Law Firm Recruiting, Lateral Hiring

Lateral hiring normally makes the top 5 list of priorities for law firms desiring growth. Some firms follow a process for lateral hiring that focuses on preserving its culture and values.  Other firms believe that it is more important to break down entry barriers and seek laterals at an expedited pace.

Regardless of a firm’s approach to lateral hiring, a process that is too rigid will scuttle most deals.  A process that is too loose normally ends in unmet expectations – or worse. To temper these extremes, I recommend that firms create a process that includes the creativity of art and the discipline of science.

Specifically, firms desiring to improve their lateral hiring success should consider the following factors:

Cultural attributes

A firm with a strong history of successful results is likely to maintain its dominance in a lateral transaction, but even these firms may benefit from the thinking of lateral hires. Firms that are most successful are open to incorporating the ideas of lateral hires into their culture. Having just evaluated the firm from a buyer’s point of view, lateral hires are positioned to provide a firm with valuable external market insights.

Economic attributes

It is important to understand how a lateral transaction is supposed to be accretive to the firm. Some firms believe that laterals must contribute actual profit to the firm while others are satisfied with help covering fixed overhead. Laterals may also be accretive in terms of new client and or new practice area opportunities. As for timing, I recommend that firms plan on 18-24 months before any real economic benefits are derived.

Recruiting attributes

Firms that are actively seeking laterals are more inclined to engage the services of a recruiter while firms that are in a more passive mode are more likely to be patient and work through their existing network of contacts. Regardless of whether a firm is in an active or passive mode, it is essential that they have a clearly defined approach to engaging a lateral when the opportunity arises. Any ambivalence or ambiguity on the part of the firm will likely scare laterals off.

Implementation and follow up

It is essential to incorporate laterals into the mainstream of the firm as soon as possible. As with a new client procurement, consistent execution is what separates the good from the great. Well executed implementation not only increases the potential for success of an existing lateral transaction, but the ability to have previously recruited laterals assist in the courting process for new laterals is a real edge.

Results evaluation and course correction

There is much to be learned from objectively reviewing the results of a lateral transaction. Skipping this process is a missed opportunity to improve future transactions and to make adjustments to the current situation if necessary. A predefined evaluation process and system for making adjustments will remove the emotion from these decisions and will have the added benefit of encouraging laterals be more candid about their expected future performance.

Lateral hiring will never be without risk. The consequences of a bad deal may include economic loss, morale loss and damage to the firm’s reputation. Creating a process that considers the attributes described above will help to increase a firm’s likelihood of success.


law firm, strategic plan, consultant, New Orleans, Louisiana

I am frequently asked whether a strategic plan really makes a difference in firm performance. As I have encountered many firms without strategic plans who have achieved high levels of success, this is a fair question.

The reality is that the survival instincts and talents of the partners in many firms are the primary drivers of their success. These firms operate at very high energy levels, emphasize clients and cases, and measure success in mostly economic terms.

As firms mature, however, it becomes more difficult to compete using this two dimensional approach. To be consistent winners, firms need a strategy to identify opportunities that allows for real growth in capacity and capability.

A strategic plan is most effective for achieving the following:

  • · Sustained success in the long term;
  • · Alignment of leaders and future leaders;
  • · A basis for choosing between opportunities; and
  • · A basis for measuring performance.

Education Before Plan Development

While many attorneys agree that a strategic plan could make a positive difference in their firm performance, they fear that the process of creating a plan will not result in meaningful change. Having read a number of strategic plans that were never implemented, this also seems be a valid concern. I recommend a process that consists of education before actual plan development.

The main areas of concentration include:

  • · Marketing and client service
  • · Attorney development
  • · Staff development
  • · Recruiting
  • · Technology
  • · Finance
  • · Succession and transition
  • · Leadership development
  • · Short and long term incentives

Partners and other key personnel who can view issues from a common frame of reference are more likely to produce a meaningful plan. A plan built on a solid understanding of the market-based fundamentals that includes sustainable incentives is more likely to be embraced by the full firm.

Create a law firm operating agreement that addresses all the necessary retirement elements Updating or creating an operating agreement (operating agreement and partnership agreement are used synonymously) that supports long-term strategic objectives is necessary.  New partner entries, leadership transitions, future equity adjustments, addressing non-performing partners, changes in compensation, retirement and buyout provisions, and most other significant actions require changes to partnership agreements.

