Building a Prosperous Future for Law Firms with Succession Consultant David Wood

In this episode of On Record PR, Gina Rubel goes on record with succession consultant David Wood to discuss implementing programs that secure the prosperity of law firms for future leadership. After a 38-year career as a corporate trial lawyer and in the lead-up to his retirement from an AM Law 100 firm, Barnes and Thornburg, David transitioned his entire $6 million practice to younger partners who his clients have come to know and now trust. David is currently enjoying his retirement teaching law firms how to do retirement succession planning while he’s all over the world with his surfboard.

Gina Rubel: Welcome to the show, David. Where in the world are you coming to us from this time?

David Wood: I am in Guanacaste, Costa Rica, surfing in the morning and evening and working on succession for the rest of the day. Just the way I like it.

Gina Rubel: Good for you, living the dream that you’ve always wanted. That is fantastic, and hopefully, you can share some insights with our listeners today as well.

What is retirement succession planning?

Every law firm is going to succeed to somebody. My generation, the baby boom generation, owns a disproportionate share of law firms just because we’re the ones with the most experience. We’re the ones typically with the biggest books of business. We’ve been around the longest. That ownership is going to go someplace. The firm is an asset. It’s going to be inherited by somebody.

The question is, what value is it going to have when that generational transfer happens? A lot of firms get intoxicated by the success of the senior partners’ generation of business, the building of the brand, and the execution of terrific legal services. All those things create an abundance when you have a very high-performing generation of senior partners fuel the machine, but inevitably those people are going to be gone just like the people that they succeeded in the generation before them.

My generation’s going to be gone at some point, and the question is what’s going to be left when we’re gone? Is a firm ready to have enough people to replace those dollars and revenue? Does it have people who are talented enough, who are good enough at marketing and business development to replace all that revenue? Bear in mind that there are a lot more of us than there are of the generation that comes beyond us. Baby boomers are just numerous.

It’s a question that every firm has to confront. If it doesn’t, it’s “see no evil hear no evil,” because eventually we’re going to be gone. Who’s going to come after us? That breaks into two questions. One is, are the right people in the right numbers with the right talent ready to step in? Two – are my generation’s clients being made sticky enough so that they are retained by the firm and the partnership between that next generation of those rising stars and the retention of my generation’s clients come together for a promising future and a sustainability that’s predictable? If we’re not thinking about succession, if we’re not thinking about what happens when the current generation retires, the firm may be sustainable, or it may not be. We just have no way of knowing.

What are the obstacles to implementing an effective retirement succession program?

If you were to ask the CEOs, the COOs, the executive administrators, and the managing partners of law firms, small to large – although this is less of an issue with large firms because mistakes that are made when you have 3,000 lawyers generally get deluded in significance much more than they do with small or even mid-size firms – but if you ask those folks what irritates them the most and they were willing to be candid with you, it’s when they wake up one day and find that one of their partners has retired with no notice to anybody. If there’s no notice to the firm, you can bet there’s no notice to their clients.

Now those firm leaders are left to clean up the mess that happens from that. You have unhappy clients who one day simply don’t have their relationship partners anymore and they’ve got to go out and do all the work that it takes to replace those, which is not inconsiderable. If we had with us today somebody from a corporate law department and you asked them, “What do you have to do to replace a lawyer who’s led your service team for years?” they would roll their eyes and say, “I’ve got to call up my peers and ask them for recommendations. I’ve got to put out an RFP. I’ve got to take interviews. I’ve got to pick a candidate and then, even more of a pain in the neck than anything else, I’ve got to onboard them to my AP system. I’ve got to onboard to our conflicts management system.” It’s just one thing after another, and it really irritates them.

That’s the feedback that those firm leaders are getting. Those are the phone calls that they get. They have obstacles internally to solving that problem. One of them is that older partners don’t want to talk about retirement, and if we don’t talk about retirement, we don’t know that key piece of information that lays the table for a successful succession plan. That is knowing roughly when your partners are going to disappear. If you don’t know when they’re going to leave practice, then you’re vulnerable to that risk that they’ll just be gone one day.

There’s a lot of room to be flexible there because plans and expectations change. You’d be surprised how few older partners really want to talk about retirement. I get this because when I got to the top of my career, I was blessed to be successful. My firm treated me like a rock star. Fortunately, I never really took it to heart, thank goodness. But my firm was wonderful to me. When I got to the pinnacle of my career, I was very aware that there was no place to go but down. I’m not a golfer, but I know the difference between the front nine and the back nine. I knew when I was teetering on the brink of the back nine.

There’s a sensitivity that older partners have. They’re afraid of that one time they forget a word or have a senior moment – when you reach a certain age and your client looks at you and says, “Has he crested? Is he about to be over the hill?” We are very sensitive about that.

Another thing is that older partners have a fear of financial insecurity. Folks who have told me this have plenty of money. What they’re afraid of, though, is that one day they’re not going to get a paycheck anymore, and they’ve gotten a paycheck for decades and decades. It doesn’t matter how much money they have. There’s an insecurity to that that wears us down, and we have to fight against that. We have to evolve into something other than lawyers, and if we can’t do that, succession is going to be a very difficult thing for us.

