SUCCESSION PLANNING GUIDEBOOK

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1 SUCCESSION PLANNING GUIDEBOOK

2 TABLE OF CONTENTS How to use this Guidebook 1 What is succession planning? 2 What succession planning is not 3 Why is succession planning important? 4 Succession planning common barriers 5 Succession planning process 6 Selling, merging or shutting down 8 Seeking outside assistance 9 Further reading 10 How the REAL initiative can help 11 Acknowledgement 12 Appendices Appendix A: Tools SWOT, PEST SWOT Document Template PEST Document Template Appendix B: SMART Goals Hypothetical I II III IV

3 HOW TO USE THIS GUIDEBOOK This guidebook is designed to assist lawyers in rural areas and small communities of British Columbia by providing an introduction to the concept of succession planning. The content of the guidebook is directed towards lawyers in solo practice and small firms. The guidebook can assist you by: Introducing you to the concept of succession planning; Identifying the most common barriers to succession planning; Setting out a basic process of succession planning; Identifying various resources to assist in the succession planning process. It is important to note that the guidebook is meant to provide an easy and accessible introduction to the topic of succession planning. There are more in depth resources available to assist with the succession planning process and the REAL Initiative Project Manager would be happy to assist you with locating and using these resources. It is also important to note that the guidebook presents one simple method of succession planning, however each individual lawyer or law firm must approach succession planning in their own way and in consideration of their own circumstances. 1

4 WHAT IS SUCCESSION PLANNING? As lawyers we are often called upon to assist our clients in planning for both anticipated and unforeseen events. The preparation of legal documents such as wills, representation agreements, shareholder agreements and even commercial contracts are all methods of planning for the future by maximizing security and minimizing complications and risk. Similarly, succession planning can simply be described as the process of planning how you will transition out of your role as the manager of your legal practice to maximize financial security and minimize complications and risk. Succession planning should be a component of every lawyer s strategic plan who is nearing retirement age. Some aspects of succession planning can take many years to execute and therefore the earlier that you establish a succession plan the better. A succession plan represents a conscious decision to think about impending retirement and take steps to ensure that your legal practice is transitioned to another lawyer. The basic steps involved in succession planning include: 1. Internal and external analysis 2. Basic plan development 3. Identification and assessment of potential candidates 4. Mentorship and transition plan development 5. Implementation and evaluation 2

5 WHAT SUCCESSION PLANNING IS NOT The term succession planning can mean different things to different people. It is therefore important to clarify what the term succession planning means in the context of this guidebook. Succession planning is not business continuity or emergency planning: Many articles addressing the topic of succession planning either conflate or treat as one, the ideas of business continuity planning or emergency planning and the concept of succession planning. For the purposes of this guidebook these concepts are treated as separate. Business continuity planning and emergency planning are essential steps for any business and lawyers specifically should have such a plan in place. Briefly, these plans address the short and mid term actions that must be taken if you unexpectedly fall ill or are otherwise incapacitated. Steps in a business continuity plan or emergency plan include the appointment of a custodian and the proper organization of your office systems and backups so that, with the assistance of your staff, another lawyer can step in to either temporarily manage or permanently wind up your practice. Resources are available from the Law Society of British Columbia to assist with this planning process. Succession planning is not the selling, shutting down or merging of your practice: For the purposes of this guidebook, succession planning refers to the process of identifying, hiring and training a successor to take over your practice. Often lawyers considering succession planning will decide to pursue selling, shutting down or merging of their practice after considering their options. The succession planning process set out below will not address these routes in any detail. 3

6 WHY IS SUCCESSION PLANNING IMPORTANT? An analysis of the demographics of the legal profession in British Columbia reveals that there is a significant potential for future issues regarding access to legal services in rural areas and small communities in the province. This situation is the result of two general trends, namely the aging of the profession as a whole and the preference among newly graduated law students to practice in urban regions. Like the rest of the country, the legal profession in British Columbia has felt the impact of the baby boom generation. In British Columbia the average age of lawyers is approximately 51 years old with some small communities and rural areas having significantly higher average ages. At the same time, data from the Law Society of BC articling student survey reveals that well over 75% of articling students anticipate practicing in an urban region of the province. The above factors underline the importance of succession planning both for individual lawyers and for the profession at large. From an individual perspective, it is important to plan not only for your personal retirement but also for the transition of your legal practice. Many retirement age lawyers that have been in contact with the REAL Initiative have stated that they would like to retire, however they may be the only lawyer within a large geographic area and feel obligated to continue practicing because of their commitment to the community. Others have reported that the prospect of winding down a long established practice is too daunting to consider. From the perspective of the profession, proper succession planning is important as it allows for the transition of valuable knowledge from senior to more junior members of the profession. Did you know? An analysis of US and Canadian Bar demographics conducted by the legal consulting firm Altman Weil, found that between 30% to 40% of practicing lawyers are at an age where they are beginning to retire, phase down, or contemplate phasing down. 4

