Odds are that most lawyers will decide to change law firms at least once during their career, and for many, likely more than once. And, of course, all lawyers have at least considered the idea of leaving their firms. However, surprisingly, many who embark upon this major life transition fail to seek legal counsel as part of that process. Why? The reasons usually boil down to one of three things: (1) It did not occur to them; (2) They did not think it was necessary; or (3) They did not know it was available.

For starters, yes, getting law firm departure advice is a “thing.” In fact, it is usually a very smart thing, even if you do not necessarily anticipate rough waters ahead. Turns out that the key to most successful departures involves thoughtful advice, analysis, and planning (typically behind the scenes) that confidentially prepares the departing lawyer to best navigate this process with their firm, their clients, and their colleagues.

After all, for most departing lawyers, the goal is to transition their practice and their clients to a new firm in a way that complies with their legal and ethical obligations to all parties, but also helps to protect their current practice while minimizing disruption to their clients and soon-to-be former firm.

You Don’t Know What You Don’t Know. For many law firm partners, even those who run and manage their own practice groups, the idea that they need a lawyer for advice and counsel on a departure may seem like overkill. They think that because they can read a contract (i.e., their “partnership agreement”), have a good relationship with their clients, and “know” their colleagues, things will work out.

Turns out that is not always the case. While each law firm management team may react to and handle partner and group departures differently, the firm’s reaction is often not what the departing partner expected. And law firm managers are often tempted to set aside reason (or the rules) when learning that a colleague with a large book of business plans to walk out the door.

Law firm departures also involve a unique overlap of contract and partnership law, legal ethics issues, and experience with law firm practice management, subjects with which most legal practitioners are not familiar. So, experienced counsel can guide you through what to know, what to expect, and how to best navigate the process – both ahead of time and after notice to the firm.

Planning is Everything. We say this often. Planning is the single biggest factor in successful outcomes for partner and group departures. And it should not be taken lightly. Instead, it must be done thoughtfully and in compliance with your ethical duties to your firm and clients. And ethical and legal issues often emerge at the inception of the planning process, so they must be identified early and navigated carefully.

Proper planning gives you the advantage of thinking through each step of a potential departure: from contemplating a move and finding the right next home, to thinking through the timing (including notice to your firm and clients and others), to managing next steps with your firm and clients once you have provided notice, and to transitioning out of the firm and into your new law firm home. Proper planning also allows you to anticipate and plan for your firm’s (or clients’) response, rather than reacting to only what they do and assuming they are acting appropriately. And importantly, it allows you to control the narrative of your departure.

Anticipating Risk Is the Best Way to Mitigate it. One of the most important reasons departing partners need independent counsel to advise on their departure is also perhaps one of the most obvious: perspective. As lawyers, we routinely advise our clients on legal issues and analyze their most difficult legal problems. The most useful aspect of that legal advice is the ability to be detached from the legal problem and to analyze the problem objectively and dispassionately. Identifying potential legal solutions is just the first step in resolving complex legal issues. The critical next step is to have and apply the perspective to choose among the possible solutions, applying practical experience about what to do and why, to achieve your goals while best mitigating risk.

That part, the really valuable, critical part, is only possible when you are reasonably detached from the problem you are solving. It’s also more likely when you have the perspective of having seen departing lawyers solve similar problems, some more successfully than others, or seen a myriad of firm reactions to a partner’s notice and related conduct.

Importantly, departing a partnership often has a significant emotional component. The people you are now dealing with will be former colleagues and friends, possible mentors, or maybe office irritants, which often clouds a departing lawyer’s judgment about how these people will respond, how to defuse certain situations, and what makes sense to push back on and when.

Obtaining counsel for a potential law firm departure does not have to signal that you anticipate a fight with your firm (although you’ll be prepared if one happens). But it is usually the smartest way to avoid one and increase the likelihood of a smooth transition. And with the proper advice and counsel, you can develop a comprehensive departure plan that allows you to minimize or eliminate unnecessary risks, solve ethics and partnership issues before they become impediments to your transition, and better protect your clients and your practice for its future success elsewhere. Sounds pretty smart to us.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post Why Smart Lawyers Get Counsel for Law Firm Departures appeared first on California Partner Departure Law.

Now that your personal New Year’s resolutions are kaput, February is a good time to consider some resolutions for your law practice that will lead to a happier and healthier law firm. Like most resolutions, these are things that you want to do, and probably know that you should do, but may have been avoiding or just haven’t yet gotten done.

To many lawyers, the concept of law firm planning around legal ethics seems odd or daunting. But it makes sense when you analyze what’s changed for lawyers recently. Law firms today have to be more proactive than ever in managing legal ethics. Why?

First, the rules continue to change, literally, for California lawyers. Since major revisions to the Rules of Professional Conduct took effect in November 2018, there continue to be new rules to keep up with, including new trust accounting reporting duties and Rule 8.3 obligations, to name a few. And, of course, keeping up with changes in the rules is critical if you want to stay out of trouble.

Second, the rules have changed, figuratively, for California law firms. Are you big or small? In many ways, firms are bigger and more complex than they used to be. It’s common now for law firms to span multiple states or multiple countries, with more attorneys working across borders among firm offices. Firms that used to have just a local practice, or just one type of client, or serve just one type of industry, now may have many more potentially overlapping clients and interests to consider. Add to this the fact that it’s now commonplace for partners to come and go from the firm regularly, with their clients, which means these overlapping interests are constantly evolving. There has also been a steady increase in the rise of smaller, more specialized firms taking over the marketplace, firms that typically rely heavily on technology and outsourcing to compete effectively in the marketplace.

