In a surprising shift, senior leaders in Big Law firms, who defied retirement expectations during the pandemic, are announcing their departures in significant numbers. A wave of managing partners, chairs, and CEOs from some of the nation’s largest law firms have disclosed their plans to step down, signaling a potential changing of the guard in the legal industry. Kent Zimmermann, a legal business and succession consultant at Zeughauser Group, expressed his surprise, noting that he has not seen such a mass exodus of leadership in decades.
A Surge in Leadership Departures
Zimmermann revealed that this year alone, he has been contacted by over ten managing partners and chairs from major law firms who plan to retire by the end of this year or in the first quarter of 2024. This is a significant increase compared to the usual three to five firms he hears from annually regarding leadership transitions. Notably, most of these departing leaders are stepping down from their executive roles while continuing their legal practices or exploring opportunities outside their current firms.
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Although the partners who spoke with Zimmermann were not identified, a review of law firm announcements from January to October 2023 revealed that firms such as Reed Smith, Goodwin Procter, Holland & Knight, WilmerHale, Cooley, Fried Frank, and Troutman Pepper all disclosed their chairs, CEOs, or managing partners’ intentions to step down in the near future. Many of these leaders, though not all, are in their 60s or older.
The Pressures of Leadership
Leading a law firm is an all-consuming role, often characterized as a high-pressure job. Many leaders serve multiple terms, with some dedicating 10 to 20 years to their leadership positions. The demands for growth, both in geographic expansion and profit generation, have continued to escalate over the years, making leadership in these firms both thrilling and demanding.
For example, Alexander “Sandy” Thomas, who served as the global managing partner of Reed Smith for a decade, stepped down in March to become the Chief Legal Officer of a nonprofit organization called KIND (Kids in Need of Defense). He highlighted the increasing complexity of managing international firms and noted that the job remains exciting but exceptionally demanding.
A Shifting Landscape
Contrary to expectations during the pandemic, a survey by the American Bar Association in 2021 revealed that a significant number of lawyers aged 62 or older delayed their retirements (53%) rather than hastening them (47%). However, the crisis has now passed, and the legal industry is facing a confluence of challenges such as an aging partner population, changes in retirement policies, and shifting pension plans.
With approximately 22% of law firm partners in the top 200 firms estimated to be aged 61 or older, there is a pressing need for a well-defined succession plan. The demise of age-based mandatory retirement policies and the shift from defined-benefit to defined-contribution pension plans have added urgency to addressing the succession issue.
The Perils of Leadership Vacancies
The sudden surge in retirements or other partner exits can be detrimental to law firms, as demonstrated by the closure of mid-size Philadelphia firm Schnader Harrison Segal & Lewis in August of this year. Internal succession planning challenges, including an abundance of senior partners and the loss of major clients, contributed to the firm’s closure.
Similar challenges have afflicted other firms like Testa, Hurwitz & Thibeault and LeClairRyan. To salvage themselves, financially troubled firms often seek mergers with more robust law firms.
Evolving Retirement Policies
The changes in retirement policies and pension plans since the 1970s have contributed to the current succession challenges. At one point, most firms had age-based mandatory retirement policies and defined-benefit pension plans that incentivized partners to stay with a firm for life. However, these policies began to change in the late 1970s.
The legal landscape changed significantly when law firms like Sidley Austin and Kelley Drye & Warren faced age discrimination lawsuits related to their age-based retirement policies. In 2007, the American Bar Association passed a non-binding resolution against mandatory retirement policies. Today, around 50% of top US firms have age-based mandatory retirement policies, but the most common age is now 66.
The Generation Gap and Succession
The legal industry faces a growing generation gap, with senior partners holding onto compensation from business generated in the past, while younger partners and senior associates yearn for opportunities to assume client relationships and leadership roles. The reluctance to pass the baton causes friction and retention problems at many firms.
This generational divide is exacerbated by issues related to work-life balance, diversity, and the changing expectations of younger lawyers. Senior partners’ inclination to groom successors in their own image rather than fostering diverse leadership creates obstacles for women and diverse attorneys seeking to inherit client relationships and leadership roles.
A Need for Transition and Retention
The transition of senior partners to new roles or retirement while retaining their clients is essential to prevent them from moving to other firms. Additionally, firms must prioritize retaining young potential leaders to ensure lateral hiring strength and retention. The loss of the next generation of talent can have long-term consequences, as finding individuals with the necessary attributes to run a law firm is a significant challenge.
The importance of succession planning is clear, and it is vital to implement these plans effectively, starting with young partners in their 40s and 50s. As the legal industry faces increasing changes, including the mobility of partners and changing client relationships, addressing these challenges is essential to ensure the long-term success and sustainability of law firms.
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