The rocky road of succession planning

  • 05 fĂ©vrier 2014
  • Michael Rappaport

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As the baby boom generation of lawyers reaches retirement age, there are not enough younger lawyers to replace them — making it a challenge to successfully carry out a succession plan for sole practices and small firms.

About 40 per cent of Ontario lawyers are over 50; almost 10 per cent are over 65. The Bar is even greyer in other provinces. Yet few small firm lawyers and sole practitioners have a succession plan. More worrisome still, many sole practitioners don’t have a plan to assist clients in the event of sudden death or disability.

In 2008, the Nova Scotia Barristers’ Society began to survey members annually about succession planning and developed a program to teach lawyers about it. In 2009, it found that only 45.8 per cent of its members with 27 or more years at the Bar had a formal succession plan to deal with an inability to practise and look after their current active clients.

There are two basic strategies for succession planning: an internal or an external sale. Grant Robinson is the director of BDO Canada LLP’s SuccessCare Program for succession planning for small- and medium-size businesses. He developed a Succession Planning Tool Kit for the Law Society of Upper Canada. “Succession planning is a journey not an event,” he says, noting that it might take five to ten years to carry out an internal sale of a practice and an external sale might take two to three years.

An internal sale of a practice for a solo or small firm generally involves finding a successor — often an articling student or junior associate — then grooming the successor to take over the practice and gradually shifting client responsibilities over a period of a few years. In contrast, an external sale to a larger firm may be easier to arrange, but typically will yield a much lower return. An internal sale is especially tricky for a sole practitioner to pull off for a variety of reasons. “It’s difficult for a solo to bring someone on board, since if there’s not enough work for two, the lawyer has to either give up some work or grow the firm,” Robinson says.

An external sale is no sure bet, either. “A practice has value if you can deliver a client base,” Robinson says. “There must be a sufficient flow of repeat business for someone to consider buying the practice.” Darrel Pink, executive director of the Nova Scotia Barristers’ Society, puts it more bluntly: “There’s no market for law firms. Nobody wants to buy and nobody wants to take over a practice.”

Gary Marcus is a partner at the Toronto accounting firm Meyers Norris Penny LLP, who has provided succession planning advice to small businesses. He says that lawyers rarely purchase practices from other lawyers. Lawyers can increase the odds of selling their practice, however, if they agree to share some of the risk by accepting a certain sum upfront with the balance paid over a two- to three-year period, based on maintaining a minimal revenue base from clients.

The challenges faced in arranging either an internal or external sale become especially acute the farther away the sole practice or small firm is from a major urban centre. Pink says: “Outside of major cities, firms have a tough time recruiting lawyers to work for them.” Nevertheless, he says it is important to have a succession plan in place in the event of sudden death or disability to ensure that clients are not left without legal representation and that clients do not suffer prejudice.

Perhaps one of the biggest obstacles to succession planning is the general reluctance of lawyers to contemplate retirement. “Lawyers don’t like to retire,” Robinson says. “The profession defines them as an individual. What else are they going to do? Go home and cut the grass?

“Plus lawyers are busy. Where do you find time to address something that is important, but not urgent?"

— Michael Rappaport