Mark Twain is said to have remarked, “Everybody talks about the weather, but nobody does anything about it.” That quote came to mind when I heard about a new book by veteran law firm consultant John W. Olmstead, “The Lawyer’s Guide to Succession Planning: A Project Management Approach for Successful Law Firm Transitions and Exits.”
The fact that such a book has been published indicates the legal profession is talking more about succession planning. Yet are today’s lawyers and firms actually doing anything about succession?
Facts Don’t Lie
In 1980, only a quarter of the legal profession was older than 55. Today, well over a third of lawyers are. That means that more than a third of those practicing today will likely not be practicing by 2030. Many of them are today’s firm leaders and key rainmakers. To quote Yogi Berra, “The future ain’t what it used to be.”
So what are law firms doing about this? Not much, according to a 2015 Altman Weil survey. Only 31 percent of the surveyed firms have formal succession plans in place.
For the overwhelming majority of law firms that do not have plans in place, I strongly recommend that your firm leaders pick up a copy of Olmstead’s book. It is perhaps the most thorough “how-to” publication out there on the subject matter.
Importantly, the book is all-inclusive in its nature. As Olmstead correctly notes, when it comes to succession planning, “one size does not fit all.” Solo practitioners, small firm owners and larger law firms all have unique challenges and issues when it comes to succession planning. As a result, they require different approaches. This book considers them all.
Solos and Small Firms Need It the Most
“The Lawyer’s Guide to Succession Planning” is especially important for solo practitioners and small firm owners. In my experience, many larger law firms seem to do their succession planning almost by accident. As their lawyers age, somehow younger lawyers are available to step up to the plate to lead the firm and maintain key client relationships. At worst, the firms can usually limp along.
That dynamic typically is not available to solo practitioners and small firm owners. Here’s where the “planning” component of “succession planning” comes into play. Solo practitioners and small firm owners have to find someone to step up to the plate. To do that, they need to plan. Successors don’t just show up at law firm doorsteps when retirement day comes.
Olmstead covers the solo and small firm territory well and discusses the various alternative strategies and tactics such practices can utilize. These include insider deals, merging with other firms, going “of counsel” and selling.
What Is a Practice Worth?
With respect to valuation, like most other consultants who write on this issue, Olmstead tends to sound like the Accounting 101 professor who most lawyers never quite understood. He is nevertheless spot-on when he writes, “while law firm owners and partners would like a simple ‘plug and play’ approach to establishing a value for their firms, such an approach does not exist in the real world. Too many variables come into play.”
He correctly ends with the oft-repeated cliche, “the value of the practice is what your partners will agree to or what an outside buyer will pay.”
Perhaps what’s most impressive about “The Lawyer’s Guide to Succession Planning” is the organized fashion in which Olmstead presents the relevant issues that lawyers must consider. And for those who love sample forms, agreements and action plans, the book does not disappoint. There are a multitude of them and they’ll delight any DIY lawyer.
What the Book Is Missing
I don’t know about you, but what good is a book review unless the reviewer has at least a couple of minor criticisms? Here are two:
First, in Olmstead’s valuation chapter, while he discusses all the variables that impact value, some of that discussion is too brief. For example, he writes that the “nature of the law practice” influences value, but says little more about that. The conventional wisdom is that a trusts and estate/probate practice is far more valuable than a prominent criminal defense practice. In the former type of practice, it is usually reasonable to assume that a successor will be able to generate some revenue from old files in the form of will revisions or probate. As for the criminal defense practice, it is assumed the goodwill is likely too personal to transfer to a successor. Contrasting the values of a few practice areas would have been helpful.
Second, he gives short shrift to the problems associated with transitioning clients, especially at larger firms, from a compensation standpoint. Nowhere does he indicate that senior partners often resist transitioning their books of business unless they either receive compensation for successful client transitions or don’t take too big of a compensation hit during the transition.
I’m done nitpicking.
The bottom line is, lawyers should be grateful that Olmstead is comprehensively talking about succession planning. Let’s just hope that lawyers start doing something about it.