When it comes time for a business owner to retire and transition the business, several options exist. Oftentimes, an internal transition is the preferred way to pass the reigns to the next generation. This method allows an owner to gradually transition the business to a person (or persons) of their choosing, whereby the owner gets to “groom” their successor(s). This strategy usually has the added benefit of making the process less emotional for the owner.
But how exactly do you go about internally promoting someone through the ranks while preparing them for firm ownership? As with any strategy, we encourage a PLAN for all those involved. That means clearly defining what is expected for all individuals – from what someone needs to accomplish to be considered for ownership, to an expected exit date for the existing owner(s), and a timeline by which to measure each milestone.
It can be helpful to consider how a law firm might approach a path to partnership when designing your own partner progression plan. It’s important to remember that most of the employees within a firm will not reach a point where they will be equity owners. Instead, it’s an elite status for those that are truly qualified to be owners and leaders of the firm (additional synthetic or similar programs can exist for other employees that the firm wants to reward in some manner).
The following chart illustrates an example of potential requirements for a path to equity ownership.
|Level||Experience||Production||Years with Firm||Ownership|
|Associate||Less than 5 years||Less than $150,000||0 to 2 years||No|
|Senior Associate||At least 5 years||At least $150,000||0 to 2 years||No|
|Partner||10 Years||$250,000+||2 to 5 years||Yes|
|Senior Partner||15+ Years||500,000+||5+ years||Yes|
The beauty of this plan is that you can customize it to be exactly what you want! The progression requirements will vary from firm to firm, based upon culture and objectives, and can take into consideration many different items other than production.
Qualities of a Partner
As mentioned, only select employees should be considered for ownership. Determining who those individuals should be can be challenging though. People generally fall into one of two mindsets: those that possess an employee mentality and those that possess an owner mentality. The following list will help you determine if someone displays the qualities of a potential owner or partner:
Once you have created the progression requirements, it might be helpful to engage a formal board to oversee the program. This is especially important for large, well-established firms. A Board of Advisors (“BOA”), in tandem with a Partner Committee, can monitor and manage the plan.
The BOA will determine how a Senior Associate and Partner can advance to the next level. A popular idea is yearly nominations for new Partner and Senior Partner acceptance. The Partner Committee will evaluate each nominee and present them first to the Senior Partners for a vote. For those new Partner and Senior Partner nominees who receive majority approval by the Senior Partners, they will then be presented to the BOA for final vote.
Expectations of a Senior Partner
Since being a Senior Partner is a privilege and not a right of tenure, a firm must ensure that the Senior Partners are at all times conducting themselves with the best interest of the firm in mind. It is suggested that the BOA create a set of guidelines should a Senior Partner not be performing his or her duties to the expected level. Also, an operating standard needs to be agreed upon should a Senior Partner be terminated from the firm for cause.
When properly designed and executed, a Partner Progression model can effectively and deliberately set the course for your firm to seamlessly transition to the next generation of ownership.