Retirement is a topic generating some buzz in the news. In October 2007, the U.S. Equal Employment Opportunity Commission settled an age discrimination case against U.S. law firm Sidley Austin LLP on behalf of 32 former partners. The firm paid $27.5 million dollars and entered into a consent decree. In August the American Bar Association at its annual meeting recommended that law firms end mandatory retirement policies and urged that law firms evaluate their older partners on the basis of individual performance. Led by action in April by the New York State Bar Association which separately had adopted a similar position. A comment to the Welcome post in this blog about the EU retirement perspective further highlights the issue as broader than just our US interests. More on the EU in a moment.
All of this is quite timely as we are in the midst of data collection for the next iteration of Altman Weil’s Retirement and Withdrawal Survey. This study has a Spring 2008 publication. In addition, we felt that a more individual perspective would be both timely and informative. So in September we conducted a flash survey of Managing Partners in US law firms with more than 50 lawyers. The Altman Weil Flash Survey on Lawyer Retirement indicated that only 38% of lawyers agreed with the enforcement of mandatory retirement provisions in law firms. However, fifty percent of respondents reported that their firms currently have mandatory retirement policies.
As the Baby Boom generation nears retirement, many have already had a change in perspective. Clearly the landscape has changed since these policies were put into place. The EEOC is willing to extend its reach to law firm partnerships, partners are living longer and healthier lives and are eager to continue the practice of law, and finally law firms are more aggressively seeking well connected lawyers to help grow their firms. The time has come for further dialog among firm partners to sort out how best to move forward.
Now back to the EU comment mentioned earlier. I asked our colleague in the UK, Tony Williams of Jomati Consultants, LLP, if he would provide his perspective. His thoughts follow:
“I think the reason for partners retiring early are various but let me summarize them:
- UK firms particularly over the last five years have been far more performance orientated. As a result the pressures on partners have continued to be pretty relentless and the possibility of easing off as one approaches ones mid to late 50s is generally not an option. This is exacerbated by the fact that most of the major UK based firms operate on a lockstep remuneration system. Accordingly if you cannot sustain a level of billings which justifies your place on the lockstep then you go. Some firms have introduced some flexibility to their lockstep but this tends to be very limited and very short term.
- This pressure has caused a number of partners in their mid 50s to reconsider their positions and particularly in view of the high level of earnings over the last few years to decide that they want out. Some retire completely others remain in a consultancy capacity and some may move across to become general counsel etc.
- Until relatively recently partners were able to make very tax efficient pension contributions and so many are in a sufficiently comfortable financial position to be able to retire. This is particularly the case for those that have significant London properties as property price increases in London have been significant over the last ten years and if on retirement the partner is trading down they are able to release significant amounts of capital tax free.
- That being said there is some evidence of a more flexible approach being adopted. It is quite clear that firms are wanting to keep and remain motivated the best older partners. This is particularly an issue as the baby boomers are starting to retire because they do have a range of experience and client connections built up over a significant period of time which are increasingly valuable. Furthermore if partners have a young family or a second family there is often a financial imperative to continue working. In addition recent changes to pensions law has limited the tax efficient ability to save in a pension fund. That combined with lower interest rates and longer life expectancy has reduced the yield on pensions by well over half over the last ten years.
- A further factor is that this year the UK introduced age discrimination legislation which clearly applies to law firm partnerships. As a result the older partners are no longer seen as the soft option and the issue of partner performance is being addressed across the entire age range of partners. As you may have seen, Freshfields was recently involved in the first high profile age discrimination case which it won. It is interesting however that many of the partners that they have eased out in London over the last year have moved to other firms to continue their careers albeit at significantly lower income levels.The major UK firms have seen it as a pressing need to get their profitability up to a level which is more comparable to the major US firms (partly because they want to grow in New York but mainly to remain competitive as US firms are more aggressively hiring in London). As a result they have been much more ruthless in relation to partner performance and are holding their equity much tighter than ever before. Most firms have now introduced a non equity partner status to effectively defer the granting of equity and to ensure that equity is only given to partners who will grow the business and perform at an appropriate level.”Tony further offered a very good related article, The Little Grey Cells Have A Leading Role In The Best Firms, that speaks to the age issues of law firms.