Gina Rubel: When you were at Barnes and Thornburg, was Andy Detherage the firm managing partner?

David Wood: Actually, he wasn’t until the last couple of years. Bob Grand was the managing partner, but Andy Detherage was the practice chair of the Insurance Recovery Group, which was my field, and he recruited me. I think the world of Andy.

Gina Rubel: I met him at a conference a few weeks ago. We had a brief conversation, and one of the things that I got from that is that the firm is very supportive of its attorneys and is looking to put in place ways for attorneys to succeed, which is part of the reason I think you were able to transition your entire $6 million practice to younger partners. You had the support of the firm behind you. Would you agree with that?

David Wood: Absolutely. For me, there are two answers to that question. One is structural, and Barnes and Thornburg’s compensation structure lends itself to giving senior partners who are on a runway to retirement the ability to put in those hundreds of nonbillable hours that it took to effectively transition client relationships to talented younger partners. Barnes and Thornburg has very thoughtfully solved that problem that plagues a lot of other law firms who don’t protect their aging partners’ compensation from erosion when they do that nonbillable work.

It is also just a very collegial partnership. I couldn’t have been happier there. I think the world of my partners. The other answer is that Barnes and Thornburg has a culture that lends itself to supporting lawyers, and partners in particular, through the various phases of life. That succession happens as they go along. One way they do that is they’ve grown very impressively, not just organically but also through acquisition of laterals. I came over as a lateral. They put a lot of time and money into vetting laterals. I don’t know how they do it, but the number of jerks who get through the net is very low.

You find out a lot about a law firm when you see what they do when no one is looking. For me, that was about six months after I got to Barnes and Thornburg and I had no friends there. I didn’t know anybody. I had a horrible personal tragedy; one of my children died. It’s the worst thing you could possibly imagine. What followed was the worst year of my life, and I had no expectations of how my partners were going to react. I was completely overwhelmed, and frankly I tear up even talking about it now, by how I got cards and letters from partners, from associates, from the guys in the mail room in Atlanta I’d never met and some who I still haven’t met. Thousands of dollars in donations in lieu of flowers were given by Barnes and Thornburg people.

I came to work one day to find that the painted glass next to my door and the office had an opaque strip on it. Someone had seen me weeping at my desk and wanted me to have more privacy. Above all, they hired a therapist for me, unrequested. They did not cut my compensation, even though my business contracted. I bounced back.

I had an awesome experience there, and I will tell you I would run through small arms fire for my partners at Barnes and Thornburg. Part of the work that I did in the last couple of years of my time there was transitioning my clients to my seconds in command, which is a huge part of succession. If you can’t get that right, then you have to replace all these clients. That’s an enormous amount of work, but a big part of that for me was this was an act of gratitude. I still feel it. I can never really repay Barnes and Thornburg.

What I tell people at law firms is the amount of effort that partners put into that time-consuming process of migrating their practices to the next generation – think of it as a bell curve, and on one end of the bell curve are all those folks who won’t help their partners no matter what a firm does to try to motivate them. It doesn’t matter what their promises are and their partnership agreements. They just aren’t, and there’s nothing you can do to change that. On the other end of the bell curve are going to be people like me, hopefully very few, who have very strong personal reasons for putting in that time, but almost everybody else is somewhere at the top of the bell curve.

What I talk to a lot of firms about is you have to replace my generation, and a key piece of replacing my generation is keeping my generation’s clients. It’s not the only piece, because you also have to bring up the right people in the right numbers to fill in what happens around the migration of my generation’s practice to the next. If you don’t do those things, revenue is going to start to erode at some point. When law firms collapse, they fall really fast, and it’s usually just a perception that a drop in revenue is not going to be reversible. Then the whole thing goes up in smoke. If we can move the needle toward the positive end of the bell curve, that’s where effective succession planning shows itself.

You can tell what firms are doing that, because they’re not just relying on what I call a founder’s mentality to plan for the next generation. When a firm doesn’t do succession planning, it’s saying to every single new generation, we’re going to act as if you’re starting this firm over again.

You’ve got the brand, you’ve got the goodwill. You’ve got the offices, you’ve got the employees, you’ve got the platform for service delivery, but if you’re not keeping the last generation’s clients, in effect, you’re starting the firm over every generation.

Many law firms are relying on the force of the talent and the personalities and the brilliance of every new generation to start the firm over again. Because if you’re not keeping the clients of the preceding generation, you’re starting your client list all over again. Of course it’s staggered because partners are coming up through the ranks all the time and they don’t resign or arrive en masse.

I call it a founder’s mentality when firms say, “I don’t need to do succession planning because I’ve got these brilliant lawyers. They’re going to keep being brilliant, and they are going to rise into the leadership positions now occupied by the senior partners. They’re going to keep making the firm the same successful place that the retiring senior partners have made it into.”

