November 13, 2020
Is Your Law Firm Prepared for the Next Partner or Group Departure?
While it is a good practice for any law firm to periodically assess its exposure to potential partner departures, the pandemic’s impact on law firms has made this task more important than ever. Doing so involves taking a candid look at the firm’s management, operations, strategy, and culture to determine whether any partners or groups at the firm are likely to depart and, if so, what can be done to mitigate the effects of any departures, and to prepare.
No Time Like the Present
It’s never a bad time to prepare, of course, but the fourth quarter is an ideal time for law firms to make this assessment. It is frequently the time when partners begin to analyze their year so far, as well as the firm’s year, and decide whether a move may be necessary. Some relatively straightforward questions will get this risk assessment process started for your firm:
Is your firm’s partnership agreement up to date?
Managing the risk of partner departures begins with the firm’s partnership agreement (although it doesn’t end there), which means that’s also the best place to start the risk assessment. Start by asking whether the specific provisions of the partnership agreement that directly govern partner departures — including disincentive provisions, retirement-related non-compete agreements, return of equity provisions, information security, and dispute resolution provisions — are current and up to date. The authorities that control these provisions can change relatively frequently, as California courts grapple with how properly to regulate the reality of attorney mobility and as new ethics opinions have emerged.
Your partnership agreement should be updated regularly to reflect the current best practices on each of these topics. The same is true of firm policies and procedures, which should be modified and updated to anticipate and to manage the risk of partners departing.
Is any partner an island?
Ask any legal recruiter what makes a good client, and the response will likely include the phrase “portable book of business.” After all, attorneys who leave a law firm with no business are not really a business problem for the firm. So, law firms should regularly review and analyze just how portable its partner’s business really is. Do any other partners at the firm work for those clients, or know them well enough to make a compelling pitch to keep the work if the partner leaves? Or is any partner’s relationship with the clients so exclusive to that partner that the client would have no compelling connection to the firm in the partner’s absence?
In the short term, it’s not easy or particularly subtle for a law firm to insert itself into a partner’s client relationships. And for obvious reasons, partners may resist. But over the longer term, any well-run firm should have policies in place to ensure that clients are connected to the firm as much as to any individual partner. Don’t assume that even so-called institutional clients are firm clients if they only know one partner or group.
Would you be the last to know?
The firm’s operations are the next line of defense to partner departures, including technology systems and practices. If a partner or group were planning to depart the firm, they typically must plan for the departure in various ways. That planning is necessary and it is not prohibited: California courts have long recognized that attorneys can plan to compete with the firm before they leave, with some restrictions and exceptions. Firms have many structural tools at their disposal to ensure — without being unduly invasive, paranoid, creepy, or weird — that they will have advance notice of the tell-tale signs that a partner or group is planning, or even just thinking about, leaving. Many firms are surprised to learn, after the fact, how open and obvious the departure planning was before they learned about it.
Where are the seeds of discontent?
Moving from the specific to the general, well-run law firms regularly analyze whether the circumstances exist that can lead to partner departures. Many partners decide to leave their firms only after long periods of creeping unhappiness, and not just about money or compensation. Analyze whether the ingredients for partner unhappiness are present and what can be done about it. How has the firm, and specific practice groups, weathered the pandemic? Are those trends expected to continue? Are any partners or groups unfairly subsidizing others at the firm or consistently getting less than their fair share? Are any partners or practice groups that the firm is not actively growing or that are ancillary to the firm’s focus practices? Have any attorneys at the firm declined a promotion to partner or to equity partner? (That’s never a good sign.)
Is it oh…so…quiet at the firm?
Law firm partners tend to be critical by training, and most are not shy about voicing their concerns as they arise. Have any partners or groups raised issues or complained about structural defects in the firm that they interpret as disadvantages to their practices? That may mean billing pressure, hourly rate pressure, or other firm policies that may not be a fit for their clients. More critically, have they stopped complaining? When it comes to managing partners and groups, no law firm should assume that silence means assent.
A Little Planning Goes a Long Way
These risk assessment questions are the starting point for law firms to determine the likelihood of partner departures. For partners or groups that the firm wants to keep, or needs to keep, the firm should create a proactive plan to resolve those issues. Like any potential law firm business risk, with the proper planning, the risk of partner departures can be managed and mitigated.
Dena M. Roche
O’Rielly & Roche LLP