It is also important to support strategic initiatives with the weight of a legally binding agreement.  For example, if a transition plan requires the admission of new partners, a provision governing the orderly transfer of equity is necessary. Binding the most important elements of the transition plan with a written and legally binding agreement bolsters confidence in the firm’s ability to implement the necessary changes.

Operating and partnership agreements are mature documents, and much of their content is standard. Most of the accords we have read contain some references to retirement but mostly in the context of withdrawal.

Frequently, we see agreements that include outdated buyout methodology. Often these provisions contemplate a valuation of the firm that does not comport with reality, which can create unfunded liabilities that can result in a crisis for the remaining partners.

In some instances, partners leave to avoid paying an unrealistic retirement cost. Additionally, firms that do not have provisions allowing for an orderly transfer of equity can become stagnant if too much power in concentrated in the hands of partners with a short-term viewpoint.

To ensure that your operating agreement contains the right provisions that support the eventual transitioning of the firm, we recommend the following requirements:

Timing and Approach

  • Mandatory retirement age
  • Transition plans and timing
  • Qualifying for a transition plan

Depending upon the size of the firm, we recommend a mandatory age for surrendering equity ownership percentages. Retirement age equity partners may choose to continue practicing in an Of Counsel status, but an agreement as to role and client connection is necessary.

Inserting these types of policies into an operating agreement before actual retirements begin removes the difficulty of opening a dialogue with a senior partner at what may feel like an arbitrary time. For example, a firm may approach a senior partner about retiring when he is 65, which may offend him if he is planning to work several more years.

Mandatory retirement age, transition plan qualification, plan substance, and timing are necessary components of an operating agreement.

We recommend declaring an age that triggers a retirement planning process. For example, an operating agreement provision that requires all partners to indicate their retirement intentions (approach and timing) upon the attainment of age 60.

Creating a retirement window, for example, that enables a partner to entirely or partially retire between the ages of 65-70 can create a transition period that spans up to 5 years, depending upon any mandatory retirement provision.

Provisions to deal with underperforming partners who are close to retirement are also necessary. Transition plans may not apply to all partners. An expedited process for partners who have no clients or key client relationships or unique expertise is needed. For example, a firm may have an initial mandatory retirement age that is binding unless extended by a supermajority of voting interests.

Return of capital and net asset interests

  • Return of capital timing and amount
  • Payout of AR and WIP interests, if applicable

The capital a retiring partner may have invested in the law firm typically consists of fixed capital and undistributed earnings. As undistributed allocated income has been previously taxed or subject to tax in the current period, most firms pay undistributed earnings on an expedited basis. Depending upon the amount of fixed capital, the payout period can extend for several months or even years.

When the return of capital also includes an amount for a retiring partner’s interest in Accounts Receivable and Work in Progress, a valuation process and payment schedule are necessary.

A delayed payment that corresponds to the collection of accounts receivable and unbilled fees is typical. In some instances, however, firm members may agree to longer payment period to allow time to defray any retiring partner replacement costs.

Advance agreement regarding payments of amounts due to retiring partners enables a firm to plan and manage cash resources.

Post retirement liability obligations

  • Lease and debt guarantee policy upon retirement
  • Contingent liability agreement (if necessary)

Some obligations, especially those to third parties, may need special handling by the remaining partners. For example, a large bank loan that is personally guaranteed by all equity partners will require a release of guarantee for the retiring partner. Loan agreements that require a retiring partner’s net worth as collateral are particularly challenging.

Managing a bank guarantee can include several options, but may force a capital call or a pledge of additional collateral from the remaining partners. If the remaining partners are unable to capitalize the firm adequately, concern about the firm’s future viability can arise.

Additional complexities may arise when a contingent liability exists for an action that happened during the retiring partner’s membership. For example, an impending malpractice suit that may exceed the policy limits of the firm’s error and omissions policy.

Depending upon the magnitude of a contingent liability, a range of options may exist, but it is virtually impossible to plan for unknown liabilities in advance. The best approach is to recognize that the potential for contingent liabilities exists and if they arise, take steps to consider the impact on a retiring partner.

Post retirement compensation

  • Post retirement compensation options
  • Retiring partner buy-out provisions
  • Contingent case policy
  • Post retirement practice a law

Most law firm compensation systems are designed to pay partners contemporaneously, which results in little residual value accruing to retiring partners except for transitioned client relationships. While retired partner buyouts are difficult in any circumstance, it is particularly difficult to justify post-retirement payments to partners who were not able to transition clients to other partners in the firm.

Although less common in contemporary times, some firms may pay retired partners a stipend for a stated period post-retirement. Typically, these payments fractionally correlate to historical compensation or are based on a previously agreed arbitrary amount.

