Partner retirement: The hidden risks law firm boards must address

The retirement of senior partners from law firms might seem like a natural progression, but it presents significant governance challenges that boards must actively manage. While partner retirement is inevitable, the associated risks can be substantial if not properly overseen.

Law firms, in particular, face unique challenges. Unlike corporate structures, partners are both owners and operational leaders. Whether intended or not, partners can often have personal fiefdoms within practice areas, and the situation is made more complex when clients, more often than not, view themselves as clients of specific partners rather than the firm. This creates a complex web of relationships, responsibilities, and risks for boards to navigate.

Boards have a fiduciary duty to ensure these arrangements balance fairness to retiring partners with the firm’s long-term financial stability whilst navigating the growing issue of potential age discrimination threats. This requires clear policies, consistent application, and regular review of the cumulative impact on firm finances.

The hidden costs

The financial implications extend far beyond simple retirement packages and may not be transparent across the partnership. Compromise agreements, ongoing profit share arrangements, pension commitments and consultancy appointments can create substantial long-term obligations.

The hidden costs can often lie in less visible areas: knowledge drain as decades of expertise walks out the door, team disruption and potential staff departures, client relationship uncertainties, cultural impact on the wider firm and mentoring program disruption.

Up till now the easy solution has been moving partners from equity to a consultancy role. The problem with partners becoming consultants is that in many cases the partner is out of the knowledge and leadership loop and can become isolated which further hinders proper succession planning and handovers with his team. So, it becomes a costly stalemate.

I have seen some partnerships appointing retiring partners as consultants as a way to kick the can down the road and avoid awkward conversations about succession planning. I often hear senior partners say “I know I need to have this conversation with partner A but I’m really busy and the timing is never right”

The role of HR

HR plays a crucial role in supporting board governance through developing comprehensive workforce analytics and creating structured succession frameworks linked to leadership development programmes.

For the board to have effective oversight of the total costs attached to partner retirement involves not only having a transparent approach to retirement negotiations but access to metrics which can provide a more strategic picture of risk. HR can help by providing information on:

1. Financial health indicators, including the total value of retirement obligations
2. Client retention rates during and after partner transitions
3. Staff turnover within affected teams
4. Success rates of knowledge transfer programs
5. Cultural impact measures

More and more law firms are now seeing partner transition and retirement as just one part of their whole partner development programme – starting with lawyers preparing for partnership, through partner promotions to senior leadership development. Younger partners want to know that there is a transition programme for partners and that there is still going to be room at the top for them when their time comes.

Best practices for board oversight

To effectively manage these risks, boards should be looking to:

1. Establish a dedicated succession and transition committee which reports to the board regularly. Where the focus is on creating a culture which focuses on and invests in supporting positive partner legacies rather than retirement dates
2. Maintain clear policies on retirement arrangements and the countdown to retirement with measurable milestones
3. Implement robust monitoring frameworks to ensure policies are equitable and transparent
4. Regularly review succession planning effectiveness
5. Recognise the lifelong personal contribution made by partners by investing in them at this stage and recognise that partners are individuals with different needs, fears, aspirations and goals during the transition into retirement. Next-Up’s ‘Your Future’ workshop helps firms move towards normalising the retirement conversation and act as a ‘release valve’ for partners and boards alike to move forward positively together.

Looking forward – a positive legacy

The challenge for law firm boards isn’t just managing immediate transition risks – it’s ensuring the firm emerges stronger through each generational change. This requires a delicate balance between honouring partnership traditions and implementing effective governance structures.

Success lies in recognising that partner retirement isn’t just an HR issue or a financial consideration – it’s a fundamental governance challenge that requires active board oversight and strategic management.

The firms that thrive will be those whose boards take a proactive approach to managing these transitions, ensuring both the departing partners and the firm’s future are properly secured by seeing retirement asstrategic opportunity, not an administrative task. By implementing transparent succession planning and partner development programmes throughout the partner career path, knowledge transfer is structured and gradual rather than being crammed into the last six months before retirement.

Looking forward, partner retirement should be seen as an opportunity to renew and reset, to engage teams in succession planning and growth and to empower retiring partners to support succession as part of their positive legacy with the firm.

Working with many firms and their 50+ partners, I have seen how important it is for partners to feel that they are leaving a ‘legacy’. They can be encouraged to think about the bigger picture and what this means for clients and their teams – creating a succession plan that leaves a positive legacy.

Boards now need to consider how and when partners are encouraged and rewarded to build their legacy plan to achieve a smooth succession ultimately reduce risk for the board.