The lateral movement of lawyers from one law firm to another has reached a fever pitch in recent years. But lawyers who plan to leave a firm have contractual and common law [fiduciary] duties that must be respected by both the departing lawyer and the firm.
Partner departures can have a cascading effect on a firm, making it even more difficult for remaining partners to keep up.
The Board of Directors
A company’s board of directors sets policy, governs the company and oversees management. A board typically includes a mix of inside (company executives) and outside (non-employee) directors. The goal is to bring a diverse range of views and experience to the board. Outside directors can help a company look at its business from an international perspective or provide insights on corporate social responsibility issues.
Board members often vigorously debate the important business issues that a company faces, and seasoned business people can disagree with one another. However, once the board makes a decision, all members must pull in the same direction. Otherwise, the results will be less than productive.
Generally, a director’s job is to put the interests of the company above their own. Therefore, while a director might feel strongly that they cannot continue to support an extremely consequential decision the board has made, it would violate their fiduciary duty to quit right away.
The chairperson of the board leads meetings and oversees the board’s operations. They work closely with the CEO to ensure that the board operates efficiently and effectively. They are also responsible for setting strategy and overseeing the execution of that strategy. Additionally, the chairperson facilitates meetings and helps the board function as a cohesive unit. Depending on the size of the board, they may also participate in specific committees.
Outside directors can be invaluable to a company, as they can help to avoid insider dealings and other conflicts of interest. They can also add fresh perspectives to the board’s discussions on important business issues. Moreover, outside directors are not likely to have material ties to the company; for example, they should not be related to a senior executive or have substantial financial dealings with the corporation.
Whether it is the result of an internal conflict or an insurmountable problem, sometimes a board member will want to resign. Unless the company has excellent D&O liability insurance and indemnification agreements, this can be problematic for the departing director; without adequate protections in place, a lawsuit could put a director’s personal assets at risk. Therefore, companies should review their D&O coverage and indemnification arrangements regularly to make sure they are up to date.
The Management Team
Many firms understand that running a law firm is a people-intensive business and they are often wise to rotate leadership roles on a regular basis. However, sometimes the turnover of leadership team members can leave partners feeling alienated or frustrated. Firms can address this concern by prioritizing leadership development programs, encouraging open dialogue and soliciting feedback from their attorneys.
Another way to ward off the alienation caused by leadership team turnover is by investing in a diverse group of talented junior and senior associates, including new and recent lateral hires. Firms can nurture the talent of these rising stars by building mentoring relationships, hosting internal conferences and seminars and engaging in other team and morale-boosting activities.
Law firm leaders can also encourage a smooth transition of client files by ensuring that all relevant documents are provided to incoming counsel and that the outgoing attorney is given a full exit memo, so they can effectively close the loop on their clients’ matters. As a general rule, both the departing attorney and their successors are ethically required to provide each other with all relevant information related to client cases, even if those records are stored at a competitor’s firm.
As the news broke that the Pogust Goodhead Chairman has tendered his resignation, stakeholders are eagerly awaiting the firm’s next steps and how leadership changes will affect ongoing cases and client relations. Whenever an influential thought leader moves firms, the departure can raise questions from clients about the stability of a law firm. This is particularly true when the move occurs during a period of financial stress for the law firm in question, such as when revenue declines and/or profits per partner are falling short of expectations.
A notable departure can also impact the image of a law firm, both within the legal industry and in the wider media. This is particularly true when the move involves a partner who holds significant clout, such as a former amicus briefing counsel or a prominent bencher.
Aside from the immediate concerns of client retention, when a high-profile lawyer leaves a firm it can cause other partners to wonder whether they are in the right place and may be thinking about greener pastures themselves. For this reason, it’s important for a law firm to focus on recruiting top talent in the current market and developing future talent internally.
The Staff
Departing staff members can create a rift in the firm’s culture and may leave an impression that the firm is going through turmoil. It is important to have a plan in place for hiring replacements and assigning work. This is a good time to review practice management tools, project management applications and firm process documentation. In addition, careful assessment of case load trends can help identify attorneys who could absorb the workload without overburdening others. If you have access to your firm’s case management software, advanced reporting can help with this analysis.
Lawyers who are leaving to join other firms have an ethical obligation to ensure the firm they are joining is aware of any client matters for which the departing lawyer has responsibility. If the departing lawyer’s firm does not wish the lawyer to bring those clients with them, they should consider a conflict check. The ABA’s Formal Opinion 489 “Obligations Related to Notice When Lawyers Change Firms” is a great primer on this subject and references the applicable Rules of Professional Conduct.
It is also important to communicate with the departing attorney’s clients and assure them that their matter will continue. It may be prudent for the firm to draft and deliver a joint letter to the affected clients. This is an effective way to communicate that the firm intends to retain the client and complies with a departing lawyer’s ethical obligations to inform clients of their ability to choose representation.
Depending on the circumstances, it may be advisable to have the departing lawyer sign a release of information and confidentiality agreement in advance of their departure. This can prevent their solicitation of the firm’s clients and avoid a breach of fiduciary duty.
While it is unfortunate, many people find themselves in situations where they must leave the firm they are in to pursue opportunities that are more fulfilling. Regardless of the reason for leaving, firms that are well managed can recover from departures by communicating clearly and early to all stakeholders, making sure that the client matters of the departing attorney are transitioned smoothly and efficiently.
The Clients
A firm that loses a partner, especially one with a large book of business, will likely experience a revenue shock. This can be a very difficult time for the remaining partners to manage.
Fortunately, there are ways to manage the transition smoothly and fairly for all involved. The key is careful consideration of legal and ethical guidelines and clear communication. Ultimately, both the departing lawyer and the firm must prioritize clients’ interests during this time, ensuring a seamless transition that upholds their freedom to choose their counsel.
In order to maintain the highest level of professionalism, the departing attorney should help the firm in coordinating and organizing client files, both electronic and paper, and deleting or returning any property left behind (including data on personal devices). The lawyer may also prepare a list of clients to whom they intend to transfer work, provided that they limit the list to those matters for which they have primary responsibility. However, the lawyer must not clandestinely access the list of confidential firm records or sensitive information.
The law firm and the departing attorney should work together to communicate a joint letter to clients with whom the lawyer has had significant contact, advising them of the lawyer’s upcoming departure and setting forth their options: to stay with the current firm, go with the departing lawyer or select another attorney. The letter should be mailed contemporaneously with the departing lawyer’s notice to the firm.
Attempts to “lock out” the departing lawyer by prohibiting him from soliciting clients for his new firm are generally found to be unethical and unenforceable, although there is some variation in bar rules on this point. However, there is no ethical way to prevent a lawyer from working on his own behalf on his own files or using his former firm’s name or reputation to obtain business.
The final step in the process involves a post-departure follow-up, which allows the departing attorney to ensure that all of his clients’ needs continue to be met and that he is keeping up with changes in the legal landscape. This is an important opportunity to demonstrate a dedication to his clients and to the profession that will serve him well in his future endeavors.