Law Firm Succession/Exit Strategies – Succession & Transition Plan

By John W. Olmstead, MBA, Ph.D, CMC

The Law Firm of Bigger Better & Best (Fictitious Names Used)

A Case Study of a Nine Attorney Law Firm Who’s Three Founders Wanted to Retire and Needed a Succession and Transition Plan

Paul Bigger and George Better graduated in the top of their law school class and upon graduation joined the same large law firm in Chicago. Both worked in the firm’s prestigious litigation department and performed the typical discovery support work that associates do in large law firms. Initially document reviews later graduating to preparation of pleadings and taking of depositions. After ten years with the firm the two attorneys, now non-equity partners, were now trying cases, bringing in clients, and controlling small books of business. The firm recently announced a freeze on admitting new equity partners. Paul and George had worked together on some large cases and they were frustrated that after ten years they had not made partner. They began meeting and discussing starting a litigation boutique firm offering big firm knowhow, in a small boutique firm package, at small firm prices. On January 2, 1990, they launched their new firm, Bigger & Better. Paul and George formed a partnership with each having an equal interest. Compensation was based upon partnership interest and each partner shared equally in firm profits.

The firm was very successful at obtaining quality clients and began hiring additional lawyers. After eight years, the firm had a roster of top tier fortune 500 clients and five attorneys. Revenues and profits per partner were on par with large firms in Chicago. In 2004, the firm admitted Joanne Best as an equity partner with an equal interest. Joanne paid $85,000 for her equity interest over twelve months. Ownership shares were now one-third each with compensation based on partnership shares. The firm continued to do well. Joanne worked hard, generated working attorney fees close to Paul and George’s, and developed a solid book of business. The firm added two additional associates.

In early 2012, the firm created a non-equity partner tier and promoted two associates, Brenda Cox and Jim Brown to non-equity partner. Brenda and Jim were good workers and generated adequate working attorney fees. However, neither had a book of business nor were they demonstrating the ability to bring in clients. Associates received a base salary, forty dollars per hour for each billable hour over 1800 annual billable hours, and a discretionary bonus. Non-equity partners received the same compensation packages that the associates received. In addition, non-equity partners also received, on matters, which they were the responsible attorney, ten percent of the working attorney fees of other timekeepers working on the matter.

In the fall of 2012, there was a surprise announcement. Paul and George, both now sixty wanted to retire in the next few years and wanted to begin succession planning and they asked me to assist them with the process. They advised me that Joanne, who was ten years younger, would be willing to be part of the firm’s transition but would not be an owner by herself and she would want other partners with her to share the burden of ownership. The firm envisioned extending equity partnership offers to the two non-equity partners, Brenda and Jim. The firm’s partnership agreement provided for the terms for the buyout of the equity partners. The firm also had precedent for buy-in terms from when Joanne bought in.

I spent a day with the partners at their office and met with all the other lawyers individually. Later the three partners joined me for a day at our offices. I reviewed with them my thoughts and the following observations:

  1. Brenda and John have a long way to go in terms of maturity and experience in order to be able to retain existing clients and obtain new clients.
  2. Brenda and John are grinders generating working attorney dollars. They need to become minders (client relationship managers) and eventually finders (originate new client business). A key question is whether the unique skill sets of Paul and George, will Joanna, Brenda, and John be able to retain a majority of the existing clients.
  3. The equity partners need to encourage and help Brenda and John bulk up their individual professional brands;
  4. The equity partners need to begin assigning Brenda and John as responsible attorney on more client matters and doing all they can to inject Brenda and John into client relationships; and
  5. The equity partners need to put in place a succession and transition plan as soon as possible.

Paul, George, Joanne and I discussed their various options including:

  1. Internal transition by admitting one or both of the two non-equity partners to equity partnership
  2. Bringing in a lateral partner and admitting to equity partnership
  3. Merging with another firm
  4. Selling the fixed assets, paying all the bills, billing out the work in process, collecting the receivables, helping the employees find jobs in other law firms, and closing the doors

We discussed the mechanics of developing a succession/transition plan and I advised that the WHO dictates that WHAT. In other words, many law firms find that they start down one path and end up on another. Not all non-equity partners and associates want to own a law firm. Not all lateral and merger candidates will be a good fit the firm and its culture. The key is the right relationship and sometimes that takes the form of making someone at the firm a partner, bringing in a seasoned lateral, or merging with another firm. Therefore, succession/transition plans have to be flexible. Often the key is not getting stuck in creating complex succession plans at the onset. The firm should establish timelines, outline a general course of action, generate some momentum and see where that leads the firm. Then build the plan when the firm can see what direction it is going.

I advised the partners that it takes time to implement a successful transition of clients and management roles and suggested a five-year timeline. I suggested to Paul and George that the next step would be to determine their retirement dates. I asked Paul and George to think about their retirement dates and get back with the rest of us.  Two weeks later, they informed us that they were unwilling to stay on for five years and would give the firm three years. Thus, their retirement date would be in three years.

