Rod Ferguson no longer has any ownership stake in the law firm that bears his name and he couldn’t be happier about it.
When the Midland, Ont. personal injury lawyer sold his interest in Ferguson Barristers LLP and the building that houses the firm to his three partners in 2013, it marked the culmination of a succession plan several years in the making.
The partners took over all work in progress and in return agreed to pay Ferguson monthly instalments over the course of five years in a deal structured to maximize tax efficiency using capital gains exemptions.
Four years on, and approaching 50 years since his 1970 call to the bar, Ferguson remains an employee of the firm, representing occasional clients.
“I go to work when I feel like it,” Ferguson says. “I still have the big office because they wouldn’t let me out of it. I have had to learn to bite my tongue on management issues, because it’s not my business any more. They are going to do things differently; they’ll probably make some of their own mistakes, but they’ll also correct some of the ones I made.
“Things have gone very smoothly, and I would urge anyone in my position to emulate the plan,” he adds.
According to Ferguson, too few lawyers think about their exit plan early enough, with sole practitioners in rural areas being particularly bad offenders. He says he has watched as colleagues allowed their practice to simply peter out or who have died before putting a plan in place, leaving family to wind down the practice for little or no reward.
“Sometimes, planning for succession involves an investment. You might have to spend some money to take on an articling student or a junior lawyer, which is where many lawyers aren’t capitalizing,” Ferguson says. “It’s also leading to problems in some small communities, where there are fewer practising solicitors and nobody to take over.”
The 2013 transfer was second time lucky for Ferguson, whose first attempt to smooth his transition out of private practice did not go according to plan.
In the late 1990s, determined not to work past the age of 65, he joined up with three younger lawyers to start a new firm.
However, Ferguson says the agreement he signed up for left him feeling marginalized when it became clear his vision for the future direction of the firm did not match up with that of his three new partners.
The firm eventually split after a rapid expansion resulted in overwhelming financing costs and cash-flow problems, Ferguson says, adding that he took the lessons learned from that sour experience into his second succession plan.
“Each person involved needs to get their own legal advice and their own accounting advice,” he says.
Michael Nicoló, partner at accounting firm Collins Barrow in Toronto, says the demographics of Canadian law firms should make succession planning one of their key priorities.
A recent survey of Canadian law firms by the company found 79 per cent of equity partners were aged between 50 and 65, so it’s no surprise many respondents also agreed about the necessity of a plan.
However, Nicoló says, few have actually followed through by developing a formal one.
“Firms need a plan for the effective and smooth transition of knowledge, relationships, business practice and revenue to the next generation of leadership,” he says. “It creates and fosters job security for everyone, and it helps firms attract and retain the right mix of talent.”
Lynn Foley, co-founder and partner of fSquared Marketing in Vancouver, B.C., says law firms need to start planning for a lawyer’s departure at least three years before retirement.
When it comes to managing the handover of important files and management roles, the earlier things get started the better, she says. That’s even more true for smaller firms, she adds.
“Compensation schemes tend not to be as sophisticated, so you may not have a structure in place that motivates a partner to transition a client successfully once they’ve retired or left the partnership,” Foley says. “And if you’ve only got 10 or 15 lawyers at the firm, then you might not have the bench strength to pick and choose who the successors will be. You may have to bring in a lateral hire to fill some gaps.”
But at larger firms, the expanded roster of capable lawyers means it’s possible for complacency to set in, Foley says.
“When I do strategic planning with law firms, I sit down and talk with lawyers one on one, and I’ve been shocked at the number of times a lawyer will tell me they’re planning to retire before they’ve told their managing partner,” she says. According to Foley, the culture of a firm is highly determinative of its ability to successfully execute a succession plan.
“If there’s a feeling of pride in the firm, partners will want to leave something behind for the next generation,” she says.
“At firms where the clients are ‘mine’ rather than ‘ours,’ it doesn’t work as well. Those partners don’t see what’s in it for them to hand over their clients to someone else.”
For firms that are thinking ahead, Foley says one of the biggest mistakes they can make is to cut out clients from decisions about their handling lawyer.
“Some law firms will make succession an internal issue: who needs to bulk up their book or who has the technical expertise,” she says.
“But the client’s needs and strategic direction should be at the centre of the succession planning process.”