Transition agreements with retired partners that contain an economic foundation, which is most often related to client transfers, are preferable and easier for the remaining partners to underwrite.

If a firm does have a universal post-retirement compensation option, it is important to create an annual collar based on a percentage of cash net income. For example, limiting the total annual cost of retired partner buyouts to 5% of net income.

Depending upon the size of a partner retirement stipend, it is limiting the payment period to one or two years is recommend. Without a finite time and a material transfer of value(clients), it is hard for the remaining partners to justify reduced earnings for retired partner buyouts.  Eventually, the remaining partners will grow weary and may join a competitor or start a new firm.

Depending upon the terms of an operating agreement, retiring partners can sometimes force a liquidation, which is almost never preferable.

Firms that chose to pay all retiring partners a stipend would do well to ensure them the economic burden to the remaining partners is less than the cost to start a new firm.

Agreeing on the type of post-retirement practice of law is necessary. Retiring from one firm and joining another is difficult if a partner is still receiving compensation from a former firm.  Addressing post-retirement competition is recommended.

A compensation plan for paying partners who retire from the equity partnership but want to remain active on a part-time basis is necessary. Post retirement pay is typically based on a sharing of worked and generated fees, assuming there is not conflict with a transition plan.

We prefer a transition plan approach with partners who can transfer business. Some firms, however, prefer to pay all partners a retirement benefit and including these provisions in an operating agreement is necessary.

Finally, to the extent that a firm may have contingent cases in progress when a partner retires, a provision governing the distribution of any eventual recoveries is also required.

Orderly transfer of equity interests and capital requirements

  • New partner equity policy
  • Lateral partner equity policy
  • Capital requirements tied to ownership

An orderly process for transferring equity interests among members is beneficial and supportive of firm longevity and growth.  When ownership impacts compensation, transferring equity among members is more difficult. Concentrated ownership interests can make admitting new partners harder.

Untying all or a substantial part of compensation from equity percentage can also make it easier to reallocate a retiring or transitioning partner’s ownership units.  Performance-based compensation also allows a firm to employ a conservative approach to assigning beginning ownership levels to lateral partners.

We recommend tying capital retained by the firm to the equity interest of each partner. For example, if a firm maintains $300,000 in capital reserves a 10 percent partner will have $30,000 invested in the firm. Tying capital to equity ensures that influence and dollars at risk are aligned.

The orderly transfer of equity and sensible capital management provisions help to ensure that membership interests held by retiring partners are indicative of their current contributions to the law firm.

Firm valuation provisions

  • A valuation approach to firm assets
  • Interest in firm assets and liabilities

Valuing a law firm beyond book value is tough. Most law firms have no value beyond the lawyers and the clients.  The value of a going concern is one possible approach, but a more relevant approach may consider startup value.

For example, how much would it cost if the remaining partners were to liquidate the existing firm and start a new law firm?

Some of the nuanced law firms are creating platforms that may ultimately have value to successor owners. For example, an efficient overhead structure, cutting edge technology, top quality fee earners and staff, a marketing process, client binding mechanisms and proven leadership and management teams may have market value.

For most law firms, many these factors are not present, and book value concepts are most accurate. Provisions are necessary for valuing the firm if retiring partners are going to receive payments based on their equity interest in net assets.

Supporting Policies

  • Compensation policies
  • Partnership admission policies

Many firms include their compensation system as an exhibit to their operating agreements. We recommend including definitions and examples of formula based systems. Thoroughly documenting subjective pay systems where possible is also recommended.

Documenting compensation policies and including them in the firm’s operating agreement can promote stability and maximum predictability.

New partner admission standards and guidelines are typically not incorporated into an operating agreement, but referencing their existence is helpful. Most operating agreements do contain provisions that govern the admission of new partners as it relates to voting.

We recommend investing the time to create an operating agreement that includes all the necessary policies related to retiring partners. Retirement policies that are well thought out, financially sound, and practical can make a firm sustainable from one generation to the next.

Target_vector_IconLaw firms taking a progressive approach to considering the elements of a transition plan must have a sustained focus. This is often difficult for administrators and lawyers who must manage daily business demands and press client service issues.  To best ensure the planning process remains focused and deliberate, a law firm needs outside support to work in conjunction with in-house resources.

We have found that management personnel shares many of the concerns of younger partners, associates, and staff. Their awareness of the business continuity issues typically comes from their experience and direct input from the individual lawyers and other employees.

