at 55, 60, 62, 65 or maybe even later? In our survey, a quarter of firms said they don't have a set age, half still have a default retirement age of 65, and one in ten set 60 as the default.
Q What's the best way to deal with non-performing partners?
A. Firms need to avoid the partner 'cruising zone'. They may have to consider some form of non-performing partner process if the partner isn't prepared to have a sensible conversation.
It's best to have a conversation about succession issues in a non-threatening environment. The individuals concerned are your fellow partners – you know them well, you know their families, they may even be your friends. So the best solution may be to get outside help from someone who can ask direct questions without it feeling confrontational.
One way is for an outside adviser to hold a series of one-to-one meetings with the partners. The crucial thing is that these can be confidential. Some issues can probably be resolved internally, but others might need further assistance from outside parties.
People usually know if they're not performing, so a solution that saves face can be a good result for all parties. For example, they could reduce their pay to match their output and stay on as a partner for longer than might have been the case otherwise. The part-time route is another option and can work well in certain circumstances.
Q How can firms achieve a smooth transition from old to new partners without losing clients?
A. One recent example involved a firm agreeing a three-year plan for a partner with a very large fee following, which the competition was keen to get its hands on. In year one the senior partner charged his time but the junior partner didn't. In year two it was vice-versa. In year three the senior partner's role was to act as ambassador to cement the relationship, where he was called in to look at one-off pieces of work and attend major client meetings. By the time he actually retired and the opposition was chasing the clients, they were all secure for the practice.
When there's no plan in place it can be devastating for the firm – for example, if a partner has a sudden change in health or makes a quick decision to retire. You also shouldn't underestimate the client's view – they will often decide that someone isn't up to the job before anything can be done.
It's still a challenging marketplace out there, so it's very important to look after your existing client base. You can't do that without a detailed succession plan, so it's really a case of ignore at your peril!
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