Succession planning is arguably one of the most important pieces of law firm management.
But a new analysis by ALM Legal Intelligence (ALI) states that less than half of respondents do not have a plan for a change in law firm leadership.
The study, “Securing the Future: Law Firm Succession Planning and the Challenges of Managing a Multigenerational Workforce,” elicited more than 100 responses from law firm leaders across the United States and the U.K., and resulted in interviews with the heads of firms, new partners and industry experts about their respective succession plans.
The study found that law firms continue to struggle with succession planning, which is indicative of a wider problem they face in managing the employee lifecycle, said Daniella Isaacson, author of the report and a senior legal analyst at ALI.
“Many law firms are not formalizing their succession planning process, in direct contradiction to the very same advice they give clients,” Isaacson said.
ALI found that a third of respondents do not have a succession plan for either firm leadership or client teams.
The data also showed that nearly 40 percent of those respondents who said they didn’t have a plan in place for firm leadership reasoned that it was “not an immediate concern.” In addition, 49 percent of those respondents who said they didn’t have a plan in place for client team leadership said this was because they had “difficulty identifying successors” and “faced resistance from senior partners.”
And this lack of planning has hit law firms right where it counts most: their pockets.
The study found that 52 percent of law firm leaders said they lost at least a quarter of a retiring partner’s book of business on average when they left the firm.
“It became clear in our research that law firms are relying on individual partners to succession plan, but giving them absolutely no incentive to do so,” Isaacson said. “It is not shocking that partners are not unilaterally doing this for the good of the firm.”
This overall lack of succession planning is harmful to all firms but tends to hit firms in the Am Law Second Hundred the hardest. The ALI report found that Second Hundred firms routinely struggle to transition retiring partners out of practices. They are also becoming increasingly reliant on the income partnership tier and face chronic low leverage.
However, developing a succession plan isn’t the only thing that law firms need to do to face this issue head-on, according to ALI. Succession planning must be combined with hiring and retaining a multi-generational workforce that leverages diverse viewpoints and perspectives.
“Succession planning does not just involve helping retiring partners transition out of the firm,” Isaacson said. “It comes hand-in-hand with better management of the multi-generational workforce: Including training and developing young talent.”