Law firms are getting both bigger and smaller (and the less nimble, brick-and-mortar, midsized firms are slowly becoming obsolete) as the practice of law continues to evolve. While many things appear to be easier than ever, there is a growing roster of complex issues to manage, including remote work, online marketing and advertising, cyber security concerns, technology policies, outsourced vendors (for all or some parts of a practice), partner departures, and contract attorneys and staff, just to name a few.

It’s not difficult to conjure the legal ethics questions that can arise at a law firm based on these new and changing realities. What law firm services can be ethically outsourced to vendors, and how? Is it okay for firm attorneys to work on matters in a different firm office or location in a state in which they are not admitted? Are a contract attorney’s clients imputed conflicts for the firm, even if they work only on specific matters? What screening processes should be in place when admitting lateral partners to the firm? Is your firm advertising and the social media presence of the firm’s individual attorneys communicating a legally and ethically sound message to consumers viewing it worldwide? The list goes on and on, and if you think too much about these issues, they can cause you to experience what we refer to in the business as a freak-out.

Happily, there are solutions to help you sleep at night. A few relatively straightforward resolutions for the new year will set you on the right compliance path.

Find and review your firm’s documents. The first step in any analysis of your firm’s legal ethics systems is to find and review your firm’s organizing and governing documents. The firm’s partnership agreement or shareholder operating agreement will, or should, contain the framework for the firm’s governance and compliance, including rules regarding who makes decisions, how the firm sets policies, and what policies it sets. Next up is the firm’s policies and procedures. This should contain the firm’s guidelines for critical controls like client intake, data security, client confidentiality, trust accounting, departures, and conflicts of interest.

The point of this exercise is to determine whether the firm has policies, whether they are the right, up-to-date policies for the firm, and — most importantly — whether the firm is consistently following them. Of course, if you don’t have a partnership agreement, operating agreement, or policies and procedures manual, well, umm, get them.

Identify and analyze your firm’s systems. Another question to ask about your firm is whether you have systems in place to handle critical legal ethics issues, both to prevent them and to manage them if they arise. This is required under the rules and is different than asking what you typically do if a legal ethics issues comes up. Often, these systems are part of a firm’s policies and procedures, but not always.

Many firms deal with ethical issues on an ad hoc basis, discussing such issues only if they become open and obvious. But that’s not the best way to resolve legal ethics issues, and it does nothing to prevent them from arising. Rather, your firm should have consistent systematized protocols in place outlining both how to identify and how to address legal ethics issues in several categories.

If your firm has systems in place, that’s great. Check whether they are up to date, in writing, and whether anyone is following them.

Dedicate counsel or get outside counsel. If even these first few issues seem too daunting, you’re not alone. Many California law firms deal with legal ethics issues only when they have to, and sometimes not even then. If you dread these issues, you’re also not alone. But don’t let that prevent you from addressing them. It’s a good idea to dedicate a lawyer at the firm to handle coordinating these issues. If you’re at a smaller firm and no one has time to deal with these issues, or no one wants to, get outside counsel to assist you. Even if your firm has dedicated general counsel, the firm may need outside counsel’s perspective and experience to help see outside the box (comprised of the four walls of your firm).

Adopting these few law firm resolutions, or even working on them one at a time, can help put your firm on a path to compliance, which will not only minimize your risk, but also your freak-outs. Unfortunately, it won’t do anything to help you exercise more.

Dena M. Roche
Managing Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post Law Firm Resolutions for a Happy New Year appeared first on California Partner Departure Law.

The first quarter of every year tends to be a time of change and transition. Law firms are not immune from that phenomenon. For a variety of reasons, partner departures happen more often in the first quarter. For those planning to depart, this often occurs once they are paid bonuses and true-ups from prior year’s profits. If the firm’s past year’s performance does not meet partner expectations, this can also stoke departure plans.

For law firms, the effects of partner departures are rarely positive. But, strictly speaking, if the right partners leave, the firm should be better off. Few at the firm would lament the departure of unproductive partners, unprofitable partners, or abusive partners. And indeed, law firms should review partner ranks and metrics on a regular basis to determine whether certain partners fall into those categories. But even if the right partners leave — partners that the firm wants to leave — if not properly managed, partner departures can be bad for business.

If it’s bad, it’s bad. Start with the obvious. When a high-ranking partner, highly profitable partner, or highly productive partner leaves the firm, it’s bad news. Revenue tends to go with partners who fit this profile. The same is true for departing partners who are leaders at the firm. What do they know that you don’t? Ditto for partners in the firm’s core practices, or desired core practices. It’s hard to build a firm on shifting sands.

Even if it’s good, sometimes it’s bad. If you are managing a law firm, it may seem counterintuitive that even the departure of unwanted partners could damage the firm. But despite the increase in attorney mobility and the increasing prevalence of partner or group departures, law firms are still law firms. That means that the firm’s reputation is one of its primary assets, and the way that people — clients, competitors, remaining partners, associates, and staff — perceive the firm in many ways dictates reality.

Clients don’t like it. Law firm clients tend to value stability at the firm very highly. Partner departures, especially those that make the news, tend to convey to clients that all may not be well at the firm. That may not be true, but departures that directly involve clients, as most do, often constitute an unwelcome and unappreciated distraction for clients. Suddenly, the firm that was hired to solve problems has become one. And clients have to solve that problem in the first instance by deciding whether to go or to stay, and on what terms.

Then there are the logistics of transferring matters to a new firm or to a new partner at the old firm. For some clients, that may require significant internal review or approval, sometimes going far up the chain of command, putting a spotlight on the client’s relationship with the firm in the cruel light of day. During the transition, will something get missed, or will an opponent seize an opportunity, or sense weakness? These are not questions the firm wants its clients to have to ask. More to the point, ask most clients, and they will tell you that any of this is at the bottom of their list for how they want to spend their time. Clients who are unphased by this have likely already grown unhappy with the firm or their current representation.

