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

Developing successful succession planning strategies – to be competitive

Peter ScottPeter Scott Consulting www.peterscottconsult.co.uk

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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?


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)


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


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?


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


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



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


What not to do….

“Don’t put your head in the sand”


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


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


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?


How to get the best out of older partners?

Help them to maximise their full potential

This requires investment


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


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


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


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


Particular techniques

Out – placement?

External counselling?

Help them to set up in practice?

Others?



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?


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


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?


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


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



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…

26

21

21

10

4

11

2

1

29

33

25

25

7

15

2

1

0 10 20 30 40

Financial

Quality of work

More opportunity

Culture of firm

Equity sooner

Profile of firm

Personal reasons

Pushed out

Number of times as 1st or 2nd reasonTotal number of mentions


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


Managing Partners

Need for career paths / parachutes

Return to fee earning?

Change of career?

Is there now a market for managing partners?


Clients

Firms forget clients at their peril

Involve clients with your thinking


External investment in law firms

How will the ability of firms to take in external investors impact on succession planning?


External investment to facilitate succession?

What steps should partners planning retirement now be taking?

Reconciling different interests?

Likely investors?


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


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.


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


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.


Managing risk issues as part of succession planning

Risk issues?

Regulatory Successor practices rules Financial Others?


Develop your plan NOW


Questions?


Documents

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