Clients Have All the Leverage in Law Firm Succession Planning

Decades ago, most corporate clients were considered law firm property rather than the portable asset of any partner. Inheriting client revenue streams, and therefore succession from older owners to younger ones, happened automatically with little client involvement.

This started changing in the 1970s when general counsels began making firms control legal spending to be more cost-effective. The pricey practice of assigning all company legal work to a single firm was scrutinized, and general counsels began giving work to the best lawyers in their fields, who often were at different firms.

For the first time, partners had books of business they could call their own. When better opportunities at other firms became available, they jumped ship. Today, institutional clients that hire one law firm for all things are a relative rarity, recruiting laterals is ubiquitous, and succession is no longer automatic.

Younger partners must replace the revenue once generated by retiring partners. To do so, retiring partners must transition their practices to the next generation, which then has to develop new business to make up for client attrition and generate new growth.

Putting in Time

Transitioning a large practice to others takes work. Senior partners must do more than train their successors to be good lawyers—they must integrate them into client relationships at the summit level. This means hundreds of non-billable hours spent preparing and coaching younger lawyers to take leadership roles.

The extent to which a firm retains a retiring partner’s clients often is directly proportional to the time and effort the retiring partner devotes to this all-important work.

Clients almost never shift allegiance to the next generation because the retiring senior partner makes a cursory introduction and fades into the sunset. Clients can afford to be picky. If the lawyers poised to inherit a client relationship are unsatisfactory, corporate clients aren’t shy about rejecting them.

If the retiring partner devotes little time and effort to socializing a client to successors, the client will assume the firm doesn’t care about retaining the relationship. In a tossup between a qualified in-firm successor and a competitor from another firm, the incumbent usually wins. But while the process favors incumbency, it can be easily derailed if a client’s needs are ignored.

If a client isn’t happy with the new team, succession fails. In this way, clients control the succession process. If they don’t get capable, fully integrated replacements for retiring partners, they will go elsewhere.

Incredibly, law firms often let this happen. Some have divisive internal logjams over retirement issues. Others simply don’t want to deal with the problem. Either way, it can feel easier to go out and get new clients than work to retain a retiring partner’s existing ones.

In-house lawyers and other client representatives are intensely frustrated by this. They hate waking up to find that their relationship partner has retired without designating successors. They dislike the indifference to their needs this reflects. But until recently, many clients have felt powerless to change this dynamic.

Flexing Their Muscles

Clients are asking firms and practice groups to disclose who is next in line to lead their service teams when the current leader leaves for any reason, not just retirement. They’re amending their outside counsel guidelines to require these disclosures as a condition of engagement, and adding succession-related questions to RFPs and the onboarding process for new firms.

Across the industry, clients are demanding that firms plan for succession and give them a window into this planning. This is a boon for managing partners who have tried to plan for succession but hit internal roadblocks at their firms.

These leaders now have new leverage: If the firm doesn’t plan for succession, it will lose business. Smart law firms are getting out ahead of this trend, using partner retirements as an opportunity to strengthen and broaden client relationships within a conversation about future team leadership. Clients like this—and they reward these firms with new matters.

A tipping point is coming. If firms continue to ignore client requests to know and be part of their succession plans, profits at some point will suffer. Eventually, it will become less painful to tackle succession head on than to disregard it and live with the business loss.

Holdout firms must ask themselves how long they can afford to be careless of their clients’ concerns. This push-pull between client demands for succession transparency and law firm apathy isn’t going away. But firms that embrace the trend, showing their clients they’re listening, are sure to prosper.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

David Wood is a retired senior partner of Barnes & Thornburg who advises law firms about retirement succession for law firms.

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