Competitors do. Law firm competitors generally view partner departures as a sign of opportunity to tempt other partners at the firm to jump ship. Or to convey to that firm’s clients that they have the stability they seek. Or to poach staff. Or whatever. When the firm’s competitors sense an opportunity, most likely, it’s bad news.

That’s no real insight. But it can be a surprise for some firms to realize just how vulnerable their business can be when a partner or group departs. Clients, remaining partners, associates, and staff are all susceptible to messages of comfort from your competitors, and never more so than when departures occur.

Remaining partners start to think. Remaining partners should know the truth, but because they are humans, it doesn’t always work that way. On an intellectual level, the remaining partners know or should know the specific reasons why the partner or group left and be able, objectively, to determine whether the firm is better off as a result. That may happen. Sometimes, remaining partners view the situation objectively and focus on the benefits that can accrue from partner departures, including increased opportunities with clients, promotion at the firm, or better profitability.

But just as often, even the remaining partners might take the opportunity to wonder whether there might be greener pastures out there for them, too. Or to evaluate more critically the factors that may have led to the departure. Shouldn’t the firm be more profitable, a better place to work, more dynamic, more supportive, more whatever? And what happens when the departures hit the bottom line? The list of questions goes on.

Associates and staff get skittish. The firm’s associates and staff can view partner departures as a sign that the firm is unstable or that it may not be as successful as they had hoped. Law firms tend not to be the best at sharing information with associates and staff, or putting details about the firm’s business in context, and associates and staff typically are left to piece together what information they can gather to draw their own conclusions. They also tend to share their conclusions with others at the firm, and quickly.

The good news. So, if it’s bad, it’s bad, and even when it’s good, it’s sometimes bad. That’s not very heartening. But thankfully, all of these effects of partner departures, real or just perceived, can be managed and mitigated with proper preparation and messaging. That requires anticipating departures to the extent possible and candidly assessing the effects either before departures occur or soon after they do. With the right preparation, a well-run firm will have a departure contingency plan in place to implement when necessary. That plan will address the real effects, the likely-to-be-perceived effects, and the steps and message that will mitigate both in a way that benefits the firm.

Partner departures can present great risks for the firm—but also great opportunities—if you are prepared.

Dena M. Roche
Managing Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post Managing Partner Departures So They Are Not Bad for Business appeared first on California Partner Departure Law.

The law firm lateral partner data suggests that most lateral partners do not meet revenue expectations at their new firms in their first year. This is bad news for the partners, whose compensation may be based on those expectations, and may be reset according to reality. This is also bad news for law firms bringing in lateral partners, who often make significant investments in lateral partners that may not pay off when, or as, expected.

The Glass May Be Half Empty

These statistics point to a more general problem affecting partner departures. Despite the highest hopes for departing partners and for their new firms, both frequently overestimate the upside potential, and underestimate the potential risks, of their new relationship, at least in the short term. But partner departures and lateral moves can be an incredibly profitable endeavor — unlocking enhanced value both for the partner and for the firm — if each has realistic expectations.

It’s not difficult to understand why partners and law firms tend to see things with rose-colored glasses. They are humans. It turns out that accurately estimating potential risks and rewards is not something that humans typically do very well — ironically, even lawyers who are trained to identify and analyze risks are often not very good at this when it relates to themselves. Lawyers who otherwise tend to be characterized by pessimism and gloominess often can be wildly optimistic about the business prospects of lateral partner moves.

Nobody Promised You a Rose Garden

The partner departure context tends to exacerbate normal human tendencies to underestimate risks and overestimate rewards. Partners generally don’t depart their firms if they are happy and content. They leave because they are unhappy, unsatisfied, angry, annoyed, or their firms are experiencing unexpected change or crisis, or worse. And law firms seeking lateral partners may be motivated by trying to fix a problem or crisis: flagging revenue, a gap in practice areas, or filling a hole created by a partner or group who departed. And change, especially rapid and dramatic change, is also not something that many lawyers or law firms typically do very well.

So for either side, to the extent that any lateral partner move is the result of an effort to solve an immediate problem, and necessarily involves big changes, it can generate magical thinking. When reality catches up, it can be jarring, to say the least.

Keeping It Real

Fortunately, with a disciplined approach to assessing the potential risks and rewards of partner departures and lateral moves, both the firms and the partners can keep themselves firmly grounded, which will increase the likelihood of success at the new firm

1.      Analyze the data. Oddly enough, many law firm partners don’t have a solid and detailed understanding of how profitable their practices are, and whether that profitability will translate to a new firm. Revenue is great, but it is not the same as profitability, and the latter matters more. Do you have a model, even a rough one, that explains how profitable your practice is and whether that will increase at the new firm? It’s not terribly difficult to get a clear picture of profitability, but without it, you are flying blind.

2.     Discount the numbers. Most lawyers typically would not give their clients only the best-case scenario in any risk assessment. Yet that is what many lawyers and law firms do in the context of lateral moves. When you look at your practice to analyze it for a lateral move, consider discounting the numbers for the first year. If you hear anyone mention the word “synergy,” run away screaming. After all, transitioning a practice is something that will take time away from the actual work. And if you happen to have a dispute with your former firm, which can happen, add in an additional distraction. When you are making projections, discounting the numbers can lead to a more realistic picture, at least for the first year.