We see management and staff as participants in the process who also have a stake in the outcome of the process. Additionally, objective third party advice can enable a less risky communication process from not partner participants.

A typical transition planning process takes six months to a year to complete and involves an in- depth analysis of the following areas:

  • Work-life timelines and capacity planning;
  • Marketing;
  • Attorney development;
  • Recruiting;
  • Compensation and incentives;
  • Transition and buyout compensation;
  • Policy formulation;
  • Partnership or operating agreement;
  • Orderly transfer of ownership interests;
  • Technology;
  • Platform building;
  • Implementation timing and process; and
  • Staff Development.

Taken together, these areas of concentration inform a firm’s highest priorities. The broad purpose of each analysis as follows:

  • Work-life timelines provide a planning horizon;
  • Marketing effectiveness indicates the firm’s ability to meet revenue goals;
  • Attorney development is essential to skill set continuity;
  • Recruiting effectiveness enables a firm to address capability and capacity weaknesses;
  • Compensation and incentives can attract high-profit laterals, ensure partners practice profitably, and incent senior partner transitions;
  • Policy development is essential for promoting consistency and building trust among partners, associates and staff;
  • A partnership or operating agreement ensures that necessary actions have the weight of a legal agreement;
  • Perpetuating a law firm requires a process for transferring equity without controversy;
  • Technology can promote efficiency, provide a competitive advantage and bind clients to the firm;
  • Creating a platform that elevates the success of the lawyers and staff builds value;
  • A trained and motivated staff can support the knowledge transfer process; and
  • Ensuring that process moves from planning to implementation is vital to the long-term interests of the firm.

The goal of the transition planning process is to develop a set of thoroughly analyzed and ready-to implement priorities.

Concepts_Staffing_Transition_PlanningWork-life timelines for all attorneys within ten years of retirement age are necessary for indicating the future capacity needs of the firm.  It is our experience that many attorneys seriously consider retirement between age 68 and 70.

Practice areas are more likely to survive over a longer continuum than many client relationships. For this reason, transition planning ten years before an actual retirement is conceptual and primarily focused on the sustainability of the skill sets in any affected practice areas.

Preparing work-life timelines in advance forces aging partners to consider their successors. In our experience, introducing replacement lawyers into a client account at least three years before a partner retirement can improve client retention probability.

Choosing a successor from an existing account team seems logical, but is not always an optimal choice. In many instances, loyalty and emotional attachment can impair the judgment of the retiring partner. Law firm management can struggle to find a voice in these situations. The retiring partner may feel that a loyal and hardworking member of the account team deserves an opportunity to assume the lead role, which is fine if this person is the best choice.

Most small and mid-sized firms have a non-interventionist policy regarding partner and client relationships, and it’s hard to insert a successor lawyer into a client account without the full support of the retiring partner and key members the account team. As we have had better success with incentives rather than penalties, we recommend approaches that encourage retiring partner cooperation.

Capacity planning that includes a consideration of skill and experience levels is an essential element of any transition plan. The items considered in a capacity plan include the following:

  • Age;
  • Experience;
  • Unique skill sets;
  • Billable hours targets;
  • Skill development needs;
  • Marketing goals;
  • Bar and professional goals;
  • Pro Bono commitments;
  • Recruiting responsibilities; and
  • Administrative contributions.

These analyses are prepared, as relevant, at the firm, section, practice or by strategic grouping. For example, by client team or even by skill set such as trial experience.

Capacity planning is inexpensive but curing the indicated weaknesses typically comes at a cost. For example, hiring in advance of the need to allow for training can run into six figures during the ramp up period. Several benefits and risks come with this approach to capability and capacity management including:


Enables transition planning;

  • Guards against turnover;
  • Can contribute to the competitiveness of the firm;
  • Can create competitive peer pressure;
  • Helps ensure high client service levels; and
  • Can maximize profitability when work surges.


  • Financial risk;
  • People don’t always work out;
  • Excess capacity can impact productivity of others;
  • Training objectives not achieved;
  • Clients may not cooperate;
  • Potential compensation implications; and
  • Partners who do not directly benefit may lose patience with the process.

Assuming a firm can get comfortable with the risks, staffing in advance of demand is a useful tool in transition readiness.

Another element of capability and capacity management is the concept of strategic staffing. This staffing approach seeks to align case assignments with skill development or client transition objectives. For example, assigning a senior associate who needs trial experience to cases that are going to trial, or working a successor lawyer into a client’s most important matters.