7 SUCCESSION PLANNING COMMON BARRIERS As was discussed above, lawyers are commonly called upon to assist their clients with planning for succession and risk. Despite this fact, they are often reluctant to engage in succession planning for their own practices. The reasons for this may include such factors as: Lawyers are too busy: A common reason provided for failing to succession plan is that the lawyer is too busy dealing with their daily practice. While there is no doubt that lawyers in solo and small practice often struggle with significant workloads, proper planning and execution of a good succession plan can alleviate an overwhelming workload in the medium to long term. Aversion to planning: It has been observed by many consultants who work with lawyers that there is a general aversion to planning within the profession. While most other businesses have embraced the disciplines of business and strategic planning, solo and small firm lawyers tend to put out the fire that is burning their face on a daily basis without a proper appreciation for the long term direction of their practices. As is noted above, the discipline of planning and execution can alleviate the stress associated with an overwhelming workload and restore a sense of purpose and direction to a practice. Concerns regarding client retention: Another commonly expressed concern among lawyers considering succession planning is that they do not want to send a message to their clients that they may be considering retirement as it may cause a client to seek their legal services elsewhere. While this is a serious consideration, clients are also aware of the age of their lawyers and may be comforted in knowing that the lawyer is actively planning for the future of the practice to ensure that client needs are met. Lack of a successor: Finally, many lawyers do not engage in succession planning, as they are not able to locate and hire a suitable successor. The REAL Initiative can assist with this task and has successfully placed dozens of junior lawyers who have summered, articled and now practice in law firms in small communities and rural areas throughout British Columbia. Did you know? A survey of law firms in 2011 conducted by legal consulting firm Altman Weil concluded that 47.3% of law firm leaders indicate preparedness to deal with retirement and succession of baby boomers as an area of most concern for their firm. 5

8 SUCCESSION PLANNING PROCESS Succession planning does not have to be a time consuming or complex process and it is something that lawyers can pursue without the aid of any outside parties. The basic process entails five steps as follows: 1) Internal and external analysis The first step in the succession planning process includes a consideration of your internal and external context. This step forces you to reflect on your or your firm s internal pressures and desires for the future as well as the external business, political and social context in which your firm operates. This analysis is then used as the foundation upon which the succession plan will be developed. There are numerous ways that you can go about conducting an internal and external analysis. These range from setting aside a simple time for reflection by the lawyer in question to engaging in more structured brain storming exercises. There are many structured brainstorming exercises that can be used to consider the internal and external analysis in which your law firm operates. Two of the most common are the SWOT exercise (Strengths, Weaknesses, Opportunities, Threats) and the PEST exercise (Political, Economic, Social, Technological). Further information and instructions on performing these exercises can be found in Appendix A. 2) Basic plan development Once you have established the foundation for your succession plan through an internal and external analysis it is now time to set out the basic first steps of your plan. The easiest way to accomplish this task is through the setting of SMART goals and related actions. SMART is an acronym that stands for Specific, Measurable, Attainable, Responsible and Time limited. The purpose behind setting SMART goals is to ensure that you have developed specific actions, the achievement of which are realistically attainable and can be measured, that a specific person is identified as responsible for the action and that there is a time limit set. This method attempts to overcome the reality that many planning exercises do not lead to concrete action. An example of how this can be put into action is set out in the hypothetical contained in Appendix B. 3) Identification and assessment of potential candidates Now that you have developed the basic structure of your succession plan, it is now time to identify and assess potential candidates. There are numerous methods to identify potential candidates and these include: Contacting the REAL Initiative Project Manager and taking part in the REAL summer program; Contacting the Career Development Officers at law schools in British Columbia and Alberta directly to inquire about hiring prospective and recent graduates; Placing an ad in a lawyer related publication such as Bar Talk or the Advocate for either an articled student or practicing lawyer; Retaining a recruitment firm such as the Counsel Network. 6

