2024 Retirement Best Practices Survey: Analysis
Several weeks ago I distributed a survey to ascertain how law firm partners want their firms to support them as they prepare to retire, and what law firms are actually doing in that regard. A big thank-you to the lawyers who answered the survey questions. Below I will discuss some of the most salient findings.
In addition, as you think about the upcoming holidays, remember that my book, Retirement by Design, is a practical, enjoyable and worthwhile gift for your colleagues, friends and family who may be thinking about or entering retirement. It’s a great gift for yourself, too! It’s available from most book sellers, online and in stores. And be sure to check out my website and YouTube channel for many other resources to help individuals contemplating retirement and to help law firms support their lawyers through succession and retirement transitions.
Survey Results
The 2024 Retirement Best Practices Survey sought information about “whether and how law firm partners plan for retirement and client succession and what their law firms might do to support them.” Survey responses were submitted by 142 partners. Because the survey was anonymous, the number of law firms they represented is unknown. However, based on the contact information provided by those lawyers who chose to do so, it is clear that the firms ranged very broadly in size and location. Moreover, some individual law firms and law firm networks requested and were given dedicated links, and those firms also varied widely in size and location.
The survey showed that law firms are not doing much to guide or support lawyers regarding retirement and succession. More than a third of respondents said their law firms are doing nothing. In addition, 20% of those who took the survey said they were somewhat or very uncomfortable discussing their own retirement plans with the firm, “given the way [their] firm treats partners who announce their plans to retire.” Only 44% were very or somewhat comfortable. Considering that the responding lawyers are partners in their firms, most of them with long tenures, it is troubling that fewer than half feel comfortable, and so many feel uncomfortable, speaking to their firms about retirement.
This is further borne out by some of the comments from partners:
“I was comfortable beforehand, but later I regretted telling the firm my plans early.”
“I have mentioned to the firm that I am thinking of retiring, but they have left it to me to propose what I want that to look like. I have no idea whether they will be open to a part-time or wind-down proposal. And I have been unable to get any info on how they have paid other semi-retired partners.”
“There is little or no talk about retirement, and I have been actively discouraged from openly sharing my plans internally or externally.”
This restrictive cultural climate undermines the best interests of the firm. Firms need to protect and promote the firm’s economic and operational stability by optimizing the retention of clients, and to protect their investment in young partners by encouraging senior partners to share client management with them, then transition client relationships to them, before they retire.
This creates a tough balancing act for law firms. To attract and retain successful rainmakers, firms need to reward them handsomely, and they usually do that through origination credit for the clients they bring in and the revenue they generate. This part of the equation seems to be working well. A recent survey by recruiting firm Major, Lindsey & Africa found that origination credits are becoming concentrated among lawyers who have been partners for 20 or more years. Those partners reported nearly $5.8 million in average origination credits, a 71% increase from two years ago, twice as much as any other group and the highest increase among all lawyers. In contrast, median client originations for all partners were unchanged during that time.
The risk, however, is that as rainmakers accumulate these credits, they will hoard them rather than share them. By the time they are nearing retirement and facing the uncertainty of what that means, it becomes even harder to let those credits go. It isn’t necessarily that these partners need the money, it’s what that money represents – wealth, importance and power. The idea of transitioning credits to younger partners can feel threatening or undeserved.
Yet if senior partners fail to share credit and take steps to pass the baton to successors, younger partners’ opportunities for advancement are reduced, causing many talented mid-career lawyers to leave the firm and deterring many other potential recruits.
The risk of ill will within the partnership is exacerbated when firms fail to apply their own retirement transition policies, or apply them inconsistently. It’s particularly discouraging when partners who try to do what the firm says it wants feel they are treated unfairly. As one partner stated,
“I did it [tell the firm of my retirement plans] because it was the right thing to do but I have been treated terribly in terms of compensation where others are protected and rewarded by selfishly holding onto credits!”
The Retirement Best Practices survey highlights how much the problem of compensation uncertainty inhibits effective succession. Two key survey questions asked (1) what firms do now, and (2) what partners want their firms to do, to support their retirement and succession. The same items were listed under each question, and this Chart compares the answers submitted. The top two areas of unmet need are partners’ desire for greater information and clarity about, and protection from, the impact of retirement and client transitions on partner compensation.
The lack of transparency about what happens when lawyers plan to retire, and especially the fear of punitive financial consequences, creates suspicion and defensiveness. When partners feel safer saying and doing nothing until the last possible moment, the firm’s ability to manage succession and plan for the future is thwarted.
The next two highest areas of unmet need reported in the survey responses are for specific retirement information and resources, such as guidelines, timelines, templates and programs about the retirement process. The majority of respondents said their law firms have no retirement guidelines or processes. If firms do have such resources, they are not communicating them clearly or applying them consistently. Many lawyers said they had no idea whether their firms had any such guidelines or processes; others were derisive, stating that their firm professed to have them but failed to apply them, or applied them haphazardly or randomly. Some called their firm’s stated policy “a joke.”
An environment where the impact of retirement on partners’ compensation is unknown and feared, the overall treatment of retiring partners is perceived negatively, and the secretive attitude toward retirement discourages open discussion, has serious repercussions for law firms. Senior partners who refuse to share information with the firm and hoard client relationships put the firm in a perilous situation. Without strong relationships with successor partners, clients may leave when the retiring partner goes. Without sufficient rewards and certainty of succession, junior partners may not stay either, or at least may choose to focus on their own clients rather than support senior partners. In vying for more credit, all partners may hoard clients, claim credit for others’ work, and generally exhibit bad behavior. None of that is good for the long-term sustainability and success of the firm.
Finding solutions to these problems is extremely difficult and complex, but these challenges cannot be ignored. Firms must make their retirement and succession processes transparent, consistent, reasonable, respectful, and fair. If you would like to discuss how your firm can develop or improve the way it manages retirement and succession, contact me.