At the eve of the turn of the last millennium, I was surprised to discover, during a conversation with a colleague from a prestigious New York bank, that small law firms, defined, roughly, as employing less than two handfuls of attorneys, were considered risky business—an opinion supported by their high failure rate. Therefore, the bank in question considered them unsuitable debtors. It was puzzling to me that educated professionals could succumb easily to doing business. A long conversation ensued on the reasons for the observed failure rate.
Reasons Pitched For Failures
Some reasons pitched were they took on too much too soon, were unfocussed, failed to follow a strategic plan, neglected to reward deserving employees, low pay for new hires, misrepresented job responsibilities, minimized marketing efforts, wanted industry experience, ignored industry trends, overlooking risk analysis and mitigation activities, neglecting contingency planning, non-committal in writing of business arrangements/agreements, overspending, lack of or poor customer service, sacrificing the need for competitor analysis, failing to communicate, only competing on price, tax evasion, poor leadership, disregarding past mistakes, amongst many others. But then the lack of succession planning, unexpectedly to me, was mentioned. In this case, when the founder retired, left, or died it spelled the demise of the practice.
Want of Succession Planning a Key Problem
It turns out that the want of a succession plan is a significant contributing factor in small/family business failures. Formally, research has shown that just about a third of family business startups survive to the succeeding generation, a little over 10% survive to the third generation, and an even smaller percentage survive to the fourth generation. Back then, this factor was listed high up amongst small law firms. It remained so to this day; affirmed by a survey of small-solo law firm management conducted by Thomson Reuters Solo and Small Law Firm; and, amongst the eight reasons given for law firm failures by TimeAnalytics ownership succession planning was number six:
6. Lack of Succession Planning
Failing to teach and promote new leaders from within can result in a leadership vacuum. In other words, disrupting the firm’s continuity and long-term prospects is another reason why law firms collapse.
Without a planned transition, the sudden absence of key leaders can cause a lack of direction and stability within the firm. Failure to retain and develop talented lawyers can result in the loss of valuable expertise and institutional knowledge. Not having a clear path for leadership succession can raise doubts among staff and clients about the firm’s ability to navigate future challenges.
–Source: Lukic, Jelena “Why Law Firms Collapse: Reasons Behind Law Firms’ Failures.” TimeAnalytics, Time Analytics LTD, August 17, 2023, https://timeanalyticssoftware.com/why-law-firms-collapse/, Oct 11, 2023
–Richard Thomas