9 Assessing potential candidates is more challenging and requires that you set out your criteria in advance. Criteria to consider include law school grades, writing skills, personality, connection to the community and others. Each lawyer must develop their own list of personal criteria as the needs of one legal practice may vary widely from the needs of another. Once candidates are identified and the criteria are applied, you can make an offer to your top candidate or decide to wait a period of time and conduct your identification activities again. It is important to note that a new group of law students numbering in the hundreds graduates each year in British Columbia and Alberta. 4) Mentorship and transition plan development Now that you have hired a student or lawyer, it is time to set out your mentorship and development plan. The development of the plan follows the general structure of step one and two set out above with the difference that you are now involving your successor and extending the time frame of your plan to accommodate your needs, the needs of the practice and the needs of your successor. Important factors to consider in developing your mentorship and transition plan include the time frame for transition (this could be as long as 10 or 15 years or as short as 2 years), the compensation for both your successor and yourself, specific criteria for mentorship and education, as well as how introduction and transition of clients will occur. 5) Implementation and evaluation The final step of the succession planning process is the implementation and evaluation of your plan. This involves nothing more complex than beginning to execute the actions identified in your mentorship and transition plan in the manner that you and your successor have established. An important aspect of this step is the establishment of a regular interval for evaluation of the success of the plan and the need for modifications along the way. It is recommended that this occur on at least a monthly basis. 7

10 SELLING, MERGING OR SHUTTING DOWN Upon completion of the first step of the succession planning process, a lawyer may decide that they would be better off selling their firm, merging their firm with another local firm or shutting down completely. While a full discussion of these options is outside the scope of this guidebook, some brief considerations regarding each are below. Selling your firm: Numerous lawyers in British Columbia decide that they would like to sell their practices each year. While not impossible, finding a willing buyer for a legal practice in the province is often quite difficult. This is because there is generally very little value in a firm, outside of the goodwill of the individual lawyer, while there is most often a great deal of risk. Selling specific aspects of a practice may be feasible (such as corporate minute books), however, the lawyer will still be left to wrap up the bulk of the practice. Those who do decide that selling is a viable option must be ready to put in the work to locate and negotiate with a willing buyer. Shutting down your firm: Another viable option when a lawyer wishes to retire is to shut down the firm and wrap up the practice. One downside of pursuing this path is the significant amount of work necessary to wrap up a legal practice. This process includes many steps that can be dependent on the nature of the practice being wound up. Those considering shutting down their practice may also want to consider the monetary costs involved. Significant expenses may accrue during the wrap up period, as the overhead expenses of the firm will have to be maintained while income will drastically drop. Merging with another firm: Perhaps the most attractive of the three options is merging your practice with another firm. This route has been followed by numerous practitioners within small communities and rural areas of the province with good success. Merging your firm may incorporate elements of succession planning as lawyers in this situation are often effectively passing their client relationships to more junior members of the firm they merge with, while working towards their own retirement. 8

11 SEEKING OUTSIDE ASSISTANCE Lawyers wishing to engage in succession planning and/or any of the three options outlined above should seek professional assistance from third parties to assist with the process. These third parties can include: Law Society of BC: The Law Society of BC has numerous resources to assist with succession planning. The starting point for accessing these resources can be found below under Further Reading. Accountant: The services of an accountant can be retained to better understand the financial position of your practice as well as consider the tax and other financial implications of a sale, transfer or earn out. Chartered Business Valuator: If you are selling your practice to your successor or an outside party you may wish to retain the services of a Chartered Business Valuator to determine a fair value. Lawyer: The services of outside counsel can be very useful in the latter stages of succession planning, especially if you are selling the assets of your practice or the shares of your law corporation. 9

12 FURTHER READING The following online resources may be of interest when considering succession planning for your practice: The Law Society of BC: Succession Planning Resources Canadian Bar Association: Getting your succession plan started Canadian Bar Association: The rocky road of succession planning Canadian Federation of Independent Business: Building your succession plan 10

