LAW FIRM SUCCESSION PLANNING: THE INITIAL QUESTIONS TO ASK

Questions to ask for law firm succession planning

What are some of the initial questions that should be raised in drafting a law firm succession plan?

One of the most sensitive and complex issues facing a law firm may not necessarily be related to its client matters; it may also concern succession planning, in which the law firm has decided to serve as its own client. Unfortunately, this often comes under the heading of “the shoemaker’s daughter having no shoes.” It is remarkable how many law firms that advise other businesses regarding these issues are not proactive in considering the basics of their own succession planning. It is important that attorneys facing such matters not only be forthright and direct on the legal issues, but also show empathy and patience when addressing the human element involved.

It is one of those situations in which outside counsel will often be contacted with a pressing concern about a potential succession issue, and then not hear about it  again. In other words, there is a backdrop of denial against which all of these issues  often play out, creating the potential for a “speed up, slow down” process. The forebrain concludes something must be done; the hindbrain argues in favor of inaction. All of which is the reason advance preparation should be the goal.

 The following are some of the initial issues to consider when trying to weave through this thicket of legal protections entangled with emotional knots.

The First Issue: Are the corporate formalities of the law firm properly in place?

DISCUSSION: If the law firm is an LLC, PLLC or other form of entity, it is nevertheless, critical that it have robust documentation of some sort. While this might not have been a primary concern when the firm was originally created—at which it might have essentially been nothing more than a solo attorney sitting in a room with a computer and a telephone that was not ringing—once the firm has grown to the point at which it has an institutional existence that can be passed on, the governing documentation must be reviewed and (usually) augmented.

The Second Issue: Will a succession plan involve financing?

DISCUSSION: Succession planning, per force, raises the issue of whether one or more of the attorneys can expect to be bought out by the others. While in an estate situation, key-person life insurance might fund such a buyout, in the more pleasant scenario in which one or more of the attorneys are retiring, obviously no such insurance will apply. However, since most firms do not have the cash flow to simply pay out a departing partner or principal, the succession plan must take into account whether there will be a need for internal financing to compensate the retiring owner. This may involve financing by the law firm itself or third-party financing from a bank or other outside funding source.

The Third Issue: Who will take over the law firm?

DISCUSSION: The question of who is in line to take over the law firm is not as simple as it might appear. The obvious person might not want—nor be able—to take on the administrative responsibilities of both running the firm and their own substantive legal practice. Most attorneys go into the profession as an alternative to being a business owner, not to coordinate both roles and potentially double their work. Many firms solve this problem by appointing a managing attorney to handle the administrative running of the law firm who is not an equity owner. The larger point is that nothing about the “who will take over?” issue is straightforward; it is not always “good to be the king” (shout-out to Mel Brooks).

The Fourth Issue: What do you do if the owner(s) has no choice but to stop working without prior notice or a formal succession plan?

DISCUSSION: There is an old proverb that “man plans and God laughs.” As much as we attorneys like to think of ourselves as indestructible, the passage of time has a way of presenting the counterpoint. This raises the question of what to do if the succession occurs suddenly, with no plan in place. Setting aside the obvious bromide that you will need a good lawyer, there are some things that should be done immediately.

First (and of course with the client’s informed consent), all matters that are active should be transferred to other counsel, either in the law firm or outside of it, in an orderly and reasonable way that complies with the applicable ethics rules.

Second, legal documentation governing who the departing attorney has appointed their  legal representative should be reviewed carefully (everything from the power of attorney of someone who is ill and nonfunctional to the will of someone who is departed).

Third, an assessment should be made of whether any of the law firm’s client files, financial records or other confidential items are part of that attorney’s personal files, and if so, appropriate efforts should be undertaken to have them returned.

Finally, there should be open communication with the attorneys, paralegals and administrative staff who remain, so as to give them a comfort level that everything is under control and the law firm will proceed in a vibrant and balanced way going forward; in other words, they should not be encouraged (even obliquely) to begin preparing their resumes.

PUBLICATIONS & PRESENTATIONS

Gary D. Nissenbaum, Esq.

  • Presented Seminar, Six Aspects of Attorney Ethics Enforcement in NJ, NY & PA That You May Not Have Heard About Before, Lawline, March 2024
  • Panelist, New Jersey Trust and Business Accounting, New Jersey Institute for Continuing Legal Education, February 2021
  • Presented Seminar, How to Avoid Serious Mistakes When Facing an Ethics Grievance or Random Trust Account Audit, Essex County Bar Association, December 2020
  • Presented Seminar, “Good Grievance, Charlie Brown!” Latest Developments in NJ Ethics Law and Procedure, New Jersey Institute for Continuing Legal Education, July 2020
  • Presented Seminar, How to Avoid Serious Mistakes When Facing an Ethics Grievance, Wilshire Grand Hotel, December 2019
  • Presented Seminar, Attorney Ethics Grievances: 20 Insights from the Trenches, Wilshire Grand Hotel, December 2016
  • Presented Seminar, Attorney Ethics Grievance Process, Union County Bar Association, 2011

Anthony C. Gunst, Esq.

  • Presented Seminar, Six Aspects of Attorney Ethics Enforcement in NJ, NY & PA That You May Not Have Heard About Before, Lawline, March 2024
  • Presented Seminar, How to Avoid Serious Mistakes When Facing an Attorney Ethics Matter, New Jersey Association of Legal Administrators, April 2023

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