To this list that includes “death” and “taxes”, we’d better add another item – “leadership succession.” No law firm that ever survived the retirement of its first generation of leadership has been able to avoid this challenging issue. Founding partners do retire, and the challenge is to ensure that their client relationships don’t retire with them, or simply drift away to other firms. The same is true at long-established, multi-generational firms. Rainmakers do retire and the firms need to find a way to preserve client relationships.
Too often, we encounter the succession issue couched in the phraseology of a “buy-out” plan for a senior partner. This, however, is only a small aspect of the issue – only half of the equation. Why, for example, would a law firm ever agree to pay a “buy-out” (other than a return of capital), to someone who is leaving nothing behind? Maybe the firm might do something modest in the way of past-service recognition or possibly as a severance arrangement to encourage someone to retire, but the basic economic proposition is that the “buy-out” consists largely of remuneration for expected value to be received after the person has transitioned.
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