The largest impediment to this staffing approach is a workload imbalance (big case, new work, turnover, etc.) that causes immediate capacity needs to meet client demands. When this happens, the firm’s short-term needs come into conflict with long-term strategic goals.

Typically, short-term priorities win.  The pressure of the work and the immediate financial gains can create an overwhelming force. Unfortunately, these situations can result in unprepared associate lawyers, a weak transition posture, a bloated cost structure and challenging HR situation.

Ensuring the long-term viability of the firm requires a more thoughtful approach to staffing and a genuine interest in the careers of colleagues and co-workers. The risks to a disciplined approach to staffing are real, but the benefits can define a firm for decades.

Read more about effective law firm transition planning on PerformLaw’s Law Firm Best Practices blog.

Law Firm Transition PlanningLaw firms that develop strategic policies and have the discipline to implement them have an advantage when transitioning the practice to the next generation.  Most law firms are resistant to the implementation of strategic policies because of the years it takes to actualize results. Also, law firms often change or ignore strategic policies in response to current events, resulting in inconsistent and short-term focused management actions.

If law firms wish to ensure client business continuity, a disciplined approach to policy development and implementation is necessary.

The policies described below can significantly improve the chances of a smooth law practice transition.

Associate and Income Partner Progression

Consider what is at stake when developing progression criteria for the associate lawyer group. Partnership admission criteria are important long-term considerations for talented young professionals deciding to invest in the firm’s success or look elsewhere.

A clear advancement structure can make the difference between a good lawyer making her current law firm better or improving the offering of a well-managed competitor.

These policies are equally important to top professionals evaluating a possible association with the firm. Producing written advancement criteria can make a positive difference in the recruiting process.

Policies Needed:
  • Associate progression criteria
  • Partnership admission criteria

* Following policies that support longer-term strategic interests helps ensure that the right people advance, makes it easier to recruit suitable laterals, and helps prepare the firm for future partner retirements.

Retirement Timing

Mandatory retirements do allow for a leadership change and force senior partners to make room for junior partners, but an unprepared firm my face painful consequences by forcing a premature retirement.  On the other hand, not making room for younger partner advancement can have equally devastating effects on a law practice.

Mandatory retirement ages are controversial. Many clients value the experience of a senior lawyer who may have an invaluable amount of institutional knowledge or trial experience. Arbitrarily setting a retirement age without a transition plan is often unproductive and not feasible. No setting a retirement age, however, comes with its set of potentially serious issues.

Consider the example of the senior partner who is unwilling execute a transition plan and choosing instead to exert maximum client control. Typically, these partners have not properly introduced any of their partners or senior associates into their client accounts. They also have probably not discussed any continuity plan with their clients. When this occurs, a practice can erode when clients realize that their lawyer has no succession plan, which leaves them exposed.

These instances can result in a conflicted position for the law firm. The question becomes whether a partner is free to destroy their legal practice. As a practical matter, a partner can allow a practice to erode, and once the decline starts, there is little a firm can do to stop it without the retiring partner’s cooperation.

Eventually, the retirement question requires an answer. Firms that adopt a transition period approach can ease partners into retirement, which can benefit clients and ensure the future success of the law firm.

Transition Period

We deal with this situation frequently and have better success with creating incentives for transitioning a practice rather than consequences for failing to act. Specifically, we recommend a process that includes creating a policy that encourages partners to declare that they wish to enter a transition period formally.

As mentioned earlier, partners should create a succession plan at least three years before retirement.  This policy should contain incentives for a retiring partner to comply and should encourage suitable successors to make the necessary commitment to the process. Finally, the firm should define the criteria for qualifying as a transitioning practice (not all practices transition).

Transition Period Marketing Costs

Enhanced marketing activities during the transition period can promote the relationship transfer from the retiring partner to the successor partner or team. For example, more frequent visits to client offices to support relationship building with the replacement partner (s) can enable a smoother transition.

Additional activities aimed increasing awareness of the value provided by other lawyers on client files can also help build value in staying with the firm after the current partner retires.

Partners who do not benefit directly from a client’s origination profits may resist additional marketing spending connected to a transition plan. They instead may prefer allocating these costs within the transition agreement. Adopting a policy for handling transitional marketing costs can remove another obstacle to a smooth client transfer.

Origination Sharing Policies

Most firms compensate partners based on business originations. Law firms sometimes try to disguise the weight that originations have in their compensation formula, but more orientations typically lead to more money.  An essential part of any transition plan is a policy for sharing originations during the transition period.

