Succession Planning to Safeguard Your Law Firm’s Future with Patrick Cusick, Director of Law Firm Services at Armanino LLP

In this episode of On Record PR, Jennifer Simpson Carr goes on record with Patrick Cusick, Director of Law Firm Services at Armanino LLP, to discuss important considerations for law firms when creating a sustainable succession plan that serves the needs of stakeholders. With more than 15 years of experience working in finance and administration within law firms, Patrick now enjoys working exclusively with law firms, offering outsourced accounting and financial solutions, and consulting on a variety of strategic initiatives including succession planning.

Jennifer Simpson Carr: Welcome, Patrick. As we were chatting and preparing for this, I expressed my excitement about the topic of succession planning because we’re seeing a shift in the market right now. It is an important topic and something that law firms should be focusing on.

Patrick Cusick: That’s entirely true. It’s definitely becoming an area of focus as some firms unfortunately started to falter when they don’t have succession plans in place, or maybe think they have a succession plan in place. It has always been important, but as of late, I think it’s becoming a sharper focus in the legal industry.

Jennifer Simpson Carr: I completely agree with that. It has always been important, but when we see it hit the headlines, we know that there should be a focus on it. I know over the last couple of years we’ve seen some headlines in the news such as, “Law Firms Are Struggling to Implement Succession Plans as They Look to Fill Gap Between Generations” and “’Lawyer Mindset’ at Odds With Succession Planning Best Practices” which makes sense because client demands are urgent for lawyers, the billable hours are urgent for lawyers, and they’re really focused on offering immediate solutions.

I also think another piece of this that you might agree with is that there’s generally a sense in leadership that they’re going to be there for a while. “Nothing will happen to me or I’ll always be available for my clients.” Unfortunately, we’ve seen that that’s not always the case. In a few instances, we’ve seen firms dissolve largely due to a lack of proper succession planning.

We’re both in situations where we’re consistently having conversations with practice leaders, managing partners, and office heads, and when we bring up succession planning, the general response is that, “Oh, we have one,” or “We’ve tackled succession planning.” When you and I dig deep into that conversation with them, we find that it’s not exactly the succession planning that you and I are talking about today.

Patrick Cusick: That’s very true. In fact, when lawyers renew their license in Pennsylvania and they’re updating their address and the firm they’re affiliated with, there’s a section about succession planning in there. I think for a lot of lawyers, the concept is that if they’re at a large firm, maybe they don’t even need to do “succession planning,” because they already have other attorneys available to pick up their legal cases in the event that they do retire or something else happens.

That’s the legal definition when it comes to lawyers’ succession planning. What you and I would consider to be the business side of succession planning is not the same thing. I think that might be where some lawyers are getting tripped up thinking that they have people in place, whether they’re younger associates or other partners that take over the workload, or maybe they’ve already introduced some other attorneys to their clients. They see the path of how things are going to go, but you should actually sit down and have all the stakeholders be on the same page and talk about the financial implications for everybody, if and when a partner starts to retire, or, God forbid, dies or leaves suddenly.

When these things happen, it’s not just a matter of your clients, the cases, not missing deadlines, and having that seamless representation, which is of course ethically very important for attorneys. A big part of it is that law firms are businesses, and like any business, the CEO or the vice president of sales or whoever it is, might leave at some point and you need to be really serious about who’s going to step up into those roles. We’re talking about a law firm, which has the partnership aspect of it.

When law firms are owned by attorneys and one attorney who’s an equity partner leaves or a shareholder leaves, oftentimes that means that someone else has to step up into that role when they retire. There are financial implications for the individual, who’s rising to that equity partner level. It’s almost a financial transaction at that point and should be treated with the same seriousness that attorneys treat other matters.

A lot of attorneys think about succession planning in that legal ethical sense and not so much about the hardcore business, accounting, and finance and what this means to the viability of the business and the law firm.

What are some of the important parts of a succession plan?

I think the foundation of any properly thought-out succession plan is to have all of the different stakeholders, whether they are partners or people who will be retiring out of the equity partner ranks, and then have a discussion with the people who will be coming into those leadership roles. It doesn’t have to necessarily focus on equity partners; it can also include non-equity partners who are becoming equity partners.

