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Developing successful succession planning strategies – to be competitive
Peter ScottPeter Scott Consulting www.peterscottconsult.co.uk
What would you like to get out of today?
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
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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
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
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…
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
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?
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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
Develop your plan NOW
PETER SCOTT CONSULTING
Questions?
PETER SCOTT CONSULTING