Some firms may choose to underwrite all or part of the compensation cost during a transition period by guaranteeing a certain level of compensation during the transition period. Other law firms require the partner inheriting the client account to absorb transitioning partner compensation costs.

For example, assume retiring partner A agrees to a three-year transition period with origination credit declining by 1/3 each year. As such, Partner B would receive no origination credit for the applicable clients in year 1, 1/3 credit in year 2, 2/3 credit in year 3, and full credit in year 4. An actual origination sharing agreement would depend on profitability, the role of the retiring partner, and the commitment of the successor partner.

Regardless of whether the firm (the remaining partners) underwrites the transition costs or the successor partner absorbs these costs, a smooth transition requires an origination sharing agreement.

Policies Needed
  • Mandatory retirement with and without a transition
  • Transition period incentives and requirements
  • Transition period marketing activities and costs
  • Origination sharing policy

* Addressing retirement issues in advance of any immediate pressure enables a process oriented approach and an orderly transition of practices from one generation to the next.


Orderly Transfer of Equity

Equity transfers are typically more complicated in smaller law firms. Firms that include founding members also can have difficulty when founding members want compensation for the risks they took to start the business, deferred income in the start-up years, and the value of the organization they help build.  Without a process for reallocating equity, senior partners are often unwilling to surrender ownership, which can cause a crisis.

We recommend that every law firm develop a process for transferring equity on a systematic basis. We also recommend developing a standard approach to valuing equity as it is reallocated among the partners.

Policies Needed:
  • Basis for transferring equity between partners
  • New partner equity policy
  • Lateral partner equity policy
  • Capital requirements tied to ownership
  • A valuation approach to firm assets

* Transferring equity is more complex when it is a primary basis for compensation. Regardless of compensation implications, a process for transferring ownership among partners is essential to an orderly transition.

Removing Retiring Partners from Leases and Debt Guarantees

Debt guarantees and office leases can pose problems. For example, banks typically require equity partners secure all or a part the firm’s notes. A challenge may arise of the bank guarantees do not adjust with changes in ownership in the firm. Additionally, the creditworthiness of the partners may differ and require senior partners to support junior partner guarantees.

Office leases are often a firm’s largest debt obligation, but may not require personal guarantees. Regardless of security requirements, law firms do not disregard their obligations. In some instances, law firms have separate agreements among the partners regarding lease obligations.

Whether liabilities are spread to all partners evenly or in proportion to their ownership interests or a combination of both, accounting for changes in ownership is a requirement of any transition plan.

Policies Needed:
  • Debt that includes personal guarantees
  • Non-recourse debt


Post Retirement Compensation

Partners who retire from equity ownership may still want to practice on a reduced basis. Affording retiring partners a post-retirement option can ease a partner into a transition.  In some instances, however, issues can arise when the retiring partner remains involved in transitioned clients.

Clients may revert to their old habits of calling the retired partner with their assignments, which can cause resentment among the partners who have assumed the lead role. If these issues are not present, retired partners can maintain a small client base or provide expertise to firm clients.

Another situation may arise when retired partners decide to keep a practice for their account.  If the partner has received or is receiving compensation from their former firm, an agreement that governs competitive behavior is required.

Policies Needed:
  • Post retirement compensation
  • Post retirement separate law practice

* Considering post-retirement scenarios in advance enables the firm and the retiring partner to continue a smooth working relationship and supports maximum cooperation with the transition plan.

Return of Capital and Interests in Billing Assets

Retiring partners who have a material amount of fixed capital and undistributed prior earnings invested in the firm are typically due to these monies upon surrendering their ownership. Several capital scenarios can occur, but firms that adjust ownership percentages and capital accounts using orderly process have an advantage.

It is not uncommon to encounter a delayed payment schedule for the return of fixed capital, but payment for undistributed earnings typically occurs over a shorter period.

Billing Assets (WIP and AR), and Interests in Continent Cases

If a firm is structured to pay retiring partners for their interests in the firm’s net assets (primarily billing assets), a process for valuing these assets is necessary. For example, not all AR and or WIP is collectible, and the valuing billing assets must consider uncollectible amounts.

A good transition plan coupled with the orderly transfer of equity interests can significantly reduce the amount of fixed capital a retiring partner may have remaining in the firm immediately before retirement

Regardless of the approach to managing fixed and floating capital, we recommend creating policies that govern the return of capital to retiring partners.

Contingent Cases and Liabilities

A consideration of any retiring partner interests in contingent case recoveries or hard cost losses is necessary.  As contingent recoveries and losses are often difficult to value before case conclusion, an agreement for splitting the actual net proceeds when realized is needed.

