I was talking to another attorney the other day and he told me his firm was in an ownership transition where one partner bought the other out. He told me the new sole owner of the firm, although a great attorney, has never exhibited the qualities of a good manager, and it’s adversely affected the transition. As a result, many older or longer-tenured employees have yet to respond well to the new ownership change. Not only have some departed, but it’s been increasingly challenging to bring new people into the firm. This has resulted in some severe personnel shortages.
The firm has also become so desperate for help that they have been forced to bring in some people to fill roles they are unqualified for. The attorney told me his firm is now getting to the point he can no longer rely on the competency of the new employees, and trust is all but gone.
No one wants to be in this situation, but it’s frankly not that unusual. For anyone looking to sell a business or a practice, remember that it’s not enough just to look at the numbers. You must understand the buyer, not only whether that person can financially front the firm’s ongoing operations, but whether they can steer the ship. These are obviously two very different skill sets. But, if the new owner can’t fulfill both of these areas, it could significantly affect your retirement and future career plans.
Even more scary is if your firm is being sold and being paid for by deferred compensation. If the business, because of a lack of savvy or management skills, drives the firm to the basement, there’s no way you’ll be able to salvage it to the point of finding another buyer.
While succession and transition planning in law firms can be a constant struggle, it will be even more prevalent in the next decade as firm leaders finish their terms and baby boomers move to Florida. This isn’t just an aside; it’s reality. I think half the city of Venice, Florida, is populated with transitioning or retired Detroit area attorneys. That’s not an exact statistic, but it sure seems like it.
You also have to be concerned about the potential for senior leaders to make lateral moves to other firms, which could leave your firm in the lurch financially. Rainmakers who make the decision to move to other firms, rather than be part of an ownership or leadership transition, in some cases, can be just as devastating as a sale to the wrong buyer. Some of those attorneys were managing partners or equity partners who decided their term was over at the current firm.
According to the National Association of Legal Professionals, there were 14,534 combined lateral partner and associate moves within the largest 200 firms in the U.S. last year, double the amount during the pandemic. So this is not a rare occurrence.
So, whether you’re part of a law firm transition or directly affected by one, even if you’re not a principal, you need to make sure all these factors are understood before determining your long-term future.