Oftentimes, especially at some of the mid-size and larger law firms, there are different people who are running the accounting and billing departments. There are people who are running the marketing end of the firm. Those people also need to be included in a succession plan and discussion. I think the foundation of any good succession plan is making sure that the people who are going to be departing at some point, and the people who are going to be taking over those responsibilities, are all on the same page regarding what’s expected of them.

The discussion should start at a partnership meeting, but I think it’s unfortunately sometimes a naive assumption that when a partner is going, an equity partner meeting is going to talk about succession planning. You kind of assume that a younger partner or associate is ready to take over the work and is on the same page with them. They very well may not be. Unfortunately, that’s where succession plans can falter or run into trouble when not everyone’s on the same page.

The first step is making sure that people who are going to either leave the firm or are going to be taking over the firm have an honest discussion, oftentimes facilitated by a third party, as to what that means for everyone involved and make sure that everyone’s on the same page and that expectations are very clearly defined.

Jennifer Simpson Carr: I love that response and something that you said really struck me. You said, “Lawyers may think, ‘Oh, I’m at this size firm so I may not need to be thinking about this.’” What we are finding is that succession planning is firm-size agnostic. It does not matter the size of your firm. There is an important role succession planning plays, whether it is firm-wide or practice-wide key client initiatives. This is something that should be on everyone’s mind, particularly as some of our generations phase out.

Patrick Cusick: I think it’s important for law firms to consider that they might’ve had a structure in place that allowed partners to retire and new partners to become equitized and become shareholders in the firm. That might’ve worked for 30 or 40 years in the case of some of the older firms. As times are changing, expectations among younger attorneys are different than they were 10, 15, 20 years ago.

Sometimes when a succession plan is in place and has been working, it doesn’t necessarily mean that it’s going to continue to work as the legal landscapes change, winds shift, and younger attorneys expect different things and maybe aren’t willing to “buy into the firm and mortgage their house.” They might be looking for other avenues to end up in those equity ranks. We’re just having this honest conversation and setting expectations.

Tell me about how you and your team approach succession planning.

What we do when we encounter a firm that has either hired us or has begun talking to us about how to handle a succession planning issue is level-set with the stakeholders. We’ll typically first talk to the current equity partners.

There’s an ongoing succession planning project that I’m working on for a law firm in California. It has one equity partner. He started the firm 15, 20 years ago. He’ll tell you that he quit a job at a larger corporate firm and wanted to start his own thing. He did that a long time ago. What he put in the business many years ago was peanuts. He just worked out of his house, bootstrapped it, built the firm up, and now it’s one of the premier law firms in his industry in Northern California. He’s hugely successful, he’s making a lot of money, and he’s doing very well. He is proactively looking to do succession planning.

The first thing we’ve talked to him about is compensation. How much are you making now? If you leave the firm, what’s your “payout” for this firm that you’ve built? It has value. I mean, he’s built something. If this was a widget-making company, he could go out and sell that to another widget-making company or to a private equity firm. There’s some value in the firm.

Because law firms can only be owned by lawyers, it’s a little bit harder to drill down the value, but we said to him, “What are your financial expectations here?” He was very plain with us about how much he makes now, he gave all the financials, and he was very plain about what he expects to get paid out. He built this firm, he expects to retire, and he wants the firm to continue. He has a great love and affinity for not just the attorneys, but all the staff and everyone that worked at this firm.

Then we asked him, “All right, so we understand what you’re expecting to happen in the future when you set that deadline and when you’re going to retire. Who do you think should take this firm over?” After multiple meetings and discussions, we’ve settled on a two-part phase. One is that he has a couple of younger people at the firm that he thinks have the skillset to take the firm over. He also identified a smaller firm that he’s going to absorb and potentially add these other two people to the mix to give him a larger pool of people to draw from. He’s going to retire and build a three- or four-person, maybe even five- or six-person equity pool of partners to take the firm over.

The process is just aligning the people and figuring out what they’re looking for financially and in their careers. We interviewed the individuals who the main equity partner identified. I think they have what it takes to help lead this firm, but we’d like to meet with them and talk to them to find out if we agree with that assessment. As an outside observer, we can come along and say, “You might think this person’s fantastic, but I don’t think they have what it takes to run the firm.” Or, “They would be phenomenal and here’s where the skillset lies. Here are the future responsibilities they should take on as this firm grows in the future and as you phase off into retirement.”