Contingent liabilities may occur in some cases. For example, a malpractice action that exceeds insurance policy limits. When contingent liabilities are present, the remaining partners must consider if an indemnification of the retiring partner is possible and warranted.

To ensure that no impediments to retirement exist and to minimize the possibility of a disagreement with a retired partner, we recommend the following policies.

Policies Needed:
  • Return of fixed capital
  • Payout of AR and WIP interests, if applicable
  • Contingent case policy
  • Contingent liability agreement, if necessary

* Planning and managing the firm’s cash flow and capital resources to enable the payouts to retired partners can ensure that the firm does not overextend itself and create a perilous situation.

Law Firm Best PracticesOperating Agreement

Many of the policies needed to ensure a smooth retirement of partners become provisions in the law firm partnership or operating agreement. While many firms can handle the development of an operating agreement internally, many are better contracting with outside counsel.

Our approach is to identify areas that may impact a smooth retirement process and engage with our client’s legal counsel to ensure the provisions accomplish the firm’s objectives.

Lateral_4 Successfully transitioning a law firm to the next generation is imperative to the continuation of a law firm. Law firms must be able to retain longstanding clients and also consistently attract new business.  To do this, a law firm must often develop a strategic staffing process and expand its marketing approach.

Strategic Staffing:

Smart competitors will seize any possible opening in a client relationship. Ensuring that the firm is ready for these challenges is an advantage.  We recommend strategic client staffing to ensure that younger lawyers build the essential relationships among the firm’s current clients, which will make competitive challenges more difficult.

Senior partners should evaluate their client staffing assignments at least three years before any planned transition. If no existing resources are available, we recommend a targeted recruiting process.

Expanded Marketing Approach:

Modernizing the firm’s marketing efforts can also improve the chances of a successful transition. With the help of workflows driven by software applications, law firms can also use support staff in the marketing process.

New marketing techniques focus on reaching clients digitally with written content, webinars, video education, and blogging. The intent is to attract visitors to the firm’s website, where the firm has the most marketing latitude.

Many successful lawyers also create content rich blogs to support their value to existing clients and to build new relationships.  Often these blogs are hosted apart from the firm’s main website.  We like an approach that has some content hosted on a blogging platform and some on the law firm’s website.

Regardless of the content hosting method, we recommend that law firms commit resources to the following items, which are affordable for any size firm:

  • Web Development;
  • Search Engine Optimization;
  • Social Media Support;
  • Video Production Support;
  • Graphics Support;
  • Editorial Support;
  • Marketing Automation Software;
  • Research; and
  • Content development.

Building a marketing platform to assist lawyers and future recruits with their marketing efforts will better enable and incent them to commit to any transition plan the partners adopt.

Relying only on current clients remaining with the firm is typically insufficient. A marketing system that draws new clients to the firm, while hard to perfect, helps ensure that talented lawyers stay with the firm rather than leaving for better-equipped competitors.

Overcoming Resistance:

It is typical, however, to meet resistance to new styles of marketing. More experienced lawyers often prefer traditional marketing activities such as travel, entertainment, speaking, professional and trade associations, and some structured publishing.

Traditional marketing activities are all still necessary, but possibly to a lesser degree. A good marketing plan can combine traditional and digital marketing approaches to increase the overall effectiveness of the firm’s marketing efforts.

I am frequently asked whether a strategic plan really makes a difference in firm performance. As I have encountered many firms without strategic plans who have achieved high levels of success, this is a fair question.

The reality is that the survival instincts and talents of the partners in many firms are the primary drivers of their success. These firms operate at very high energy levels, emphasize clients and cases, and measure success in mostly economic terms.

As firms mature, however, it becomes more difficult to compete using a two dimensional approach. To be consistent winners, firms need a strategy to identify opportunities that allows for real growth in capacity and capability.
A strategic plan is most effective for achieving the following:

  • Sustained success in the long term;
  • Alignment of leaders and future leaders;
  • A basis for choosing between opportunities; and
  • A basis for measuring performance.

While many attorneys agree that a strategic plan could make a positive difference in their firm performance, they fear that the process of creating a plan will not result in meaningful change. Having read a number of strategic plans that were never implemented, this also seems be a valid concern.

The main areas of concentration in a strategic plan should include:


Strategic Plan Development

Establishing clear goals and developing a plan for achieving these goals is best accomplished using a structured process. A law firm strategic planning process typically covers several areas including marketing, professional resource development, compensation and incentives, recruiting,  progression and admission criteria, capacity planning, transition compensation, technology, financial management  and leadership and management training.


