Developing successful succession planning strategies – to be competitive Peter Scott Peter Scott Consulting

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PETER SCOTT CONSULTING Why do firms need to plan? Age profile of owners of the business Run - off cover / risk issues Economic pressures to reduce size of equity Legal Services Act consequences Need for overall career paths Need to prevent loss of talent and client relationships Age discrimination legislation Pension issues Others?

PETER SCOTT CONSULTING Succession planning is strategic And forward planning is key  ‘A realistic plan or course of action to gain competitive advantage;  Which has clear and achievable objectives; and  Uses available (but scarce) resources (existing or to be generated)

PETER SCOTT CONSULTING What should a plan aim to do? To make optimum use of all productive resources within the firm and to secure the current and future well being of everyone in the firm Firms need to creatively think how to make best use of what they have

PETER SCOTT CONSULTING In particular succession planning should aim to - Ensure the current and future well being of a firm by reconciling the interests of -  Older partners  Younger partners  Key staff, including associates  Managing partners  Clients  Others?

Succession planning should be part of designing meaningful career paths  Career paths for associates when fewer partnership options are available  Where now for partnership?  Succession planning – alternative career options?  Exit strategies  Does the ABS open up opportunities? PETER SCOTT CONSULTING

Do law firms ever ask their people what they want from their careers?  Firm – wide surveys to uncover reasons for staff losses or disillusionment  360 degree feedback as part of a development and assessment process  For longer term succession planning  Exit interviews  Confidential partner questionnaires PETER SCOTT CONSULTING

Managing career expectations  Is partnership still the ‘holy grail’?  No stigma to not being a partner  How to make your firm the place where people want to work?  Ask them PETER SCOTT CONSULTING

Older partners As part of a plan towards retirement -  Make them feel valued  harness their skills and experience  Match reward to contribution  Agree financial arrangements

PETER SCOTT CONSULTING What not to do…. “Don’t put your head in the sand”

PETER SCOTT CONSULTING Planning - for not being a partner anymore Planning is the key – for both the firm and partners Economic pressures to reduce equity Lack of future leaders Run – off cover issues Mandatory retirement ages falling Lack of career prospects Loss of talent Repayment of capital issues Pension issues

PETER SCOTT CONSULTING Profitability pressures  Recession has created pressure on partner profits  Can lead to pressure to reduce partnership size  Older partners seen as ‘easy targets’  Pressure from below  Pressure on everyone to perform to higher levels

PETER SCOTT CONSULTING Why high performance has never mattered more Do you know the real cost to your firm of underperformance?  Direct financial loss?  Lost clients?  Lost opportunities?  Poor partner recruitment / retention?  Poor staff morale / high staff turnover?

PETER SCOTT CONSULTING How to get the best out of older partners? Help them to maximise their full potential This requires investment

PETER SCOTT CONSULTING Differentiate succession planning from partner ‘culling’ Compare:  Partners who - still have hunger and energy - and are fully contributing to agreed levels of performance  Partners who have taken their foot off the accelerator and who are no longer performing to agreed levels

PETER SCOTT CONSULTING What should a plan for older partners aim to do?  To make optimum use of all productive resources within a firm – because lack of people resource is a problem for smaller firms  Firms need to creatively think how best to use what they have – examples? -Risk and compliance roles? -Mentoring younger people? -Other roles?  To provide for a planned retirement to suit both parties

PETER SCOTT CONSULTING Older partners As part of a plan towards retirement: Make them feel valued harness their skills and experience Match their reward to contribution Agree a planned handover of clients Agree financial retirement payments which the firm can afford to pay

PETER SCOTT CONSULTING Exit / de-equitisation strategies for partners Performance related ‘culling’ ‘Tell us why you should continue to be a partner in this firm’ ‘Tell us why you consider you should continue to enjoy a full profit share’

Exit / de- equitisation strategies – the impact of reward structures on a firm’s options  The potential restrictions imposed by lockstep  The potential flexibility created by performance – based reward structures NB – using reward structures is not a substitute for dealing with partner under-performance PETER SCOTT CONSULTING

Particular techniques  Out – placement?  External counselling?  Help them to set up in practice?  Others? PETER SCOTT CONSULTING

Younger partners: Preparing for tomorrow – does the firm have a future?  What to put in the place of retiring partners?  Focusing on younger partners highlights future issues  Does the firm have the ‘people resources’ to achieve its future objectives / survive?  If not, what are the possible options?

