Tuesday, 27 October 2009

Belt Tightening or Investment

There have been a number of news items over the last week concerning firms withholding profit sharing - see this summary from the blogger "Solicitr" (I'd like to point out that the news was covered in the more mainstream legal press - I just enjoy Solicitr's take).

The point of the story was that a number of firms - including Pinsent Masons,  DLA Piper, and CMS Cameron McKenna - are apparently holding back or reducing profit distributions. This seems to be causing a little shock amongst partners, but I'm a little surprised why. In any other industry this might be considered investment. After all, as partners seem to repeatedly point out, they are the owners of the business. Times are difficult and profit is down and this requires investment in the business - for lawyers just as for any other firm.

The fact that this appears to be a shock is, in my opinion, indicative of the short term nature of most thought in this industry. Bumper years lead to bumper payouts and tough times immediately lead to pay cuts - for the staff as well as the partners (Shoosmiths have apparently convinced 90% of staff paid over £25,000 to take a 2.5% pay cut). Never mind the planning difficulties of this way of working - it is basically unfair. While £25,000 is a good salary in any other industry, it is a very poor salary in a law firm. Withholding profits from the partners is an investment - the partners will receive larger payouts some time in the future. The staff, however, seem to be asked to reduce their salary - it is not being invested in the firm and there will, apparently, be no return of this 2.5% of salary.

Here's an idea. Move to a longer term cash planning cycle. Retain more profit in the firm (yes, I know there are tax issues - but the firm and the partners can afford it) in good times and use it to invest in the future. Bring a culture of investment to the firm. If pay cuts are necessary (and I'm not convinced that they will be) then invest that money on behalf of the staff and return it when the good times return.

Above all, ensure that the partners understand that they have a responsibility to the firm. As the owners, they must ensure that sufficient investment is made in the firm and if this requires retaining profit for a few quarters then so be it. The partners should realise the sense of this action and be proud of their contribution.

No comments:

Post a Comment