how long do you want your firm to last?
by marc rosenberg
the rosenberg practice management library
two-thirds of partner agreements include a mandatory retirement provision. this provision usually requires partners to give up their equity but allows them to continue working in some fashion. a common stipulation is that if a “retired” partner wishes to continue working, either full- or part-time, this must be approved annually by the other partners. but with the covid crisis, annually may come sooner than expected.
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here are two opposing viewpoints on a mandatory retirement provision to consider the next time you review your partner agreement:
anti-mandatory retirement
a group of partners in their late 50s and 60s, still vibrant and sharp, run a firm. they make good money, have great clients and love what they do. assuming they continue to enjoy good health and have no idea what they would do if they retired, why on earth would they agree to be forced to retire from their own firm upon reaching a certain age, say 65 or 66?
sure, at some point, they would love to turn the firm over to younger partners who write the partners’ retirement checks, but the partners want to do this on their own timeline, not the firm’s. they reason that by working well past a traditional retirement age, they continue to earn huge paychecks while doing a job they love, and when they are ready, they can always merge into a larger firm if there are no younger people to buy them out.
rosenberg’s sober warning: buyers are getting pickier. they are less willing to merge in firms with aging partners lacking bench strength. further, when a firm with aging partners is able to find a buyer, the deal terms are likely to be less attractive than they would have been five years ago.
pro-mandatory retirement
this camp has two long-term goals:
- to protect and perpetuate the firm’s largest asset, its client base, by providing for an orderly succession of firm leadership and the transition of client relationships to the next generation.
- to attract and retain top talent, who view the eventual transitioning of client duties to them as the promising career opportunity keeping them at the firm. when this promising future becomes endangered, they usually leave.
eighty percent of first-generation firms never make it to the second generation. one of several reasons is lack of a mandatory retirement policy.