Client continuity

The culture of the UK’s smaller law firms can clearly be different to rapidly-expanding international practices. Clients may have a more personal relationship with partners; perhaps even coming to depend on them. Planning for those partners leaving can therefore be a sensitive subject. A sense of continuity is essential.

By Richard Ireland, managing director, Warners Law LLP

Succession planning, particularly for smaller law firms, gives rise to much concern, partly because it is viewed in the same way as inheritance-tax planning and death – something we would rather not think about as it reminds us we are mere mortals. But like death and taxes, changes at the top of law practices are inevitable. These changes must be planned and managed effectively if the firm is to survive, let alone develop and thrive in the future.

The very term ‘succession planning’ is an indicator of why, often quite unnecessarily, a number of firms have difficulty in coming to terms with it. The Pocket Oxford Dictionary definition of succession is “(Right of) succeeding to the throne or any office or inheritance, set or order of persons having such right”.

That definition might have been more apposite before the limitation restricting firms to a maximum of 20 partners was removed. Whether or not goodwill was valued formally in the firm’s accounts, it had great significance. Clients regularly needing the services of a solicitor, both business clients and private individuals, would tend to think of individual lawyers to instruct. That was commonly the position even in the magic-circle City firms. When senior partners reached the end of their legal careers, usually with retirement, for there was very little lateral hiring or transference in those days, their goodwill would pass to a more junior partner in the practice who would then assume the role of principal contact with the key clients and referrers, such as accountants, bankers, surveyors and estate agents.

The large firms in the major cities have since grown enormously – some with hundreds of partners and a number becoming huge international law practices. The ‘cult of the personality’, as one large City law-firm partner once described it, has considerably lessened with the firms taking on branded images.

The smaller law firms, meanwhile, have on the whole continued as in the past. When it comes to succession, their clients and referrers will continue to look to individuals in the firm
rather than rely on a brand name. This is why firms’ business and strategic plans must include provision for the inevitable changes when senior lawyers leave the practice as a vital element – whether that is to retire or pursue another course. The other element that is essential in such a planned process is client care in its broadest sense, including relations with key referrers such as accountants, surveyors and estate agents with whom the firm regularly conducts or cross-refers business.

All in the timing

This planning is easier said than done, however. First, it requires a degree of certainty on timing. If a firm was simply dealing with the retirement of its most senior partners – and they had all made it clear when they proposed to retire – the planning would be much easier, but that is a fairly rare state of affairs. Retirement should be covered in the partnership agreement. All well and good, except that the EU age-discrimination regulations that came into force on 1 October 2006 seem to have thrown a spanner in the works. As reported in the article ‘Older and Wiser – A Dangerous Combination’ in the April 2007 edition of Managing Partner, The Employment Equality (Age) Regulations 2006 contain an exception that could exclude age-discrimination claims for retirement at age 65 or above. But this exception only applies to employees, not partners. As that article made clear, a partnership will still be able to set a retirement age if it can objectively justify it. It remains to be seen how the regulations are interpreted on the facts of particular cases by the tribunals. The regulations will, however, make it even more difficult to deal with the following problem: the partner who knows he or she should retire, but simply cannot face the prospect. Those having experience of forcible ‘retirement’ of law-firm partners will attest to the hostility and heat that can arise; making the most bitterly-contested divorce pale in comparison. This is important, as the emotional impact of giving up practise as a partner – or stepping down from a senior position in a law firm – is often greatly underestimated.

The planning, therefore, should address two major challenges:

How the change-over will be perceived and affect the clients and referrers concerned, as well as those outside of the firm generally;
How the change will impact upon the individual leaving and on those continuing.

To ensure a crisis-free and smooth succession the plan will need to provide for a lot of preparation on both issues.

Considering clients

To deal with those outside the firm, most importantly the firm’s clients, it is essential to know which clients, referrers and other outside professionals will be affected by the change. Assumptions and approaching this on the basis of anecdotal information is likely to create more problems than it solves. The firm will need an up-to-date and reliable database of client and referrer information for the planning, and this should be carried out by a team, even in the smallest firm. Clearly, this team should include the person with responsibility for running the practice. If the firm’s finances are the responsibility of a different person, however, he or she should be on the team too. So should one partner with authority from all the other partners to represent their views on questions such as timing; allocation of clients or referrers to the lawyer or lawyers taking over from the outgoing partner; communications with the clients, referrers and others outside the firm; and any other particular issues where the partnership view is important.