3.     Mind the gap. Don’t underestimate the potential for these types of transition distractions to hamper a practice’s performance in the first year at a new firm. There are transaction costs involved in any partner departure and, depending on how the move develops, these can have a significant effect on the bottom line in the short term. Similarly, don’t expect, or base projections on, a scenario where every one of the clients or everyone on the team makes the move to the new firm. Each has its own calculations in these transition scenarios, and you should plan that at least a few will not make the move.

These are all contingencies that can be anticipated, and should be accounted for, to reduce the likelihood of surprises on both sides.

4.     Consider the culture. The culture at a new firm is obviously important in any move. But recognize that the culture of the firm may also affect the practice’s performance in the short term. Does every associate at the new firm work until midnight or leave at 5:01 p.m.? How is remote v. in-person work being addressed? Do other partners at the firm bill significant amounts on their own matters? Are partners expected to handle significant administrative responsibilities for the firm in addition to running their practices? Assessing the impact of the new firm’s culture on the practice — for both sides — is a key to accurately predicting performance.

5.     Anticipate potential problems. Don’t build expectations around the assumption that the old firm will go gently into that good night. If you handle the partner departure process properly, or your onboarding lateral group does, you can minimize the risk of disputes with the former firm. But you can’t eliminate those risks. And even though you may not get involved in an overt legal battle, disputes happen frequently enough — even about potentially minor issues — that it is important to anticipate this and to account for it as part of the transition plan and in any practice performance projections in the first year and potentially beyond.

Partner departures and lateral moves can create winning scenarios for both the partners and the firms. But taking a disciplined approach to projecting the performance of any practice is the key to avoiding potential unpleasant surprises for both sides.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post Creating Successful Outcomes for Lateral Partner Transitions appeared first on California Partner Departure Law.

In any law practice today, it is critically important to respond to partner departures in the right way. It is equally important to anticipate and manage partner departures proactively. From most firms’ perspectives, the partnership agreement is the primary defense to partner departures. And it can be a powerful tool. If properly drafted, the partnership agreement should include provisions that minimize the incentives for partners to leave the firm and raise the cost of departure to partners or groups in a legal and ethically compliant way.

But like any risk management analysis, it is not enough to put protections in place to react. To manage the firm properly, you also must analyze whether the firm’s culture is aligned with the goal of retaining talented partners in the first place.

Yesterday is gone. In years long past, law firms didn’t have to worry about such things. For those who became partners, they often stayed for life, and whether they remained productive or motivated was frequently an afterthought, because they tended not to leave the firm regardless. That’s ancient history for law firm management, particularly in the wake of the pandemic, where attorney mobility is at an all-time high. That’s good because it means that there are fewer and fewer unproductive partners roaming the halls or the internet, which can make it difficult for talented developing partners to move up at the firm. On the other hand, talented and successful law partners now often have an individualized brand, and a carefully cultivated marketing identity and client relationships, all of which probably are independent of the law firm.

Have practice, will travel. This means that the most talented partners are also highly mobile. Attempting to keep those partners at the law firm with onerous policies or provisions alone typically won’t work, especially in the current market. And if that is your law firm management approach, you may be looking through the wrong end of the telescope. The best starting point to prevent talented partners from leaving is to create a law firm culture that binds them to the firm, gives them things that they cannot get elsewhere, and makes the practice of law — dare we say it — enjoyable and rewarding.

Creating, or fostering, this type of law firm culture sounds easier said than done. But it can be done, and indeed it is being done, by all or some of your law firm’s competitors – especially in the wake of the pandemic. The first step is to ask a few questions about your firm.

What is your law firm’s unique value proposition for partners? This is commonly a trick question for law firms because most generally consider high compensation to be the value proposition for the firm. But compensating law partners fairly and well is not unique to your firm. The best-run firms recognize that partner compensation is necessary but not sufficient. And most partners do not cite more money as the primary reason behind their departure. Yes, you must pay partners well to retain top talent. But to succeed over the long term, and to retain the most talented partners, a law firm also must offer partners something that they cannot easily obtain at a different firm.

That might be a unique mix of personalities and expertise that provide mutual support for partners and practices. That might be policies and procedures at the firm that uniquely facilitate partners’ business success. That might mean a unique approach to strategic planning, to prepare for the changes in the marketplace over time. And in a post-pandemic work world, that might be law firm management that has embraced changes from the pandemic and incorporated the best practices (remote and hybrid options) into the firm’s new normal.

Whatever it happens to be, two things are certain if your firm is going to succeed over the long term: you must have a value proposition for partners, and it must be unique to your firm.

Does your law firm value the right things? The phrase “unproductive partner,” used above, is a common but treacherous phrase for law firms. Many firms make the mistake of equating that phrase to “revenue-producing.” Revenue is great, sure — without it, nothing else matters. But generating revenue in the short term is not the only, or even the most important, way that a partner can be productive. Someone has to run the firm, for example, and that is critical even though it doesn’t generate revenue in and of itself. Similarly, partners with unique subject matter expertise often are not producing the most revenue, but this can be critical to the long-term success of the firm. Long-term training of attorneys and staff is critical, but it doesn’t directly produce revenue. The list goes on.

Does your firm explicitly or implicitly value the production of revenue above all else, or fail to recognize the institutional value of critical non-revenue producing activities? If so, your firm’s short-term future is likely to have a lot of revenue. But your firm’s long-term future is likely to be at risk. In the long run, a law firm has to be more than just a collection of revenue-producing individuals.

Are your law firm’s policies and practices aligned with a successful culture? Even assuming your firm is committed to the right long-term value proposition and recognizes institutional value in the right way, neither will mean much if the firm’s policies and procedures don’t reflect these values. This means you have to view the firm’s functions — recruitment, training, management, compensation, marketing, etc. — in the context of, and in service to, those goals.