We just talk a lot to the people about the processes internally and who can take over what aspect of the firm. Then it’s a little bit of a transaction, so we start to talk about what people are making. No one wants to go from a senior partner to equity partner, or a junior partner to equity partner. No one wants to make that next step in their legal ladder and make less money. We talked a lot about what people are making now. What’s a compensation structure? How do we have to change the structure?

Then lastly, we spend a long time and a lot of effort mapping all that out and modeling all that out. We want to make sure that if the partner who is retiring expects to get paid, say $250,000 a year for five years because they think that’s somehow what they deserve, can the firm afford to do that? If the new equity partners or the new people stepping into leadership roles are expecting a bump in their salary, what kind of bump are they expecting? What are those numbers? Can the firm afford that? What kind of assumptions do we have to make to get the model to work?

How can we make sure that people are getting what they think they deserve? We can show them with some pretty black-and-white numbers that this is the financial position of the firm, these are the growth expectations and assumptions we’re making, and here’s the equity piece to be split up. Here’s how the salary numbers are going to break down so that people can say, “Okay, I thought of making a lot more than that, but I am very comfortable with that number. I can also see,” we call it the promised land. They can see that as they move into that ownership level and the firm grows, they’re going to get more of the profits. They can see that they’re able to make more money or they’re able to be in a better financial situation with this plan and this model that we put in front of them.

A lot of it is getting into the numbers, getting into the weeds, and making sure that the firm can afford what people think that they would like and what they expect.

Jennifer Simpson Carr: You’ve touched on a couple things that are interesting. First is that you’ve condensed what is an intensive project or process here. That alone should motivate people to start thinking if they haven’t already, but also if firms already have a succession plan, you’ve touched on the fact that it’s an iterative process. What the market might have been when an original succession plan was established and agreed upon may be impacted year over year by changes in the firms and in the market. Mergers and acquisitions will become more prevalent in the next 18 months. That’s all fantastic feedback and things that our listeners should be thinking about as they’re trying to determine ways to have conversations internally with key stakeholders about where their firms are in the process.

Patrick Cusick: I would just like to point out that I’m talking a lot about succession planning, which is Firm A wants to remain Firm A, and the current leadership is going to retire and the new generation is going to take over. That’s definitely a long process. I distilled it down. It’s definitely a complicated issue. If you think about this, that’s only one facet. The other one is mergers and acquisitions, and there are firms we’ve spoken to and had this discussion about what they’re looking for and what the firm is, the future, the direction, the finances.

Oftentimes the discussion then turns to, “I think maybe you might want to talk about another firm that is in a similar practice area and potentially merging your firm into their firm. That might make more sense for you, it might make more sense for your staff and for the other attorneys working for you. It might just be a better fit for everyone.” There are a lot of firms out there that are very happy to get the phone call to say, “Hey, we’ve identified a firm that is in a complementary or the same practice area that you’re in, and wouldn’t it be great if we could kind of merge these cultures and these firms together?” That oftentimes ends up being a de facto succession plan, which is merging into a larger firm that maybe has some of that in place already.

Jennifer Simpson Carr: A theme that is emerging here in our conversation is transparency and communication. It’s important to have transparent conversations. Firms who may come to you and say, “We’d really like to focus on succession planning,” may have something in mind and then speak with you and have many other options presented to them that could best benefit themselves as they think about the future, their partnerships, and future partners.

I share that because it’s interesting to think that you may go in with one vision of what this could look like and then identify other ways that could even be more successful.

Patrick Cusick: There are oftentimes many meetings in between that first meeting and that last meeting with the current managing partner or partners where that financial model I mentioned gets done and redone multiple times, because we’re coming to them with options. “If you do this, you can afford to do this, but if you don’t want to do this, then you can’t afford to do these other things.” There are many discussions from the financial model where we’re constantly going back and revising it, making different assumptions, or just talking to them about if they’re not comfortable with option A, here’s option B. Let us come back and model that for you and see how that looks and feels, and if it’s what you’re looking for or what you’re talking about.

