Editors’ Note: This article has been updated to reflect a Correction.
While succession planning can be a sensitive topic in mid-size and small firms where senior partners have held the reins for generations, several New York firms are confronting the issue head on, laying the groundwork for an orderly transition of business development and leadership.
About 30 percent to 40 percent of practicing lawyers are beginning to retire or contemplate slowing down, according to an analysis of U.S. and Canadian bar demographics by Altman Weil.
Alan Olson, an Altman Weil consultant, said in his experience only a minority of the firms who need succession planning engage in it. He and others said the main goal of succession is to retain and transition sources of revenue, expertise and business contacts, as well as secure leadership and management responsibilities.
In smaller firms, senior lawyers who brought in the business can find it challenging to hand over clients to younger lawyers, said Mark Zauderer, a partner at 25-attorney Flemming Zulack Williamson Zauderer.
The business tends to be very personal to senior lawyers, who often founded the firm and have the reputation that draws business, Zauderer said. "In the larger firms," he said, "the business tends to more institutional, which lends itself to transition to younger lawyers."
Zauderer, whose practice includes representing law firms and lawyers in dispute, predicts that transition issues will come into sharper focus over the next few years.
"In the 1970s and 1980s, there was an explosion of smaller prominent boutique law firms, and many of those lawyers" are reaching retirement age, said Zauderer, who added that he has no plans to retire anytime soon.
In small firms and boutiques, he noted, there is no mandatory retirement age so partners often stay active longer compared with their counterparts at large firms.
Retirements are only one factor that can upset the balance of smaller firms. In the past 2 1/2 years, 40-attorney Morvillo Abramowitz Grand Iason & Anello experienced the death of founding partner Robert Morvillo, the departure of Morvillo’s three sons, who left to form Morvillo LLP, and the departure of Barry Bohrer, who left with Washington, D.C., partner Lisa Prager and former counsel Lara Covington to join Schulte Roth & Zabel along with two associates.
The Morvillo firm is an example of one where the senior partners originated the majority of the business, said one attorney familiar with the firm who did not want to be identified.
"Given the nature of the work, the attraction there historically was the headlined partners," he said.
But the lawyer said he believed the firm would stay healthy past the retirement of the founding partners because of the strength of its next generation of leaders.
In an interview, name partner Robert Anello said he was not concerned about succession.
"We have a deep bench of partners," ranging from those in their 30s, 40s, 50s and 60s, he said, and ensuring the next generation of firm leaders "is something we have done for many years." All partners are equity shareholders, he said.
"We have many partners with very active practices," and young partners are involved in management, Anello added.
He said a small firm’s succession plan is effective when the firm makes sure "everyone has a voice in how the firm runs, that you treat everyone fairly."
Zauderer said at his firm, compensation for associates and partners is not directly tied to billable hours.
"That’s very important," he said. "Large firms tend to have very high billable hour quotas for younger lawyers. We find that by being less rigid about that, we can encourage lawyers to expand their contacts in the community."
Another boutique founder, Andrew Celli of 20-lawyer Emery Celli Brinckerhoff & Abady, said his firm seeks to introduce clients to all partners, "not to be jealous or proprietary about clients."
"In our firm, it’s not an eat-what-you-kill culture," he said. "There’s a real incentive for everyone to share their contacts, the relationship and the work."
Some firms do well with one rainmaker who leads the firm, Celli said, but "it’s dangerous for partners to just sit back and say I’m going to let [another lawyer] generate all the business. You will end up having a problem when that person retires or just goes away. It concentrates too much power."
At Emery Celli, four of the five founding partners are in their 40s and early 50s; Emery is in his 60s.
"We’ve got a very, very long way to go," he said.
Vincent Syracuse of 60-lawyer Tannenbaum Helpern Syracuse & Hirschtritt said the firm’s named partners are around the same age, in their 60s, but "we want the firm to continue. We’ve worked all our lives in the hope this firm will continue."
Syracuse, chair of his firm’s litigation and dispute resolution practice, said partners of all generations are involved in operations of the firm and the firm seeks to introduce clients to all partners.
"That’s an important strategy for succession," he said.
The firm’s executive committee consists of senior and younger partners, he said. All partners have a responsibility to develop the firm’s reputation, which is one reason the firm is active in the New York State Bar Association, Syracuse said.
With the four equity partners in Davidoff Hutcher & Citron in their 60s and 70s, the firm is thinking about what happens next.
"We are mindful of our limited good years," said Larry Hutcher, the co-managing partner of the 51-lawyer firm.
As part of its succession plans, the firm is looking into equitizing 10 to 15 partners this year, Hutcher said. For better or worse, the move will strengthen the ties between younger partners and the firm. If the firm didn’t equitize, "the younger people would not have the same degree of commitment," he said. "The idea is to let them know there is a future here."
But law firm consultant Peter Zeughauser of Zeughauser Group warned that transitioning lawyers to equity status does not completely solve a firm’s succession issues. The transition should not be "form over substance," he said.
"What you call the partner doesn’t matter," Zeughauser said. "The issue is whether the partner can generate business from new and existing clients."
Firms that fail to develop a succession strategy can wind up in litigation.
Ex-partners of Arkin Kaplan Rice are embroiled in a dispute over the break up last year of their boutique. Howard Rice and Michelle Kaplan say in court papers that when founding partner Stanley Arkin was 70, he initiated transition discussions but "refused to give up any control."
Meanwhile, Arkin and Lisa Solbakken allege the other two launched their new firm using assets belonging to Arkin Kaplan Rice.
The Davidoff firm also wound up in litigation over a leadership shift. Robert Malito, a longtime partner and cofounder of the lobbying and litigation firm, sued other partners in May 2012 claiming they reneged on a deal for Malito’s semi-retirement and barred him from entering the office.
Malito sued seeking an accounting of his 20 percent partnership interest and $2 million in damages. The firm’s revenue in 2011 was more than $21 million and its net income was more than $4 million, the suit said.
Malito alleged other partners initially agreed that he would get the same semi-retirement deal given to founding partner Sid Davidoff—a reduced salary of $225,000 per year for two years, after which Malito would fully retire and discuss a buy-out of his partnership interest. Malito alleged Hutcher and Jeffrey Citron refused to honor the deal.
Hutcher said in an interview that the firm and Malito settled for a confidential amount and resolved the case amicably.
Zeughauser said firms also should be concerned if the majority of revenue comes from one or two partners, even at small firms where it’s more common. In large firms, managing partners are often appropriately nervous when 20 percent or 25 percent of revenue comes from one client, Zeughauser said.
Some law firms seek a merger with another when no business-getting lawyers are in place to succeed departing rainmakers, said Zeughauser.
"The firm will come to us and say we need to be acquired, or we need to make an acquisition," he said.
Firms should transfer and share important client relationships and avoid relying too heavily on service partners who only do the legal work instead of generating new business, Zeughauser said.
"You need to early on start identifying people who can develop business and nurture and encourage them. Those are the people you definitely want to make equity partner," he said.
Olson, the consultant at Altman Weil, said the key is to get started early and be as specific in plans as possible, "even though the subject matter might be uncomfortable.
"I have often seen law firms just expect that transitions will occur somehow automatically and if you wait until six months before a retirement to try to plan the next generation, and for serving clients, it can often be to those firms’ detriments," Olson said.
@|Christine Simmons can be contacted at firstname.lastname@example.org.