What I say to them is, “I get that. It’s not an unreasonable way to plan the succession of your business, except that what if it doesn’t work?” Let’s say you’ve got a mid-size firm that has 100 equity partners, and the plan is that the people coming up through the ranks are so talented and they’re simply going to move into an awesome job just like this current generation did. They’re going to generate business, build new clients, and have relationships that are going to replace the outgoing generation, and all will be well. Essentially they’re starting the firm over again with each new generation of partners, because they’re buying into a platform for service delivery.

As long as that platform is there with the goodwill for the brand, that is going to continue to give them a boost in marketing and business development. Everything is surging forward, everybody’s growing and making money. Then you can forget about succession because you’re starting the firm over again every generation.

We’ve seen an amazing number of storied firms that have failed and once were very profitable. All of a sudden, they reached a tipping point where a key practice area or a number of partners left. There’s no single formula on what that takes, because it’s all about perception. It’s when partners perceive that something irreversible has just happened in the management or operation of the firm. It might be some event, but it becomes more than that. They say, “We lost this big monitorship for the government on some foreign corporation that was a lot of money that came in the last five years, but we have a plan for bouncing back from that.” The partnership says, “Okay, that makes sense.”

When that event happens where there’s a hit to revenue and partners don’t have faith in either the leadership to solve problems or don’t have the confidence in their partners that they wish that they did, all of a sudden an avalanche effect can start happening. That’s the danger that law firms face when they don’t have a carefully thought-out succession plan, because a succession plan is the antidote to that avalanche effect. When partners start expressing dissatisfaction at an existential level, that’s when your professional managers have to step in and say, “Wait a second. Here’s the plan for getting out of whatever challenge just happened to us. Here’s the plan for replacing all those folks who are making us so successful and profitable before we had this setback. Here’s the plan for getting out of the setback. It’s not events-focused. It’s not transactional in nature. Here’s the whole backdrop of the firm. The sustainability of the firm hasn’t changed. We have a plan. We’re staying the course. It allows us to deal with setbacks without having to worry about the basic sustainability of the firm in the first place.”

Those laterals have a lot of options, and they do due diligence. One of the questions they ask is, “Who’s going to replace you guys and gals? Who’s going to replace the folks who are recruiting me?” If they don’t have an answer to that question, a lot of laterals are going to say, “I have other options from firms that have a good answer to that question.”

What are some things that law firms should be doing now that can start to set them up for success as it relates to partner succession planning?

The first thing is a firm has to ask itself where it wants its revenue to be in the next 5 to 10 years when the current big producers are gone, and if the answer is right where we are now, that’s the number they’ve got to get to. The first place I would recommend you start with is the number that you can hold onto by keeping the client relationships with the partners that are leaving practice. 100% of those people are never going to stay. There’s always an attrition factor, so when adjusting for that, a firm can say, “I have 100 million here in client relationships and annual revenue that retiring partners’ clients have been generating up till now. I think I can reasonably expect to keep that. That’s some fraction of the whole.”

Whatever that revenue amount is, whether it’s staying the course or achieving growth, that’s when you have to ask yourself what the objective is – that objective number minus that 100 million is what you have to have a plan to replace. You have to make sure that your plan to keep that 100 million is rock solid too.

These don’t take a genius to figure out. Succession is something that when done methodically and thoughtfully is hard to do. It’s not easy, or else everybody would be doing it, but it’s not complicated. It just takes sitting down, figuring it out, and making the financial commitments to it, which are not enormous compared to things like lateral acquisition. Succession planning is low impact, but you do those things and now you can look at each other in a management committee meeting and say, “We’re not guessing about sustainability anymore. We’ve got a plan.”

Gina Rubel: I hear you saying it’s about running a business. It’s about thinking of the practice of law as a business. It’s about bringing the right junior partners along for the ride, and it’s about firm culture because there was a culture that allowed for it. It wasn’t just push them out the door and see what happens with the clients.

Do you have any parting thoughts you want to share with our audience before we wrap up?

I would encourage leadership of law firms to take a leap of faith with their retiring partners and the rising stars so that everybody sits down and says, “What are the new owners going to inherit in 10-20 years? We’re not going to leave that to chance. We owe that to them. We owe them a legacy that has been carefully thought out. Let’s sit down and do it now, so that when we retire, we leave this firm better off than when we found it.”

Gina Rubel: I would think the clients are going to be asking what you are doing for your succession planning as well. My gut is that you’re here to help law firms succeed in their future endeavors.

David Wood

Learn more about David Wood Consulting

LinkedIn: https://www.linkedin.com/in/davidwoodconsulting/

Gina Rubel

Learn more about Gina Rubel

Listen to more episodes of On Record PR

Order a copy of Everyday PR: Harnessing Public Relations to Build Relationships, Brands & Businesses

LinkedIn: http://www.linkedin.com/in/ginafuriarubel/

Instagram: https://www.instagram.com/ginarubel/