Beyond the US and UK, many legal markets remain heavily populated by law firms established as family businesses, or which – still in their first generation – remain overseen by a founding partner. More sizeable firms, too, even if they have already experienced the process of generational (and managerial) handover on one-or-more occasions, will not necessarily have institutionalised the procedure in a manner that ensures future continuity. Many markets of the Latin American region testify to this state of affairs.
There is no law against family firms, nothing that obliges institutionalisation. As Zang Bergel & Viñas’ managing partner, Carolina Zang, notes, ‘second generation re-modelled businesses are common in our industry, especially in Latin America’ and ‘constitute a coveted hand me down for legal professionals’. However, given that legal capability has not been scientifically proven to run in the blood, the family firm has, by definition, its limitations; most notably, the issue of talent retention in the face of a closed-partnership structure poses fundamental questions as to the viability of this ownership model. Even in the most successful of scenarios, ultimately, the issue of longevity will appear on the horizon. In the case of ZBV, generational handover has become an opportunity to innovate and modernise – a process that ‘by no means underestimates the previous culture but rather acknowledges the need to reload it,’ according to Zang.
On the ground, family firms in the region have been under ever-increasing pressure since the 1990s when the wave of privatisation that accompanied neo-liberal reform generated a boom in corporate legal work, which in turn saw the emergence of a new generation of primarily transactional firms established on a more modern organisational footing. Efficient and aggressive, many of these rapidly achieved the leading positions in their respective markets that they retain to this day. After the best part of two decades as key market protagonists, firm’s like Galicia Abogados and Mijares (MACyF) in Mexico, Bruchou (BFM&L) or Pérez Alati (PAGBA) in Argentina, Peru’s Miranda & Amado, Chile’s Barros & Errazúriz, or the former PrietoCarrizosa (now a founding member of regional entity PPU) and Gómez Pinzón are among those now facing the generational handover scenario.
‘Rarely can a top leader be recruited from another firm’
Arguably, it is precisely the success (or otherwise) of the handover process that will be the true measure of these firms’ robustness as institutions. Indeed, in one sense, the handover is, quite literally, a firm learning to undertake other operations – in this case, the fundamental one of re-engineering itself for the future – with minimal disruption to the efficiency of what is does best: servicing its clients and maintaining its market presence and activity. The handover, then, is a case of changing horses mid-stream. While consciousness of institutional matters has grown dramatically over the last decade, largely spurred by the need for greater efficiency in the face of increasing competition from foreign firms, generational handover remains ‘a big issue’ for Latin American firms, but ‘one that does not usually receive too much attention until the last moment, which is, by definition, late’. So suggests Alfredo O’Farrell, former managing partner of Argentine-titan Marval O’Farrell & Mairal, who argues that the issue should not only ‘feature on a firm’s short list of priorities’ but actually be an obligation which ‘current management has on its mandatory to-do list’. Galicia Abogados’ Manuel Galicia concurs. ‘Succession planning should be regarded as one of the most relevant issues for law firms,’ he says, adding that it is of particular importance in the Mexican market due to what he terms ‘the early stage of the institutionalisation process faced by firms [in Mexico]’.
‘The key word for a successful transition is “planning”,’ suggests Galicia, ‘because forward planning is vital if effective succession-planning strategies are to be put in place.’ And while ‘each leadership transition is a unique event’ which varies from firm to firm, it is the same general challenge that is faced, Galicia remarks: ‘Getting a trusted leader to let go and help prepare the firm for the next version of its leadership structure.’
Galicia explains that his firm’s experience of the process ‘taught us that there is a limited group of partners who can be considered for a leadership role’ and who have also demonstrated a degree of management competence. In this respect, he adds, ‘we think this circumstance can be addressed by the firm’s cultivation of its future leaders by assigning young partners to roles on certain committees’, thereby ‘giving them a chance to participate in the firm’s management and to demonstrate their aptitude for and interest in management’. The generation of such a pool of potential future leaders is all the more important in the legal sector, he notes, since ‘rarely can a top leader be recruited from another firm’.
‘Uncertainty generates fear and fear results in erroneous behaviour and decision taking’
Despite the size of the firm (approximately 60 partners compared to around 30 at Galicia), O’Farrell’s experience at Marval evidenced a similarly shallow pool of potential managerial candidates. For his firm the process centred first on a thorough review of the partnership to develop a list of potential candidates; this, in turn, gave way to a strategy of growing a given candidate’s exposure to both the partnership and to various tasks or duties required of the managing partners, so as to both test certain abilities but also to consider their internal approval by fellow partners. In the model mapped out by O’Farrell, at ‘a certain moment’, management must advise those who have performed well so subsequent planning, steps and timings can be set in motion, allowing things to ‘hopefully fall naturally into place’.
As Manuel Galicia highlights, this process is all the more problematic since ‘these discussions are held among lawyers’, a cadre ‘trained to foresee what can go wrong in all transactions’, thereby generating ‘a risk because none of the partners want to sound doubtful as to the sincerity and good intentions of the other partners’.
For Galicia, mitigating such risk involved the intervention of a trusted – and neutral – external figure: ‘We asked our compensation and external strategy advisor to assist us to move forward and protect the interests of all parties through the creation of a detailed written plan.’ The resulting in a document ‘clearly defines roles, responsibilities, expectations, title and related compensation by year or phase, as well as some adjustments to our corporate governance structure,’ thereby further permitting the firm’s preparation for the future. Putting it down on paper has a secondary advantage: the avoidance of uncertainty, ‘because uncertainty generates fear and fear results in erroneous behaviour and decision taking’.
Carey & Cía’s senior partner, Jorge Carey, is no stranger to these discussions, having successfully originated the blueprint for his firm’s institutionalisation and rules of governance during a period in which the firm has emerged at the forefront of the Chilean market. ‘We’ve given this a lot of time,’ he notes, ‘the managing partner and other members of our executive committee are elected by the partners on the basis of one vote per partner with elections every three years and the partners’ votes kept secret.’ The result is the possibility of a change in management every three years as the majority of partners desire.
Carey admits that the combination of the one partner, one vote system and the fact that, typically, more young partners enter the partnership than leave due to mandatory retirement, means there were worries of a generational rift forming at the firm. Fortunately, a relatively tight spread in terms of the percentages covering all partner remuneration, further fosters the partnership’s solidity and reduces the possibility of confrontation between younger and older partners.
Acknowledging that handovers are an issue of extreme sensitivity, these rules, suggests Carey, ‘make room for an orderly succession’. Indeed, the partnership has already voted on who will be the next chairman and managing partner two years from now. Carey himself regards this as one of the most notable achievements implemented by the current management team, adding that it has been achieved ‘with a surprisingly high degree of consensus’.
In strongly institutionalised firms, succession planning is easier to implement since generational tensions are lower; younger partners recognise the value of their older colleagues, while more senior partners understand that part of their managerial mandate involves the grooming of new leaders to manage effectively and efficiently.
Ultimately, establishing an effective succession plan is never easy, but failure to do so risks the success, reputation and, ultimately, the very existence of the firm itself. Ideally the process of building institutional strength diminishes the risks run during the succession process because the firm is not overly dependent upon a reduced number of partners for its reputation and professional standing. Here, culture and traditions are central to a successful handover process, and the presence of an enduring institutional profile from which all partners benefit, and which all support, is essential.