Jennifer Simpson Carr: That’s a great perspective and it does support the fact that having that outside perspective, someone looking in with a fresh set of eyes and ideas, is always beneficial to the process. Whether or not you go in those directions, it at least allows you to explore different opportunities.

Patrick Cusick: When we hang up that phone, we don’t have to go back and prep for a deposition or have a client meeting. When we hang up the phone or hang up that Zoom call, we immediately start working on their succession plan. Everyone’s stressed for time nowadays, but especially at law firms, it’s such a time crunch. There are hours to be billed, and there’s work to be done. Sometimes you have that great discussion, but no one at the firm has the time to go back and do the work.

What role does a partnership agreement play in succession planning?

Unfortunately, I have met a couple of different firms and they either don’t have a partnership agreement in place or they have a very boilerplate, inadequate agreement. It’s always shocking, especially when dealing with lawyers, that sometimes a comprehensive, well-thought-out partnership agreement isn’t necessarily always in play. That actually becomes part of the succession plan; if we’re going to put all this into place, you need to put this all in writing in a partnership agreement.

A partnership agreement is typically one of the first pieces of documentation we’re going to ask for with a law firm to find out what exactly the parameters and the guidelines are now. That’s where we sometimes find out that there’s not a very good one. Partnership agreement is a hugely important thing. It’s like with anyone who has a will or has legal documentation – everyone says it’s important to go back, revisit that, and make sure that it still makes sense and that the future that you anticipated or envisioned many years ago when you drafted it is still the shared vision and the goal of the firm right now.

What other projects do you work on that are related to succession planning?

We work on a couple different projects. The one that is sometimes intrinsically linked to succession planning is what we’ve been calling a path-to-partner project. There are firms that are maybe not ready to talk about succession planning, have something in mind, or at least have a framework. It’s not as much of a pressing issue, but I’m seeing a lot of upward pressure from younger associates and more junior partners who are not as content to wait to get the tap on the shoulder to be told, “Hey, you’ve made it. Let’s invite you to the big conference room and now you’re part of the equity gang.”

It’s them going to some partners saying, “Hey, I’ve been here for a little while, I’ve developed this book of business, I’ve done this, I’ve done that, I’ve led these initiatives. I’d like a seat at the table, I’d like a piece of the pie, I’d like to be a decision maker, and I’d like to have a say in where this firm is going.” This is going to sound a little corny, but oftentimes it comes from a place of love. A lot of younger associates or partners who have been at a firm for a couple of years love the firm. They love the culture and the people, but they just feel like they don’t have any say in their direction when they get to that point in their career.

That’s that upper pressure where they’re saying, “I want a seat at the table.” I’m noticing that in a lot of law firms, the attorneys who are not the equity partners are actually the ones starting the conversation, which isn’t always the way it used to be.

Jennifer Simpson Carr: It’s very true and we’ve seen the same thing from our perspective. A lot of times I think attorneys have historically waited on the leadership to determine the direction of the firm. What we’ve seen over the last several years is more junior attorneys saying, “I really like the firm, I see a future here, I want to be part of that.” That pressure is coming from different parts of the firm now, which is great because regardless of how the process starts, it’s an important one and it’s one that does take time to get right and to make sure it makes sense, and that everyone we know needs to be on somewhat of a similar page. That always takes time, particularly at law firms.

One thing that we’re really focusing on right now is the perspective of the firms and the individuals within the firms, but what I’d like to do is talk a little bit about the client’s perspective and why this is so valuable for law firms as a client retention tool and a client development tool. Certainly what we’re seeing and what we’re hearing from general counsel is that they want the next generation of leadership on their client accounts to be an integral and integrated part of the client teams for a long period of time. They are not interested in meeting the next leader of their law firm team six to 12 months before the client is handed off. I’d love your perspective on what you’re hearing from the client’s side on why this is such an important endeavor.

Patrick Cusick: I actually have spoken to someone recently at an association of general counsels of a bunch of large corporations. I asked this individual, “Is succession planning something that is on the radar for general counsels at these larger corporations that obviously have huge legal spend budgets and are hiring law firms all over the country for any number of different things?” The response is yes, they’re very much aware of this.