13 HOW THE REAL INITIATIVE CAN HELP The REAL Initiative can assist you with succession planning in a variety of ways. These include: Providing advice and guidance; Assisting with the identification and hiring of suitable junior lawyers; Providing funding for the hiring of summer students; and Connecting lawyers with other resources. Telephone Facebook facebook.com/realcbabc 11

14 ACKNOWLEDGEMENT This initiative is made possible by funding from the following sponsors: The Founding Organizations Canadian Bar Association The Canadian Bar Association is a professional, voluntary organization which was formed in 1896, and incorporated by a Special Act of Parliament on April 15, Today, the Association represents 38,000 lawyers, judges, notaries, law teachers, and law students from across Canada, of which more than 6,700 are members of the BC Branch. The association serves a number of important purposes including to provide personal and professional development and support to its members and to promote fair justice and facilitate effective law reform in Canada. Law Society of BC The Law Society of British Columbia regulates the legal profession in BC, protecting the public interest in the administration of justice by setting and enforcing standards of professional conduct for lawyers. The Law Society ensures the public is well served by legal professionals who are honourable and competent and brings a voice to issues affecting the justice system and the delivery of legal services. The Law Foundation of BC The Law Foundation of British Columbia is a non-profit foundation that receives and distributes the interest on funds held in lawyers pooled trust accounts maintained in financial institutions. The Law Foundation funds projects and programs throughout BC that benefit the public in a number of areas including legal education, legal research, legal aid, law reform, and law libraries. 12

15 APPENDICES Appendix A: Tools SWOT, PEST Background: The first step of the succession planning process is focused on conducting an internal and external analysis. There are various methods of conducting an internal and external analysis. Two such methods are set out below. Exercise Purpose: The SWOT and PEST exercises are a form of structured brainstorming and are one method of exploring the internal and external forces relevant to your organization. These exercises can be performed alone or they can be carried out in a group as set out below. This group will depend on the size of your firm and can include anyone that you feel can contribute to the exercise such as other lawyers and/or support staff. The purpose of this exercise is to explore the internal and external factors that are relevant to your organization. Instructions: 1. Divide a larger group into small groups; 2. Consider the relevant category (e.g. Strengths, Weaknesses, Opportunities and Threats or Political, Social, Economic, Technological) and attempt to list as many factors relevant to your organization as possible. Record responses in the document template format below; 3. Allow 5-10 minutes per round (or more depending on the depth you re looking for); 4. At the end of each round, move on to the next category; 5. Regroup at the end of the exercise to compile responses and share what s been discussed. I

16 APPENDICES: SWOT DOCUMENT TEMPLATE STRENGTHS WEAKNESSES OPPORTUNITIES THREATS II

17 APPENDICES: PEST DOCUMENT TEMPLATE POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL III

18 APPENDICES Appendix B: SMART Goals Hypothetical George is a solo practitioner who practices in a small town in the Kootenay region of British Columbia. There is only George and one other lawyer in his town and George is nearing retirement age. George would like to retire in the near future but is concerned about the difficulty of shutting down his firm. He is also concerned that if he retires, there will be limited options for legal service for his clients and the community at large. George decides to undertake a succession planning process. George completes step one of the process through the conduct of a SWOT and PEST analysis. George concludes that he has a strong client base and a profitable practice. He also concludes that there are opportunities to expand the practice into neighboring communities. George is concerned however that he does not have the time or energy to expand the practice and given his age, he is unwilling to take the time to learn all of the new technologies that are impacting his practice. Due to this, George decides that he would like to hire an articling or summer student who he can mentor and groom to take over his practice. George now moves to the second step of the process, establishing a basic plan. George will use the SMART method (Specific, Measurable, Attainable, Responsible, Time Limited) to set out the first steps of his plan. Goal: George will hire a summer or articled student by June 1, Actions: 1. George will contact the REAL Initiative Project Manager to inquire about their summer student program by September 1, 2015; 2. George will contact the Career Officers at UBC, UVic, TRU, UofA and UofC by September 1, 2015 to inquire about hiring a prospective or recent graduate; 3. George will place an advertisement for an articled student in Bar Talk Magazine and distribute the advertisement to all law schools in British Columbia and Alberta by January 1, Both the goal and the actions comply with the SMART criteria and will assist George to move his succession plan forward. IV

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