Answer or be answered. These are three simple questions, but they are a critical starting point for an analysis of your law firm’s culture and whether that culture is supporting the goal of keeping talented partners. The good news is that with some thought and analysis, the answers to these questions can lead to positive change that positions your firm for long-term success in the new legal marketplace. On the other hand, if you can’t answer these questions, or if you get the wrong answers but do nothing about it, you can be sure that the marketplace will answer them for you.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post Your Law Firm Culture Should Protect the Firm from Partner Departures appeared first on California Partner Departure Law.

For law firm partners, some circumstances arise after giving notice of a departure that can seem unexpected or even shocking. But it turns out that what may appear unlikely or uncommon is quite usual in partner departures, and some circumstances that may be difficult to imagine are foreseeable with the correct perspective.

Not all of these circumstances will occur, of course, and in the best-case scenario, perhaps none of them will. But each of them, or some variation, happens often enough that it’s best to assume that these reactions will happen and to build your departure strategy to anticipate, accommodate, and neutralize each of them. If these reactions never come to pass, at least you will have been prepared and pleasantly surprised.

The firm may react negatively. It sounds like common sense to say that the firm may have a negative reaction to your departure, but in many cases departing partners find this difficult to believe or to anticipate. After all, you might have spent your entire career at the firm, and many of the partners likely are not just trusted colleagues but personal friends.

Why would those people react negatively to your departure? Lots of reasons. The first and simplest is that you are probably taking money out of their pockets. People don’t like that, especially lawyers.

Second, other partners may view your departure as a rejection of them. That should not be a surprise, of course, since it is a rejection: if you were entirely content at the firm and everything was going very well, you wouldn’t be leaving. Or maybe they are envious that you are moving on and moving up, and they are not or cannot. Partners who are in the management of the firm may take the news personally, since the firm’s culture that you are rejecting is likely due to policies that they created, encouraged, or at least permitted.

Many departing partners feel that the firm has no right to react negatively since the departure is likely motivated by the firm’s own real or perceived shortcomings over many years. The argument is that had the firm realized its failings, it could have avoided the departure, so it won’t be heard to complain now. But that’s not how it works. Even if all of this is true, and the firm is to blame for your leaving, and whatever the cause, do not be surprised if the firm has a negative reaction to your departure, regardless of how long you have been at the firm.

Your partners may become adversaries. For similar reasons, many lawyers find it difficult to believe or to anticipate that their trusted partners and colleagues may become adversaries once you announce a departure. Not all do, to be sure, and in many departure scenarios, we see strong loyalties and professionalism revealed. But unfortunately, unless they are coming with you, it’s more likely that you will see other partners now scrambling to get an advantage out of your departure, either by taking your role at the firm, trying to keep or take clients, or otherwise moving up. It’s generally safe to assume that once you are a lame duck at the firm, everyone will be positioning to gain an advantage from it. So, that should not come as a surprise, and it is not always a bad thing.

The firm will act in its self-interest. This may come as no surprise to lawyers who have decided to depart since, in most cases, the decision to depart is motivated by too much of the firm’s self-interest. It can be a surprise, however, to experience how this plays out. Once you announce your departure, the information is equal, and the firm knows what you know for the first time. Expect that the firm will compete for clients, potentially make the transition harder for you, hold on to your equity as long as possible, interpret the partnership agreement very strictly, and generally conduct itself in its self-interest. And, provided client interests are not imperiled, and ethical obligations are met, the firm may have a right to do some of these things, but it can come as a shock if you fail to anticipate precisely what, when, and how they will execute these things.

Clients will too. The same holds true for many clients. Don’t be surprised if certain clients use the news of your departure as an opportunity to negotiate a better fee, better terms of representation, decide to stay at the firm, or change altogether to new counsel. Again, clients are, of course, permitted to do any or all of these things. It can be a surprise, however, if it happens. After all, when you or your group are departing a firm, you are at one of the most vulnerable moments of your career. You might not expect that clients, especially long-term clients with whom you have built a lasting trust relationship, will use that opportunity to get something from you. But it does happen. And it’s just business.

Never fear. If you are hiding under your desk at this point (haha :), you should not be! The best use of this list is to incentivize proper preparations to depart the firm. You can only do that when you anticipate and plan to accommodate the firm’s potential reactions. A properly prepared departure and transition plan will account for these potential issues, and others. Without a plan, these reactions can quickly overwhelm. With a plan, you can manage them to your advantage while protecting client interests.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post What to Expect When You’re Departing appeared first on California Partner Departure Law.

For many law firm partners, even those who run and manage law firms large and small, the idea that a law firm needs its own lawyers to manage legal ethics issues and related law firm governance matters may seem like overkill. After all, law firms are full of lawyers — hopefully, smart and skilled lawyers, some of whom even act as general counsel or have experience in risk management — so why would a firm full of lawyers need its own counsel? Lots of reasons, it turns out.

A Fool for a Client. One of the most important reasons a law firm needs independent counsel to advise on legal ethics issues is also perhaps one of the most obvious: perspective. As lawyers, we routinely advise our clients on legal issues and analyze their most difficult legal problems. The most useful aspect of that legal advice is the ability to be detached from the legal problem and to analyze the problem objectively and dispassionately. Identifying potential legal solutions is just the first step for resolving complex legal issues. The critical next step is to have and to apply the perspective to choose among the possible solutions, applying practical experience about what to do and why.

That part, the really valuable, critical part, is only possible when you are reasonably detached from the problem you are solving. It’s also more likely when you have the perspective of having seen many firms solve similar problems, some more successfully than others.