They have seen it in the past from the client perspective. Larger corporations say to a law firm, “You need to have X number of million dollars of professional liability insurance. If you don’t have the insurance policy in place, you can’t work for us. You need to have certain cybersecurity guardrails in place.”

I’ve actually heard from people in cybersecurity that clients used to give them a one-sheet page. Now it’s many pages long. The law firm is bringing the head of IT in to check off the boxes to make sure they are meeting the standards that these clients are demanding of them when it comes to cybersecurity. They’ve seen it as within their rights to demand that their firms have a lot of these things in place, and they are now aware of succession planning.

I think you’re probably going to start to see more larger clients asking their law firms to somehow check boxes off to indicate they do have a succession plan in place and that it’s not the bare minimum and meets certain requirements. They read the news as well, and you and I are talking about law firms that have folded or running into problems because they didn’t have a succession plan. The last thing a client wants, especially a larger corporate client with many millions of dollars online, is to find out a law firm they liked and trusted and thought was doing a great job on their cases didn’t really figure out the next generation thing.

The partner they liked or the attorney they liked is now going to another firm, and they’ll probably keep the case with that attorney. They’ll probably transition to the firm, but it’ll leave a bit of a taste in their mouth that they entrusted their work to a firm that didn’t take the time or the energy to make sure that they were on solid footing for the next 10, 15, 20 years.

Jennifer Simpson Carr: I think you’ve hit the nail on the head because in my experience, I have seen that when the clients start to focus on those conversations, the law firms are forced to pay attention. Oftentimes, particularly during my time in-house, if a certain topic such as cybersecurity started to become more consistent in the RFP process for some of our major clients, it’s something that the firm knew it had to pay attention to if it wasn’t already.

Before we go, I just want to find out if you have any questions for me.

I think there might be somewhat of a nexus between public relations and succession planning. I think we’ve all seen how it’s a bit of a public relations nightmare when those things don’t go well. I wonder, do you think there’s any value or any benefit for a law firm to have some sort of public relations initiative behind succession planning, or to make it more of a publicly known event when a senior partner retires and a junior partner steps into his or her shoes? Is that something that you foresee having a public relations component to it?

Jennifer Simpson Carr: The biggest benefit is internal communications in that regard. It’s a couple things. It’s client acquisition – over-communicating what the plan is and how it benefits the client, and what they can expect in that process. We preach transparency to our clients endlessly, so externally I think it’s a talent acquisition and retention tool. If there are younger or more junior attorneys who really enjoy the firm and want to see themselves having a future there, it’s important to communicate that internally, that there is opportunity to be part of a long-term plan to look forward to a greater role on a client account team.

It’s also important to communicate externally to the public. That would start to help attract talent that may be in a situation where they don’t see longevity or they don’t see that there’s a path or a future there. I think public relations and communications does play a big role in this, and I think we’ll see this bubble up over the next couple of years as firms start to hopefully focus on this more in a meaningful way and go through a formal process.

Patrick Cusick: I do think the future in this area is a bit of a wake-up call lately with law firms. They take these things seriously, and they can see the writing on the wall, to the extent that they don’t have a formal or a solid succession plan in place. I do see more law firms getting on board, calling someone up to say, “Hey, I need some help here. Let’s get something figured out because we have a great firm, we have some great attorneys, we love our clients, we don’t want this party to end, so let’s figure out a way to just keep things going.” I hope to get more and more of those calls in the future. That should be taken seriously, and I think lately a lot of law firms are starting to put an eye to this, which is fantastic.

If someone would like to get in touch with you and learn more about you, the services you offer, and your experience in succession planning, where can they get in touch?

The best way is to go to our website, and if you scroll down, you can see a section there where you can search by industry. Just click on law firms and you’ll see my name and my contact information. We’re happy to have a call with any law firm to talk about their issues and figure out if this is something that they need to drill down a little bit more on. We can talk to them about proposals or trying to work together, but I’m always happy to talk to lawyers and law firms. In fact, I love talking to lawyers and law firms, about any issues they might be having and see if there’s any advice I can give, or anything we do to help them out with whatever pain point they might be dealing with.

Patrick Cusick

Website: https://www.armanino.com/company/people/patrick-cusick/

LinkedIn: https://www.linkedin.com/in/patrickjcusick/