Process Management
Establishing clear goals and developing a plan for achieving these goals is best accomplished using a structured process. A law firm strategic planning process typically covers several areas including marketing, professional resource development, compensation and incentives, recruiting,  progression and admission criteria, capacity planning, transition compensation, technology, financial management  and leadership and management training.
Marketing Plan

A marketing plan is a fundamental component of a strategic plan. A strategic marketing plan typically includes the following elements: Firm-level plan; section or strategic group plan attorney plans; paralegal and support staff contributions to marketing; review of optimal client account staffing; competitive analysis; digital and inbound marketing strategy; branding; technology (CRM, marketing automation software); and  a budgeting and approval process.


Attorney Development

The components of an attorney development system include an evaluation process, practice planning process, client staffing alignment, incentives for senior attorneys use junior lawyers, and capacity and capability evaluation.  A strategic approach to staffing (aligning client work with training needs) can speed up attorney development, but often requires collaboration with clients. Anticipating client concerns and creating incentives for clients to can make strategic staffing possible.



Most firms do not have all of the talents they will need to effect a successful transition. Prospective recruiting and lateral hiring strategies are often needed. A well-communicated plan with incentives for those who actively recruit has the potential to transform a firm immediately. Recognizing recruiting contributions is an important part of creating a recruiting culture.



Compensation and Incentives

Plans that address compensation issues and that incent the behaviors that are congruent with the objectives of the strategic plan are ideal. Remuneration and incentives tied to profitability coupled with clear origination policies will support collaboration and increased plan acceptance from all firm members.   A dynamic compensation approach includes rewards for producing profits, business development, recruiting, training and leveraging is most desirable.



Policy Development

Clear progression partnership admission criteria are important long-term considerations for talented young professionals deciding to invest in the firm’s success or look elsewhere. These policies are equally important to top professionals evaluating a possible association with the firm.  Designing these policies to support the firm’s strategic plan helps to ensure that the right people advance and makes it easier to recruit suitable laterals.



Worklife Timelines and Capacity Planning

Worklife timelines for all attorneys within ten years of retirement are necessary for determining the future capacity needs of the firm. Evaluating capacity before departure provides the firm more time to implement client transitions. Preparing worklife timelines forces aging partners to consider their successors. In our experience, introducing successor lawyers into a client account 2 or 3 years before a partner retirement significantly improves client retention probability.


Transition (buyout) Compensation
Creating sensible buyouts helps ensure that younger partners are not incented to start a new firm to avoid paying senior partners a disproportionate share of current profits. Apart from accounts receivable and work in process, most law firms have no other liquid assets.  Given that most client relationships are tied to an individual and not to a firm, existing partner cooperation in a business transfer is necessary. Creating an affordable buyout structure can benefit everyone and is an important part of any strategic plan.
Partnership/Operating Agreement Revisions

Updating or creating a partnership agreement that supports long-term strategic objectives is necessary.  New partner entries, leadership transitions, future equity adjustments, addressing non-performing partners, changes in compensation, retirement and buyout provisions, etc. often require changes to partnership agreements.


Cloud-based technologies that enable advanced workflow and document management, marketing automation, and practice specific applications are improving at a rapid pace. Technology can allow a firm to expand to virtually any place in the world with an internet connection. A distributed workforce enabled by technology can expand a firm’s reach and reduce overhead at the same time. New technologies can improve client service and enhance a firm’s competitiveness. Choosing to partner with the right IT resources can transform a law firm.
Financial Plan

Financial modeling to consider the potential impacts of the strategic plan, enhanced profitability reporting, a market competitive cost structure, pricing alternatives, capitalization, earnings management are all contemplated in the strategic planning process. Partners must understand the investment required to implement any proposed plan along with the potential risks and rewards.  A sound financial plan will support plan implementation.


Implementation Support
Creating a strategic plan is a time intensive task. Firms tend to lose momentum after the written part of the process is completed. In too many instances implementation falters. Charging someone with the responsibility to implement early in the process is recommended.
At the completion of the strategic planning process, a retreat to consider and adopt the plan is most helpful. A setting away from the office without the routine interruptions can result in a deeper commitment to the firm’s goals greater plan acceptance.

In our experience, trying to address all of these areas at once ends up in a lengthy document with little time remaing for implementation. We recommend that our clients start with their highest priorities and begin implementing early in the process. Immediate successes are critical to building momentum.