Nepotism Preferable to Dissolution

Most businesspeople would say that the idea of "planned succession" in a family-owned enterprise is good.

Yet assign the word "nepotism" to the succession plan and it immediately has negative connotations, even though many business founders cherish the idea of passing the business on to one or more of their children.

Something in the concept of nepotism suggests the passing of ownership is undeserved and based on favoritism rather than merit.

What is interesting to me is that in the legal profession, nepotism — the planned and outright transfer of firm leadership from parent to child based entirely on the family relationship — is rare.

For example, I recently got a call from a New England lawyer whose father is a prominent and successful estate and trust attorney in New York. He had been diagnosed with cancer and had only a brief time to live.

His daughter asked if I could help sell her father's practice. I understood her concern but replied that it was her father who had to call me; after all, it was his practice.

I asked further whether it was feasible for her to take over the practice from her father. It was clear from her reply that such a prospect appealed to neither father nor daughter.

Each family relationship is, of course, unique. But the dynamic of a younger lawyer who could take over from an older lawyer follows a standard pattern in many law firms, even if that younger lawyer is a family member.

The young lawyer works for a few years and feels entitled to become a partner. While a good lawyer, this person has yet to develop rainmaking skills and still has no personal client following or book of business because he or she has depended on the senior lawyer in the firm to bring in business.

The result is a classic catch-22: The young lawyer has not demonstrated the ability to bring in clients but is precluded from opportunities to do so by the subordinate status to the senior partner/parent.

Having never developed clients for the business book of the firm, the young lawyer has no real idea of what "ownership" as a partner means. Often such lawyers believe that their time and effort, working at partner direction, are substantially responsible for creating value in the firm and that they should be given credit for that.

Undoubtedly everyone in a firm creates value in that way, including staff. Yet one would never hear a staff person ask for a partnership interest.

The net result: If and when the young lawyer does take over firm leadership, everyone else ascribes the transfer to simple nepotism.

The tragedy here is that nepotism, despite its faults, is a built-in succession plan. Perhaps more than 90 percent of the lawyers in this country who are not part of a large firm have no succession plan. When they no longer can or want to practice, their firms fall apart. They walk away. They don't provide for continuity. And they are cheating their clients, their firm and their heirs — including a child who could have been positioned to take over if given the proper training and support.

In such instances, nepotism — if it is part of a planned practice transition — is far better than throwing away the value of a practice and making an unrecognized gift to strangers who will inevitably pick up the firm's existing clients as the vestiges of the old firm dissolve.