Solutions You May Not See. Outside legal ethics counsel doesn’t just say no to things you may want to do at a law firm to make money. Instead, legal ethics counsel can advise you about solutions to the problem that you may not see, including solutions that can significantly lower the risks of a potential legal ethics issue and may clear the road to serve clients in the ways you choose. Many legal ethics issues can be managed if identified early, properly analyzed and disclosed to interested parties, and resolved upfront. Most of the really hot water that law firms get themselves into results from the natural partner instinct to avoid or to deny potential legal ethics issues at the outset and hope for the best. It’s a bit like deciding not to treat a disease at first diagnosis. Yes, it may get better over time, but chances are it will get much, much, worse. Identifying those legal ethics issues upfront doesn’t always mean having to say no; rather, if properly analyzed, it frequently means you have many options to solve the problem before it becomes an existential threat.

The Only Constant is Change. Perhaps the most practical reason for California lawyers to seek outside ethics counsel is that the past two years have ushered in an era of unprecedented change in the way law firms operate. Navigating remote practices and changing workplace values, massive law firm transitions and departures, and technological tools and the use of third-party service providers have transformed the way law firms communicate with clients, handle their data, and deliver legal services. Even an in-house law firm general counsel who keeps up with these ever-evolving issues may have difficulty dedicating the resources necessary to analyze and implement the appropriate changes in the firm to comply with the legal ethics rules and risk management and business objectives.

Do Your Kids Have Shoes? Thoughtfully developed law firm partnership agreements, and other organizing documents and policies, are the foundation of any well-run law firm. Unfortunately, many California lawyers don’t have any governing documents for their firms, or their agreements are not updated and do not serve their current needs or practice plans. These agreements are a lot like estate planning documents for individuals, nobody really wants to think about it, but we recognize it as a practical necessity. Here, failing to deal with your firm’s governing agreements means your practice might not comply with legal ethics rules or California law, and your firm’s assets may not be as protected as you think. It also means it will likely be more difficult to avoid disputes among partners – on issues such as departures, retirement, succession planning, compensation, management, to name a few – and may be more difficult to resolve them when they do arise.

Is Everything Privileged? Law firms tend to have the instinct to handle sensitive legal ethics issues internally to preserve the confidentiality of the issues and to avoid publicizing their most sensitive business risks to anyone. That is the right instinct, but without more, it can limit the firm’s ability in some circumstances to protect the privilege of sensitive internal investigations, especially if you don’t have a dedicated internal ethics counsel or if there is any question about the independence of the lawyers investigating. In the first instance, outside legal ethics counsel can advise on how best to conduct the internal review of sensitive topics to maintain privilege, as well as under what circumstances, and how, such analysis must be disclosed to clients. More generally, having outside counsel handle the issues in coordination with the firm’s partners or internal ethics counsel is more likely to preserve the privilege. And that’s a really important privilege if the worst happens. It may also ensure the most protection for clients’ interests.

Taking all of these risks together means you may not want to get out of bed in the morning. But the good news is that all these issues can be addressed in a systematic way over time. And, with the proper advice and counsel, your firm can minimize or eliminate unnecessary risks, solve legal ethics issues before they become disasters, better protect your firm and your practice, and preserve your most sensitive and confidential law firm business information.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post Why Your Law Firm Needs a Lawyer appeared first on California Partner Departure Law.

Law firms are often shocked and surprised when a partner or a group of attorneys announces their departure. We preach advance planning for law firms to avoid this element of surprise where possible. Well-managed firms try to anticipate situations that can lead to partner departures, try to actively monitor the signs that a departure may be coming, and — for partners or groups that the firm does not want to leave — to prevent departures, or to manage them. The starting point is to know what can trigger partner departures.

Revenue shocks. If your firm has a significant financial setback, or a revenue disruption, even if only temporary, this can lead to partner departures. Well, duh. It’s no secret that lawyers like to be well and fairly compensated for what they do, especially if they have major books of business. When law firm revenue unexpectedly drops — maybe a new expansion office hasn’t performed as expected, maybe a lateral partner or group isn’t performing as expected, maybe the firm dabbled in a contingent case or alternative fee arrangement that soured — it can have a cascading effect. Partners whose actions and decisions did not lead to the problem, and who may not have experienced any potential upside, likely will perceive that it is unfair for every partner to share equally in the burden.

Revenue shocks that produce partner departures can lead to more revenue shocks, and still more departures. You get the picture.

Strategic shifts. Most law firms have at least some traditional client base. Well-managed firms analyze this client base to determine whether it will grow, or even sustain, over time. If not, it is logical for the firm to target other markets, and focus on other practices, to grow over time. But when that happens, the firm necessarily leaves behind at least some partners, and their clients, who can’t, won’t, or don’t want to, change in the same direction. Without a clear strategic vision for how the firm’s new strategic direction will benefit everyone (or, at least, everyone willing to change in a positive way), a change in the firm’s business strategy is likely to lead to partners or groups heading for the door. The more abrupt the strategic change, the more likely it will lead to departures.

Management changes. Since law firms are made up of people, personalities matter. Well-managed firms create and implement clear succession plans for firm management. Recognizing that running a law firm can be an arduous — and frequently thankless — task, firms are wise to rotate management on a regular basis. And this is especially important in today’s legal environment: to be competitive, firms need new ideas, and must continually improve on old ideas. But when new management takes over, this can also be a source of alienation or frustration for partners, leading them to consider greener pastures. If, for example, the new firm manager is from a different practice area, or a different office of the firm, or a different competing mindset within the firm, or is successful but widely despised (two traits that can be correlated), those partners who don’t see eye-to-eye with the new bosses can be flight risks.