PETER SCOTT CONSULTING Younger partners Law firms need to:  Provide clear career paths  Do law firms have transparent partner admission / progression processes?  Help them develop skills and experience  Ease them into client relationships  Build competitive profitability to recruit and retain the best

PETER SCOTT CONSULTING Investment in key staff / associates? How many law firms have a ‘New Partner Programme’ designed  to bring people through to partnership?  and which continues throughout partnership?

Developing career paths for associates when fewer partnership options are available  High performance by people is key to gaining competitive advantage  Higher performance requirements from clients, tough economic times and smaller ‘ownership pools’ mean more demanding ‘gateways’ to partnership - the bar is higher.  The challenge is how to manage career expectations - and avoid unnecessary disillusionment  Has it ever been any different? PETER SCOTT CONSULTING

Investment in your people to realise their financial value to your business  For high achievers who want partnership - transparent and fair selection processes so people know what they need to do.  Tailored programmes which support their development and groom them for success  Intensive fast track coaching programmes for those identified as having greater drive and potential  Job sculpting – to help mould roles to match the people available PETER SCOTT CONSULTING

Retaining talent where partnership is not available?  Not everyone wishes or is suited to becoming a partner  External ownership is likely to increase at the expense of partner numbers   How can law firms motivate such people and persuade them that there is still a very worthwhile career in the firm?  The experience of the large surveyors and accountants?  No easy answers PETER SCOTT CONSULTING

Are firms investing sufficient in their people to realise their financial value to their business? Do they  have mechanisms to prevent the attrition of high quality performers?  focus their people investment to advance their objectives, rather than sheep-dipping people through training?

Why lawyers switch firms… Financial Quality of work More opportunity Culture of firm Equity sooner Profile of firm Personal reasons Pushed out Number of times as 1 st or 2 nd reason Total number of mentions

PETER SCOTT CONSULTING Key staff  Can be organisationally disabling at all levels if not managed properly  “If they can do this to [senior partners] what can they do to me?”  Important to manage the process so damage is not caused to those remaining

PETER SCOTT CONSULTING Managing Partners  Need for career paths / parachutes  Return to fee earning?  Change of career?  Is there now a market for managing partners?

PETER SCOTT CONSULTING Clients Firms forget clients at their peril Involve clients with your thinking

PETER SCOTT CONSULTING External investment in law firms How will the ability of firms to take in external investors impact on succession planning?

PETER SCOTT CONSULTING External investment to facilitate succession?  What steps should partners planning retirement now be taking?  Reconciling different interests?  Likely investors?

PETER SCOTT CONSULTING What does a lawyer have to sell?  Services / labour?  Hard assets?  Goodwill? (the difference between the net hard asset value and a total price)

Alternative Business Structures – opportunities to create entrepreneurial roles for partners? Do you need an ABS for a partner to be entrepreneurial (or more entrepreneurial)? A need to differentiate between types of ABS for this purpose –  The ABS with an external investor  The MDP owned by different professionals  The traditional law firm which takes in non – lawyers into management positions PETER SCOTT CONSULTING

One view is …  There are many very entrepreneurial and successful partners in existing traditional law firms - why do you need an ABS?  Many law firms are already run along corporate lines, and with a limited number of owners and high leverage, providing opportunities for the entrepreneur lawyer to flourish.  And, for the right type of firm which is appropriately structured, there are opportunities for the entrepreneurial partners to build and realise capital. PETER SCOTT CONSULTING

Another view is that …  Access to external capital and resources in an ABS owned (or partly owned) by an external investor can provide the ambitious entrepreneurial partner with far greater horizons and opportunities, including building capital.  The MDP may open up interesting avenues for successful future professional practice which do not exist at the moment PETER SCOTT CONSULTING

There are also other views …  Private equity looks to management to grow value in its investment – what are their views about lawyer managers?  In MDPs – will the accountants expect to run the business?  Only time will tell whether the ABS will create the competitive changes in the legal profession envisaged by Clementi and provide greater opportunities for entrepreneurial partners. PETER SCOTT CONSULTING

Managing risk issues as part of succession planning Risk issues?  Regulatory  Successor practices rules  Financial  Others? PETER SCOTT CONSULTING

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