Retirement: What if stars go out with a bang?
When stars in our galaxy reach the end of their life cycle, they turn into ‘White Dwarfs’ and fade away. Occasionally there is a star that does not obey to these rules. These stars become ‘Supernovas’ and go out with a bang. A Supernova is the biggest explosion known in the universe. An unimaginable force of destruction.
This article is not about astrophysics, it is about partners reaching the age on which they are to retire. Ideally law firm partners beyond a certain age should gracefully ‘fade away’, leaving their practice and address book to the generation below. Every once in a while there invariably is a partner that refuses to facilitate that transition. These partners then become ‘Supernovas’ that go out with a bang, causing lots of collateral damage.
We need to address the Baby Boomers
Partners who are today hovering around the age of 60, started their career as a lawyer more than 30 years ago. The legal world in 1990 is in many aspects incomparable with the legal industry today. During that timeframe the legal industry has seen exponential growth. The Business of Law has been professionalized beyond recognition, in part thanks to pioneers such as Harvard professor David H. Meister who published his book Managing the Professional Services Firm in 1993.
Partner incomes have quadrupled and many partners are earning more today than they ever imagined when they became partner some decades ago. Baby Boomers have built their career with an incredibly strong tailwind. Not only their professional career, but also in their private lives. For example the value of their property has risen tremendously.
Not only thanks to their extraordinary talent, but also thanks to the favorable circumstances, the Baby Boomers have built impressive practices with big revenue, high profitability and a strong reputation in the market. Now that they are around the age of sixty, they start to think about their future. Most law firms have set an age limitation to equity partnership. This age limitation now has come in sight. This is often causing sleepless nights for the partners concerned.
Baby Boomers don’t want to retire because they are still too young
Certainly today, no one around the age of 60 would consider himself/herself ready for retirement. Thanks to a better lifestyle and medical advancement, people are getting older and stay in great shape much longer. Any lawyer approaching in his early sixties will still consider himself/herself fit for practice for many years to come. And rightly so.
Partners in law firms have to retire, not because they are old and tired, but because they have to make way for the next generation. Being a partner is different from being an employee. Partners have entered into a contractual relation and in this contract is stipulated when it ends. It is a business arrangement, not a personal or emotional one. Whether or not the partner is still fit to maintain a high level practice at the age of retirement is not part of the equation. The contract ends, and that’s all there is to is. Nothing personal.
Reality is however that most ‘senior’ partners do not see it that way. They have developed a kind of amnesia as to why the partnership agreement is formulated as it is. When they were still young partners, it seemed like a great idea to set a fixed age limit to equity partnership an make room for younger partners to grow their business and their profit share. When reaching the age limit themselves the perspective has completely shifted. Now it feels as if they are being cut-off at the height of their career.
TGO Power Curve©
When we work with our clients, we often use a TGO Power Curve© analysis. This analysis uses a smart calculation for each of the partners based on the size of the practice and the reputation in the market. The result is plotted on a base line, representing the age distribution of the partner group.
The graph below represents two different situations. Figure-A reflects a partnership where revenue and market reputation are concentrated with partners who are now in their late fifties and early sixties (the Baby Boomers). Figure-B represents a law firm where the strongest and most successful partners are in their early fifties. As you can see, in Figure B, partners are transferring their practice towards the end of their professional career.
Why smooth, well managed succession is in everyone’s interest.
“Do not go gentle into that good night, Old age should burn and rave at close of day; Rage, rage against the dying of the light.
Though wise men at their end know dark is right, Because their words had forked no lightning they Do not go gentle into that good night.”
These words of Dylan Thomas come to mind when we see the internal struggle some partners – especially Rainmakers – have as the contractual end of their partnership comes near. Part of that struggle is emotional and has to do with uncertainty and fear. I will address this in a separate article in the weeks to come.
From a pure business perspective it is in the interest of the firm that partners start transferring some of their practice and clients early on. Ideally this starts as soon as the partner makes a new partner. New partners should get part of the practice as a form of ‘starting capital’ the day they become partner. Splitting a successful practice in two, is the most efficient way to grow revenue and profitability for a law firm.
Around the age of sixty a partner should once again actively start to transfer mandates, clients and reputation to the younger generation. The problem is that this requires a great amount of trust. Obviously the partner should have complete trust in the quality of the next generation (I can tell you that this is not always the case). The partner must also get the comfort and the guarantee that transferring part of his/her practice and revenue, will not lead to loss of respect, status or income. Rainmakers have special status in any law firm. No partner will want to risk losing that special status.
Sometimes rainmakers do want to continue practicing until they are 70 or beyond. They then rather take their practice and move to another firm towards the end of their career. For them, not transferring their practice is part of an ‘insurance policy’ that they still have market value. Again, as understandable as this might be, this is not in the interest of the firm and of the remaining partners.