Mergers and acquisitions. Thoughtfully considered, well-executed mergers can be a tremendous boost to a firm’s bottom line, and to its long-term growth prospects. When done well, the merged firm will be greater than the sum of its parts. Recognize, though, that virtually any law firm merger will leave some partners feeling out in the cold. Client conflicts may create a bar to certain practices remaining at the firm. The merged firm may have greater overhead, more billing pressure, or its own strategic shifts. And merging two firms means merging to law firm cultures, which is much easier said than done.

Similarly, partner or group acquisitions can lead to partner departures for the same reasons. This effect is more pronounced when new attorneys are brought into the firm in a way that overshadows the partners already there. Or when the new attorneys make more, or a lot more, than current partners.

Other departures. One of the things that makes it challenging to manage partner departures is that they tend to have a reinforcing effect. When one partner leaves, it can lead to the negative conditions that make it more likely that others will leave. Or a partner departure sparks other partners simply to consider, perhaps for the first time, whether they have the same problems and could, or should, go too. Partner departures can be bad news for a law firm. Cascading departures are worse news for a law firm. The worst scenario creates an existential threat, in which each partner departure makes additional departures more likely, in a pattern that can continue toward crisis.

None of these potential challenges has to become a crisis for the firm. If properly managed, any one or all of these trigger events can be an extremely positive development for the firm. And firms should not resist change of this type solely because it can lead to partners leaving. Candidly, partner departures are not a bad thing in and of themselves. When a partner or group is unhappy at the firm, it benefits them and the firm, in the long run, for them to move on to happier and more productive professional homes. But it is critical for firms to manage the triggering events properly, so the partners or groups that the firm wants to stay are not unintentionally encouraged to leave. The good news is that firms can manage these events successfully with advanced planning.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post 5 Law Firm Events That Can Trigger Partner Departures appeared first on California Partner Departure Law.

We frequently address how law firms can use partnership agreements to disincentivize partners from departing the firm. Protecting the firm through the partnership agreement is an important way for law firms to manage the risks of partner departures. The partnership agreement is also among several tools the firm can and should employ to address the potential for partner departures. But the best risk management approach for partner departures is to prevent the right partners from wanting to leave the firm in the first place. For the others, well, they should go.

Not Everyone Stays, or Should. Start with the obvious proposition that not every law firm partner will be happy or productive at your firm, or perhaps at any other firm, and for that reason, some can’t be convinced to stay under any circumstances. Even in perfect conditions, which is a description that doesn’t frequently get applied to law firms, people leave. Personal reasons. Professional reasons. Both. Neither. Whatever the cause, the challenge for law firm risk management is not to get every partner to stay. The challenge is to get the right partners to stay and the right partners to go.

Breaking Up Is Hard to Do. In a highly functional marketplace for legal talent, in theory, partners who have free mobility will move until they reach a law firm that employs their talents in the most efficient way, leading to happiness and profits for all. In practice, law firm life is not quite like that. There are intangible negative side effects of partner departures that create some stickiness that can keep partners at firms well beyond the time when it would be best for all if they moved on.

First, partner departures can create the appearance of instability for the partner. If you are frequently leaving law firms for greener pastures, sooner or later, your clients may start to wonder if the problem isn’t the firm, but you. Second, partner departures can create the appearance of instability for the firm. Even if any particular departure is the right thing for the partner and for the firm, other firm partners and employees, as well as firm clients, can conclude that the departure is a sign that the firm is in turmoil, or worse, that the firm is in trouble.

Third, partner departures can be a significant distraction for the firm, at best, or an expensive actual dispute for the firm, at worst. All that time spent on the transition issues is not very productive for the firm. If the departure becomes a dispute, those are not productive hours either, to say the least, and the risks abound. Finally, despite abundant evidence to the contrary, in practical experience, a partner leaving a law firm still, in some ways, goes against what many lawyers think about law firm life. It may be changing, and that change may be accelerating, but to a surprising extent, even today, law firm culture is still extremely staid. The typical lawyer personality isn’t prone to risk-taking and change, especially with regard to their work surroundings.

Surprise, It’s Not Surprising. So, it’s no surprise that many partners stay at law firms far beyond their sell-by date, way beyond when they, their clients, and their firm would be better off if they left for different firms, different work arrangements, and perhaps even a nicer life elsewhere. Which partners should go?

Unhappy Partners. At some firms, you could search the halls with a lantern looking for the last happy partner and search in vain. (Well, in the days when lawyers were all still in the office.) But law firm partners are critical thinkers, to put it mildly, and this generally means that they don’t always present as, well, happy. But there is a difference between partners who are really unhappy at the firm and with the firm, and the rest of the cranky lawyers. The truly unhappy lawyers can be toxic, and contagious, making others at the firm miserable too.

Unproductive Partners. It should go without saying that the law firm would be better off if unproductive partners leave the firm, since that is the definition of better off, providing that the firm properly defines what it means to be a productive partner. That definition will depend on the firm, and it’s not just about financial productivity. In the simplest formulation, it’s about whether the partner brings more to the firm than the partner takes out of the firm. That may mean, and often does mean, money. But it also could mean raw intelligence, intellectual flexibility, problem-solving skills, or wisdom. It also could mean management skill, administrative acumen, or business perspective. It may mean that they are just well-liked at the firm and contribute to the firm’s positive culture. Firms should not narrowly define what it means to be a productive partner. But, to be blunt, it does no good for the firm or for the partners to let unproductive partners stay.

Problem Partners. Problem partners are unhappy partners who have gone viral with unreasonable demands, bad work habits, abusive temperaments, worse, or all of the above. On the other hand, problem partners can be canaries in the coal mine, and just because people are complaining and disenchanted with certain things at the firm doesn’t mean, in and of itself, that they are wrong.

