Law Times

Page 8 February 5, 2018 • Law Times www.lawtimesnews.com Succession plans needed for future success BY MARG. BRUINEMAN For Law Times S everal years ago, the part- ners at Will Davidson LLP found themselves dealing with four retire- ments and a death all within a 10-year period. There was noth- ing in place to prepare for that, meaning the remaining partners had to scramble to finance buy- outs for the departing lawyers. "It did put some strain on the firm," says managing partner Gary Will, with young lawyers having to take out substantial loans to pay out the partners. "We learned a lot from that ex- perience." The partner's death was fur- ther complicated by the fact that he was the firm's managing part- ner and also a substantial biller. The Toronto personal injury firm, now made up of 19 law- yers, five of them partners, has since turned to using life insur- ance policies to finance the exit of partners by borrowing on the death benefit. The trick, says Will, is to buy the policy early on to ensure lower monthly premium pay- ments and build up a substantial base. For the lawyers at Shibley Righton LLP, with the prospect of some retirements approach- ing and the lack of concrete exit and succession plans, it was de- cided it was time to iron out a clear approach. With direction from a facili- tator, the partners went on a re- treat where they addressed the issue, striking a succession com- mittee. "As part of that retreat, we wanted to address exit strategies for some of the senior partners," says Deborah Howden, who sits on the now three-year-old com- mittee. At the retreat, every partner at every level was encouraged to think about whether there was another lawyer to fill in for them if they were not available. They each also considered where the practice was going and whether clients could be introduced to other members of the firm to prepare for their retirement or in the case of illness. Key for law firms is to come up with exit strategies that ben- efit everyone, says Jordan Fur- long, principal of consulting firm Law21. The law firm wants to ensure its business base is se- cured even after the lawyer han- dling that file retires. But the individual lawyer needs to see some sort of ben- efit from passing their clients on to other lawyers and leaving the firm in a planned and co- ordinated way. "Because law firms are struc- tured as partnerships, once you retire as a lawyer, you are no longer allowed to retain an own- ership stake in your firm. So, among the many other things that lawyers resist about retiring is that when you retire, your eq- uity draw goes down from what- ever it is down to zero," he says. "Whether we like it or not, transitions in partners in law firms have to be financially in- centivized." The approaches can include changing the structure of the firm that allows partners to re- tire in a way in which others in the firm can take over the clients without penalizing the lawyer. Furlong suggests that could in- clude reducing the billable tar- gets and instituting a step-down plan. A percentage payout is an- other option, so that the lawyer receives a portion of the work generated by their clients. The alternative, he says, is having lawyers facing the pros- pect of all or nothing simply remaining with the firm to con- tinue to generate income. "So, if you could bridge that transition between all or noth- ing and say, 'No, we can work something out for you,'" that would be ideal, he says. "It's also a question of figur- ing out what position and what role the lawyer is going to play with the firm, if any." With some planning, law- yers who work alone or in small firms may also have the oppor- tunity to take care of themselves and their family in retirement. There are firms interested in attracting lawyers near the end of their careers who may have clients the firms can keep when the lawyer ceases to practise, says Alan Litwack, who works in mergers and acquisitions with Dickinson Wright LLP in Toronto. He also finds himself advising professional firms on those issues. It was in this con- text that he came to work with a lawyer who had become ill and decided it was time to wrap things up. "He was a sole practitioner and he had an unbelievable practice in a very specialized area. He wanted to be able to get some benefit from the consider- able goodwill he had built up in his practice. And, also, he knew he had some health problems, but he didn't expect anything to imminently happen," Litwack explains. "We negotiated a deal with a firm where he would transition his practice to that firm. And after he stopped practising, he would be paid something, a per- centage of the billings, and the percentage would decrease over time. We put the deal together and we signed it on the Friday. He died over the weekend." The transition had been in the works for quite a while. That allowed the lawyer to put his clients in contact with the firm, which was then able to main- tain some of them. Along with finding a happy pairing with the firm, the lawyer's family was able to benefit from the transaction, receiving a percentage of the work the firm received from the lawyer's former clients. The les- son, says Litwack, is that a little foresight and work can make a big difference later on. "Had he done nothing, he would have died and that would have been the end of it. The cli- ents would have gone some- where else and nothing would have f lowed to his estate," he says. LT FOCUS ON Running your Practice & Law Firm Compensation Deborah Howden says lawyers at her firm attended a retreat to figure out succession planning for different members. 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