Good practice development requires that partners and those engaged in running and developing the practice have the best possible knowledge of the business. It is not enough just to know the identities of important clients; the type of work on which they instruct the firm; what they are billed annually; and similar basic information. Information about the length of the client relationship and significant developments over that period; clients’ ages and interests, should also be available. In addition, the clients’ connections with others who send instructions to the firm or refer clients or work to the firm should also be indicated. It takes dedication and great care to build up such a database. The maintenance is also time consuming, requiring discipline to ensure the information is reliable. Crucially, such a database should show who within the firm is regarded by the client or referrer as their prime contact. Often this information will become outdated where, for example, a senior partner introduces the client to a younger lawyer in the firm, who over time then forms a stronger relationship with that client.

Using this database as a starting point, the team preparing the plan for the succession should consider the management of the client or referrer relationship with all those who can be identified as likely to be affected by the change. Sufficient time should also be allowed for lawyers appropriate for taking the place of the senior lawyer leaving to have an opportunity to prepare the ground and cultivate their own relationship with the client concerned. Most clients and referrers would much rather know in advance about the change and who the firm is proposing should take over acting for them, than to learn this weeks after the event. However, there will be a concern in the firm that intervening events might jeopardise the plan if too much advance notice is given. There can be no hard and fast rules over this, as a great deal will depend upon the nature of the relationship and how quickly the lawyer taking over can establish himself or herself in the eyes of the client or referrer.

Delegating down

In any event, what most firms should be doing as good practice management is to ensure that the senior lawyers in the firm are delegating properly to younger practitioners, ensuring matters are handled at the right level. This is often not the case. Lawyers are not renowned for excellence in delegation or supervision. However, those firms who have become accredited with the Lexcel standard have found the procedures and systems they have been required to implement or strengthen have helped. The new Code of Conduct for solicitors also makes effective supervision a matter of professional conduct.

It will be appreciated that where younger lawyers are handling matters and are in direct contact with clients – under proper supervision – this will aid the process when they eventually step into the shoes of the outgoing lawyer.

Managing the client and referrer relationships is also extremely important in the increasingly competitive market predicted as a result of the Legal Services Act. In part, this is designed to give clients and referrers greater choice and value for money as ‘consumers’ of legal services. This legislation will also enable new players, including banks and large insurance companies, to enter the legal marketplace; promoting the provision of certain types of legal services in a more commoditised way than is currently the case. Of course, it is extremely difficult to predict how this will affect law firms, especially smaller practices. The one certainty is that client loyalty will be at a premium, particularly insofar as residential-property work; wills; tax planning; personal-injury claims; and employment law are concerned.

Internally, the prime challenge is to attract, train, develop and retain first-rate talent that can replace those at the top of the firm in due course. The development of young, or even not so young, lawyers should be a vital part of each firm’s operation. There should be proper appraisal processes and appropriate training for those dealing with the appraisals of lawyers and the non-legal staff. Those appraisals and follow-up action, such as ensuring specific training is provided where that would develop skills or specialist legal knowledge, should be given the time and dedication required. All too often no proper preparation takes place, appraisals being conducted ‘off the cuff’ by the appraiser, only looking at the papers prior to the interview.

In addition to a formal appraisal system where the lawyer reviews his or her progress and skills against set criteria, some lawyers benefit from being mentored by a more senior practitioner. This enables the lawyer to have someone outside of the formal appraisal process with greater experience to whom they can turn informally, and in confidence, for guidance.

If lawyers are not valued and nurtured appropriately, they will either not be retained, or will be insufficiently motivated to develop to the best of their capability and inspire confidence in clients or referrers.

Letting go

However, the problem of senior practitioners being unwilling to ‘let go’ of their client and referrer contacts, as well as holding on to the work that flows into the firm as a result, is a common one. This attitude often stems from insecurity. There are very few lawyers who can be sure their practice will benefit from an incessant flow of clients and instructions.
Smaller firms, in particular, need to work hard to attract and retain clients and win new work. Against this background, a certain degree of insecurity is understandable. However, the response of individuals holding on to clients and work stifles the development of the firm. Instead, the firm becomes something more akin to a barristers’ chambers. To overcome this, the partners should openly subscribe to a culture of inter-dependence.

Sometimes, however, it is the client that won’t let go. The client might feel that only Mr X or Miss Y understands their problems, or indeed the problems of their business if it is a commercial client. Their expectation is that that individual will deal with them like nobody else will. Here again, the successful law firm will identify and address that client’s attitude. With careful management it should be possible to overcome the demands placed on the individual lawyer, which often will not be in the client’s best interests in any case. The firm should always be building up trust and reassurance between the client and other members of the firm.

All of this would strongly suggest that the sensible approach to succession planning is to take a holistic approach. It hinges on handing the clients, referrers and those outside the firm who will be concerned with a particular change, as well as those within a firm that will either be leaving or taking over.

Richard Ireland is managing director of Warners Law LLP. He can be contacted at Richard.irleand@warners-solicitors.co.uk