It sounds pretty basic to say that unhappy, unproductive, and problem partners should leave the firm. But just because it seems obvious doesn’t mean that firms actually do it, or even systematically analyze these issues in this way. And the traits are not always consistent: what if someone is really well-liked, but not very productive?  Or abusive to colleagues, but very productive?  The takeaway from this exercise is that well-run firms develop and use a system to identify partners who should stay and those who should go and to make those changes. That’s the best way — really the only effective way — to manage a law firm’s culture and to help keep the right partners from leaving.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post Which Law Firm Partners Should Stay and Which Should Go? appeared first on California Partner Departure Law.

Partner departures typically are very disruptive to law firms. In the near term, partner and group departures can create short term revenue shocks, create holes in the firm’s expertise, foster uncertainty for those who remain, and damage morale, to name a few effects. In the long term, departures can have serious negative effects on the firm’s bottom line, which can feed a vicious negative cycle. Law firms have a range of options to reduce the likelihood of partner departures and to react when they occur.

Attorneys and groups move to new firms for various reasons, and that is not something that the firm can or should try to stop entirely. Nevertheless, a law firm should have a coordinated set of policies that make it less likely that partners will want to leave, and less likely that they will benefit from leaving. The best place to start implementing these policies is in the firm’s partnership agreement itself. The best run firms coordinate partnership agreement provisions — regarding notice, disincentives to leaving, return of equity, compensation, and information sharing — to serve the policy of retaining top partner talent.

Notice Provisions. Notice provisions set the minimum contractual amount of time required for a partner to give notice to the firm of a departure. A reasonable notice period can provide the firm with sufficient time to compete fairly for the clients who may be at risk of departure, to manage the staffing and personnel changes necessary when a partner or group departs, and to manage the logistics of client matters that will stay and that will go. Client interests always come first, but these firm interests are valid, and properly drafted notice provisions typically will be honored, and enforced, with these firm goals in mind.

Excessive notice provisions, with long periods of required notice, should be avoided. These resemble unlawful restraints on attorney mobility and competition, and they tend to be less effective in any event, since client interests are likely to require a partner to move sooner rather than later. (See ABA Formal Opn. 489; Cal. Bar. Formal Opn. 2020-201) Draft notice provisions with a connection to the firm’s valid and protectable interests, but also with client interests in mind, not as a punishment to partners who choose to leave.

Disincentive Provisions. Restraints on attorney mobility that seek to prevent competition generally are void in California as against public policy. But California courts have made clear that disincentive provisions in partnership agreements, which hold departing partners responsible for reasonable costs associated with their departure from the firm, are valid and will be enforced. There is a fine line between provisions that prohibit or unreasonably restrain competition, which are not permitted, and provisions that compensate the firm for reasonable expenses incurred because of a departure. Properly drafted disincentive provisions create the right protections for the firm without running afoul of California’s public policy in support of competition and attorney mobility. These provisions are more critical in smaller or mid-sized firms since the departure of a partner or group can have an outsized effect on the firm’s proportional overhead load and profitability.

Return of Equity Provisions. The departure of an equity partner or group of equity partners should not, and need not, create a cash flow crisis at the firm. It is likely that the firm’s overhead commitments will continue, at least in the short term, despite the departure of one or more equity partners. Your office lease, for example, won’t lower monthly rent based on how many attorneys you have in those offices. The partnership agreement can account for this with a properly drafted, reasonable, return of equity provision that sets an orderly return of the departing partner’s equity contribution. This might include a return of equity over time, or in installments, such that the firm’s cashflow can recover before it must make those payments to departed attorneys. The provision might even be related expressly to cash flow, or to offsets for reasonable expenses related to the departure.

Avoid using this type of provision as a sort of penalty for partners who leave, dragging out the return of their money. The best-run firms draft these provisions with an eye toward the effects on firm cash flow and link the provisions to the firm’s reasonable financial needs.

Compensation Provisions and Information Sharing Provisions. In our experience, compensation shocks will raise the risk of attorney departures. Like anyone, law firm partners have expectations about compensation, including draws and distributions, that are based on real life: mortgage payments, car payments, school tuition, groceries, and things like that. This is even more likely for the highly-compensated partners: those vacation homes don’t pay for themselves. Making less money tends to be unwelcome, and can cause wandering eyes, even during a pandemic when many firms had to make temporary adjustments to compensation. But to be more precise, the real risk for inciting departures comes from compensation decisions perceived as arbitrary, and from compensation adjustments that are unexpected. The partnership agreement can and should minimize the likelihood of both.

Your partnership agreement should provide as much detail as possible as to how the firm intends to pay its partners and to distribute profits. This sounds elementary, but many law firms tend to avoid details in this area for fear of committing to payouts that they cannot honor. But the compensation provisions don’t have to require guaranteed payments (and shouldn’t, based on how those have worked out for some firms). They also don’t have to be overly complicated, and shouldn’t be. They should simply lay out in clear terms, and in as much detail as possible, how partner compensation will be calculated, and when, or in what order it will be paid.

Similarly, the partnership agreement should include information sharing provisions that lead to meaningful financial reporting to partners. It can significantly reduce the risk of unexpected adjustments when partners are receiving regular updates on the firm’s financial situation.

Taken together, if properly drafted, these provisions can provide substantial protection to the firm in partner departures, and they can reduce the overall likelihood that any partner or group will see a departure from the firm as necessary or beneficial.

Dena M. Roche
Partner
O’Rielly & Roche LLP
dena@oriellyroche.com

The post How Savvy Law Firms Protect their Firm from Partner Departures appeared first on California Partner Departure Law.