State bar forms Transitioning Lawyers Commission to deal with issue of end of practice
By Correy Stephenson
The Daily Record Newswire
RALEIGH — The legal practice is facing a serious problem – and it has nothing to do with the law.
As the bulk of the Baby Boomer generation ages, lawyers are struggling with how — and when — to end their practices.
“Lawyers truly do not know how to retire,” said Nan E. Hannah of Hannah Sheridan Loughridge & Cochran in Raleigh, who chairs the Transitioning Lawyers Commission of the North Carolina Bar Association.
The “TLC” group was formed in 2012 to grapple with the multi-faceted issue of an aging profession.
Ed Poll, a national business coach and strategic law planner based in Venice, Calif., said lawyers have four options to end their practice. “Sell your practice, merge your practice, close the practice entirely, or die in your boots,” he said. “Most lawyers choose the last one.”
Statistics back him up. Tom Clay, a principal at Altman Weil Consulting, said a recent survey of law firms across the country by his company found that almost 78 percent of the Boomer generation “does not want to retire, period.”
Boomers are increasingly working past the traditional retirement age of 65, helped by a longer life expectancy (currently around 85 years old, Poll noted). But even a willingness to continue working doesn’t mean that all lawyers should be carrying a full workload.
Clay said all attorneys should begin considering the end of their professional future no later than age 60. “Succession planning takes time,” he stressed. “You can’t start transitions at 65 or 67.”
Lawyers who are thoughtful about the process can help ensure their clients are taken care of, avoid a fire sale of their practice, or be prepared if a health issue arises unexpectedly.
Friends helping friends retire
For many lawyers, the biggest challenge of retirement is figuring out what to do next, Poll said.
Hannah said that uncertainty leads some lawyers to continue practicing, even when they shouldn’t. Lawyers should be able to end their professional career in a blaze of glory, not infamy, she added, by way of grievance or malpractice.
To that end, TLC is working on a program of transitional support, or “how to help friends stop practicing,” Hannah said. Concerned about potential cognitive impairment issues, the program trained team leaders to review calls made to an 800 number at the NCBA by friends concerned about an older lawyer missing court dates, for example. The team leaders can get more information from the caller and then propose steps to help the attorney. That help could come in the form of an intervention or the suggestion of a visit to the doctor.
“We’re not here to shut anybody down,” Hannah emphasized, characterizing the approach of the group as a “warm blanket.” “This is an opportunity for friends to sit down and raise awareness of what they are seeing and encouraging lawyers to see a doctor or begin a conversation about a transition.”
The group also drafted a proposed rule that would create a subsection in the current “inactive” status for North Carolina attorneys for “inactive retired.” Retired lawyers would then be able to describe themselves as a “retired lawyer” without running afoul of state ethics rules.
For other attorneys seeking guidance in the process of shuttering a firm, Hannah suggested materials like “Turning Out the Lights,” a practical guide prepared by the Solo, Small Firm & General Practice Section of the NCBA. The book offers forms and tips for shutting down a law office, with an enhanced new edition in the works.
But even with all the efforts to prepare and calls for lawyers to plan ahead, Hannah said the biggest challenge is getting lawyers and law firms to consider retirement or exit strategies.
“What is driving all of this work is this: How do you help people plan and control your destiny before it comes to a halt in a bad way?” she asked. A lawyer or firm that fails to plan ahead “could really harm clients and the profession as a whole.”
To sell or — more likely — not to sell
Solos and smaller firms may consider selling a practice, either to a third party or a younger associate, while big firms face the challenge of respecting an aging partner who keeps coming to the office in his 70s to read the paper every day.
Selling a law practice used to be a viable option for solos and small to medium sized firms. While it can still happen, it’s the exception to the rule.
Finding the right match between an older lawyer and a younger lawyer is difficult enough, but factor in the burden of significant law school loans for a younger generation and the reality that many of the assets that go into such a sale — office space, equipment, a law library — are now available on the cheap, the only value in a practice are the clients and pending matters. And “you can’t bind clients to the firm,” Clay said. Unlike an accounting firm or a dental practice, where visits are regular, a law practice has less scheduled income.
Erik Mazzone, the director of the NCBA’s Center for Practice Management, noted that the “ideal situation” would be younger attorneys at the firm transitioning into ownership and leadership positions as the older generation transitions out. But “within the last few years, the number of associates, particularly in small firms, has decreased as lawyers are increasingly going out on their own,” Mazzone explained. With cloud-based systems and other technology, a young lawyer can start out with minimal upfront costs.
If a possible connection is made for a sale, the issue of valuation remains. Putting a dollar figure on an attorney’s life work can be a painful experience. To value a practice, factors like revenue stream, the type of practice (IP or estate planning?), and geography are considered, Poll explained. “It’s an art, not a science,” he said.
Clay recently worked on a possible sale for a 10-lawyer firm with one owner. As the acknowledged leader in representation of a certain kind of business in the whole state, the seller brought in millions every year “like clockwork.” A practice like that should attract buyers, but Clay said other lawyers and firms were interested only if the selling attorney stayed on for a certain number of years and accepted an earn-out. “No one wants to take the risk of spending a bunch of money up front, especially knowing that clients will be up for grabs if the lawyer retires anyway,” Clay said. “That’s the difficulty in trying to sell a law practice.”
Ethical considerations also come into play. In North Carolina, Rule 1.17 of the Rules of Professional Conduct governs selling a law practice. Although the state permits the sale of a practice, lawyers must comply with several requirements like providing written notice to each client and ceasing to engage in the private practice of law within a 100-mile radius of a purchased office, other than work as an independent contractor for the purchaser.
The geographical practice limitation after a sale scared off many attorneys and the State Bar Council adopted a change to the rule last October clarifying that lawyers are allowed to continue to practice as an employee of the purchaser. The tweak is currently awaiting approval from the Supreme Court.