The equity partners considered and discussed their options, and all agreed that they preferred to go the route of internal transition. While firm legacy was not an important issue, the partners wanted continuity for their clients and continued employment for their employees.  The partners reviewed financial performance for the past five years and added Brenda and Jim’s compensation and benefits back to the profit pool to determine an appropriate initial partnership interest percentage for Brenda and Jim. The partners decided to offer Brenda an eight percent partnership interest and Jim a seven percent interest for an initial cash capital contribution of $25,000 each with additional contribution required when they would acquire additional shares in the future.

The equity partners and I met with Brenda and Jim to feel them out and see if there was a tentative interest in equity ownership. We discussed with them Paul, George, and Joanne’s future goals and provided them with financial summary of revenue, expenses, and net income. We discussed what equity partnership would mean, the upside potential of being an equity partner, the initial capital contribution, and other matters. The equity partners asked Brenda and Jim to think about whether they were tentatively interested and if so to get back with the partners within the next few weeks. The equity partners also advised Brenda and Jim that if one or both expressed a tentative interest the firm would prepare a detailed proposal, which would include five years of firm tax returns and financial statements, partnership agreement, building lease, and a detailed client and management transition plan. Ten days later Brenda and Jim advised the equity partners they were interested and would like to take the next step.

The equity partners asked me to start putting together the proposal package and a week later I received an email from Paul and George advising me that Joanne, the third equity, partner advised them that she had second thoughts and did not want to participate in a transition with Brenda and Jim. Burned and stressed out Joanne wished to retire at the same time as Paul and George. Based upon this turn of events Paul and George advised Brenda and Jim that they were putting equity partnership on hold and were considering other options such as possible merger with a larger firm.

The equity partners and I had several discussions and concluded that due to the youth and limited minding and finding abilities of Brenda and Jim, the best option for the firm would be to merge with a large firm with extensive litigation experience.  Jointly we developed a short list of potential large firm candidates and a list of what we were looking for from a potential merger. We discussed a strategy for initial approach and I prepared a Confidential Descriptive Memorandum for the firm to use as an initial contact package “leave behind.” We decided to focus on two firms from the short list and Paul and George imitated contact with both firms. To Paul and George’s surprise, the both firms were very receptive, and Paul, George, and Joanne met with partners from both firms. After two meetings with each firm financial, statements and other documents were exchanged, and the due diligence commenced. For Paul, George, and Joanne the most important factor was cultural fit. Money was a secondary consideration. They wanted a home for their clients, attorneys, and staff. Early on Paul, George, and Joanne took a liking to the first firm they met with – we shall call the firm Adams & Jones. The firm had ninety attorneys of which only six were equity partners. The firm was still in first generation and controlled by its founding partners and while a larger firm in comparison to Big, Better & Best still possessed a small firm personality and culture. The partners at Adams & Jones were impressed with Bigger, Better & Best’s talent, clients, and financial performance. The firm’s client roster included top tier fortune 500 companies and the firm’s partners earnings were on par with the partners at Adams & Jones. Discussions progressed rapidly, due diligence was performed, and a decision was made to merge. On January 1, 2014, the firms merged.

The merger agreement included the following terms:

As of this writing, the merger has been in effect for four years and eight months and is going well. Paul, George & Joanne are now retired, living in the southeast, and pursuing after-retirement interests.

John W. Olmstead, MBA, Ph.D., CMC, is a Certified Management Consultant and the president of Olmstead & Associates, Legal Management Consultants, based in St. Louis, Missouri. The firm helps law and other professional service firms improve the operations and management of their practices and the lives of their practitioners. The firm, founded in 1984, serves clients across the country, assisting them with implementing change and improving operational and financial performance, management, leadership, client development and marketing.

John’s assignments have covered the spectrum of management issues. However, in recent years most of his time has been focused on engagements helping firms in areas:

John is the author of a the published book, The Lawyers Guide of Succession Planning: A Project Management Approach for Successful Transitions and Exits,  Published by the American Bar Association. John served for twenty-four years as the Editor-in-Chief of “The Lawyers Competitive Edge: The Journal of Law Office Economics and Management,” published by Thomson Reuters. He is currently serving as a Past Chair and current member, Illinois State Bar Association Standing Committee on Law Office Management and Economics and as a past member of the Legal Marketing Association (LMA) Research Committee. John may be contacted via e-mail at jolmstead@olmsteadassoc.com.

Additional articles and information are available at the firm’s web site: www.olmsteadassoc.com and blog www.olmsteadassoc.com/blog.

© Olmstead & Associates, 2026. All rights reserved.

This article is an excerpt from the book “The Lawyers Guide to Succession Planning: A Project Management Approach for Successful Law Firm Transitions and Exits written by John W. Olmstead and published by the ABA is available from the ABA website.

 

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