Solos, small firms must plan ahead for succession

Listen to this article

No one plans a heart attack or a car accident, and to some, retirement seems far away enough to put off planning.

But making a succession plan — at the very least planning where your clients will go in the event you are “indisposed” — is vital both as a business and ethically, said Marcia Proctor of Proctor Legal Consulting PLLC in Dansville, Mich.

“The law practice is different from somebody not being able to go to work every day — we have duties to clients and duties to courts …” Proctor said. “You need a plan, need to think it through and understand there are these other obligations you have.

“You don’t want your estate to have to go through a lot of lawsuits because other peoples’ interests were neglected.”

Attorney Rebecca Simpkins’ brother was 53 when he died suddenly. Although he had prepared through estate planning and had insurance, he had not done anything about who would take his clients’ brain injury cases.

Luckily, Simkins, who is associate corporate counsel at Quicken Loans in Detroit, had worked for him for six years, so she was familiar with his practice.

“The first thing was to file liens for the firm on all the cases, through a sobbing staff, and I was devastated,” she said. “But I said, ‘We’ve got to do this.’”

They had liens on all cases with three days.

“I was interviewing personal injury law firms within two days of when he died,” Simkins said. “The biggest thing is, he had over a million in costs out when he died, and just recouping those on open cases was a lot of work.”

Simkins took the first 10 days off from her regular job, then spent nights and weekends over the next three months tying up loose ends at her brother’s firm. Three months to the day, she said, the office closed.

“Think of how hard that job would be if that family member is not a lawyer,” Proctor said. “Think of the other people in your firm, your secretary, for instance, how is that person going to respond?

“It’s not just sole practitioners; any lawyer has things they need to wrap up. It could be having another lawyer in the firm knowing what your cases are and where your files are.”

Start planning

First, you have to decide if you’re going to wind down the business if you retire. The same planning is needed in the event you become incapacitated, said Arthur Greene of Boyer Greene LLC in Ann Arbor.

In either situation, you have to find someone or several people willing and able to take over your clients.

“It’s a process, not an event,” he said. “It’s not just a phone call; it’s something that takes time.”

Another option is to merge with another small firm. Greene said it’s another situation where long-term planning and research are necessary. The big issues that must be considered are culture and compensation; whether you and your firm will adapt to a new culture; and what type of compensation can be negotiated.

Merging is not a short-term proposition, either, he said, and should cover a two- to three-year time period with continued involvement (as of counsel, perhaps), transitioning and working with longtime clients.

Greene said often the type of lawyer who starts and operates a successful firm is usually a strong leader and a good rainmaker, who may not always be open to merger. In that case, a successor could be the plan.

“A lot of firms started up in the ’70s and ’80s by lawyers who were exceptional …” Greene said. “And when they got busy, they had to hire people without an eye to skills like theirs, so now you have guys in their 60s and 70s with a lot of work and a lot of worker bees, and no one with those skills to take over.”

If there are several lawyers in a firm, their skills must be assessed with an eye toward who might become a successor. If no lawyer in the firm fits the bill — or if it’s a solo — a successor must be recruited with an eye toward filling in the where the weaknesses exist.

“Most people are bad at hiring … they just want to get through it,” Greene said. “They should really focus when hiring; try to look at qualities and skills they had when they started the firm, and if you start thinking that way you have a chance at getting a good successor.”

Because the leader of a firm generally has a strong personality, he said, it may be difficult to hire and work with another lawyer with a strong personality.

“When they are running the firm, they like to have their own way,” Greene said. “… they have to be open about other ways of doing things.”

Compensation

There are numerous ways to structure compensation for the departing lawyer and the successor, Greene said.

“There are a lot of ways of doing this when you bring in a new partner; equal shares or unequal, full voting or partial voting, that’s always an issue,” Greene said. “[Are they] buying an interest? How much do they pay? A first step could be to let others buy a minority interest and then the owner eventually gives them more.

Most lawyers need some level of advice on these issues, he said, at least to get an outside perspective.

“I find that lawyers are not good at business or management,” Greene said. “They’re good at what they do, but tend not to be able to deal with their own firms.”