I am the managing partner of a twelve lawyer firm in Dayton, Ohio. We are a first generation business litigation boutique. We represent mid-size companies and handle multiple matters for these clients. We have seven equity partners and five associates in the firm. Three equity partners were the original founders and the other four were made partners later on. All seven partners originate client business and have significant books of business. Three founding partners are in their early 60s. We have had little success in succession planning and it seems that the three partners are reluctant to let loose of their clients and even begin any sort of client transition. Our compensation system does not encourage transitioning clients. I would appreciate any thoughts that you may have.
I believe that succession planning and client transition, especially for institutional clients, needs to start early – in many cases five years prior to retirement. Retiring partners need to be motivated to:
Here are a few ideas:
1. Retirement Date Notification
Each each partner has the obligation to notify the managing partner, or the executive committee, of his or her
intended retirement date, at least three to five years before their actual retirement from the firm. This notification will begin the transition period which will end upon the partner’s retirement, during which time certain steps will be taken to transition the retiring partner’s clients.
2. Identification of Transition Clients
Suggest that the retiring partner and the managing partner, or executive committee, schedule a meeting to review those clients the retiring partner originated or serves as the key client relationship partner. They should also review the types of work and fees generated by these clients.
3. Client Transition Duties
The retiring partner and the managing partner, or executive committee, should agree upon those tasks and transitioning activities that will be performed by the retiring partner during his or her transition period. These may include regular visits to the client by the retiring partner and the partner to whom the client will be transitioned.
4. Determining Success of Transitioning Efforts
Annually, during the transition period and in connection with the firm’s annual compensation review process, an evaluation will be made by the managing partner, or executive/compensation committee, with the transitioning partners, about the retiring partner’s efforts in performing the transitioning activities performed by the latter during the previous year. The managing partner or executive/compensation committee will determine whether the retiring partner is performing the transitioning duties in a satisfactory manner.
5. Determining Retiring Partner’s Compensation
Generally, the compensation of those partners who are transitioning towards retirement will be determined in the same manner as compensation for all other partners. However, with respect to the retiring partner, the managing partner and members of the management/compensation committee will pay particular attention to the former’s performance of the transitioning duties assigned. If it is determined that the retiring partner is satisfactorily performing the transitioning activities, the retiring partner will continue to receive full credit for those fee collections from clients being transitioned, in the various categories considered by the managing partner and members of the management/compensation committee in setting compensation. However if it is determined that the retiring partner is not satisfactorily performing the transitioning activities, or if the fees generated from these clients increase or decline, those factors will also be considered by the managing partner and the management/compensation committee in setting the retiring partner’s compensation, and the compensation may be increased or reduced appropriately.
6. Fee Credit Allocations
In order to provide incentive to those partners to whom clients are being transitioned, and to insure that those attorneys are fairly compensated for their efforts in transitioning and maintaining these client relationships, the partners designated to be the transitioning partners for the client to be transitioned will also receive credit under the categories as may be applicable, for the fees generated by these clients during the transition period, provided that the managing partner and the members of the management/compensation committee determines that the transitioning partners are making satisfactory efforts to accomplish the transitioning of clients.
Assignment of credit to the transitioning partner will not reduce the amount of credit allocated to the retiring partner, unless the retiring partner is not satisfactorily performing the transition activities, as described above.
7. Billable Hours
To allow reductions in billable hours while also providing time to perform the transitioning activities, without penalizing the retiring partner from a compensation standpoint, a retiring partner will be allowed to reduce his or her billable hours during the transition period without an adverse effect on his or her compensation, so long as the retiring partner is satisfactorily performing the assigned transition activities. Any reduction to the retiring shareholder’s billable hours in excess of the percentage reduction allowed may result in reductions of the retiring partner’s compensation.
8. Other Incentives
Some firms have used post retirement client retention incentives in which a percentage of collected fee revenue for clients that stay with the firm are paid for a few years to retired partners as an incentive to effectively transition clients to other lawyers in the firm.
John W. Olmstead, MBA, Ph.D, CMC