Corporate Model for Corporate Entities

A snappy title I agree. It all came about after a meeting I had with a former client. It's quite a large charitable enterprise that used to be extremely well run (well of course I would think that since I helped!). Some poor leadership in in the last five years, however, has led to some re-thinking on the part of the Trustees and management board and that is where everything has gone wrong.

Running charities is difficult, if only because it is so different to running a commercial or corporate organisation. I know, I've done both and am currently Chair of a small charity in Berkshire.

If a charity has been run badly, Trustees and boards often ask their auditors for advice or, if they are feeling brave, seek advice from large consultancies. These sorts of bodies tend to understand their own worlds and so offer a corporate model of governance. This can, sometimes, work - but generally only in the very large national and international charities which look quite like corporate organisations. For most charities and not-for-profit organisations it can be a disaster.

The key difficulty is in understanding that charities operate because of good will. Good will from staff, members, volunteers. The good will exists because everyone understands and agrees with what the charity is doing and believes that they are helping. Staff will accept what is usually a lower wage, members will join and then engage in the activities of the charity and people will volunteer to help out.

So steaming in with a corporate model can wreck all of that. 'Outsource non essential costs' is often the first cry and this tends to be catering, security, cleaning etc. I'm not even going to argue whether these can be considered non essential or not. The point is that staff in these areas in charitable and not-for-profit organisations are often engaged beyond their remit. They are working in that organisation because they like it and support it - so that means that a member of the charity or a member of the public who is served a cup of coffee, or who is greeted by the security guard at the door or who bumps into the cleaner meets someone who cares about the organisation, who knows what is going on and who passes on a real enthusiasm about the visit.

This does not happen in corporates.

Another problem with the corporate model is the profit centre. New managers in charities love to establish cost and profit centres and to encourage staff to think about ways to show profit in their centre. It is a charity - there is no profit. Staff in charities should be encouraged to do their jobs as well as possible so that more resource - time, effort and money - goes into the core charitable purpose. Prices in cafes and shops should be pitched towards market values, in general, but buyers should be made aware of why the price is what the price is - and that surplus goes towards the charitable purpose. If the charity has members and one of the purposes of the charity is to support those members (an educational charity, for example) then why should the organisation try to 'maximise profit' from selling them things - these are the people you are supposed to be supporting.

So - if your job is to run a charity, please try to run it like a charity and not like an accounting firm or a consultancy. It really just won't work. Remember about good will and work with your staff, members, volunteers and the public to drive understanding of the core charitable purpose - but don't forget that it is the people in the organisation that make the difference. Treat them like corporate and commercial staff (i.e. reasonably badly) and your organisation will start to look and operate like a corporate organisation, but without the financial resources and profit available. In the end your organisation will, at best, just end up looking like a badly resourced and run firm.

That can't be good.

Loyalty..

I've been talking with clients this week and the subject of loyalty has come up a few times.

In most cases, it has been barristers talking about the need for loyalty from their staff. For many sets - particularly for regional chambers - times are very difficult and there seems to be a general feeling that, if the staff were really loyal, they would be taking some of the pain too.

Sadly this simply reflects a failure of some barristers to recognise and appreciate the pain that staff have already taken. I can't think of many sets that have given staff a pay increase in a good few years. Many sets have reduced the number of staff they have - getting rid of 'non essential' staff (whatever that means). Staff are being asked to extend their jobs, to work longer, to do new and additional tasks. Few sets commit to training their staff and many like to police staff expenses to the point where it's not worth their time to try to claim.

Of course, it is the same in most industries, but that doesn't sound as if it builds much in the way of loyalty, does it? Loyalty works both ways and chambers must be loyal to their staff if they expect loyalty from them. If staff are to take pain at the moment, it should be on the understanding that they will share in the upside when that comes.

It's not just about the money, though. Members of chambers should take a few moments to consider the work done by their staff. Not just the clerks - all the staff. Your receptionist (assuming you have one) has to put up with callers in all sorts of moods and continue to show a calm and professional exterior no matter how angry or irritated they are inside. Your marketing and/or development staff keep coming up with new areas of practice and keep smiling when members complain that it's difficult or far away or just plain new. Your clerks keep slogging away no matter how they are shouted at and no matter the fact that any bad news is their fault.

Spend a little time building loyalty in your staff before demanding it from them - it will be better for everyone in the end.

Starting Right

I've been looking up a few clients today - it seems to be officially the first day back from holiday in most Chambers.

In between hearing about holidays and adventures and quite a bit of drinking in the sun, I've had a couple of discussion about the things to focus on when just back at work. From a management point of view, this is a good time to check some of the basic - Risks, Staff, Marketing & Processes. Yes - it sounds a bit boring, but now - before the work of chambers winds up properly - is a good time to get some of these things done.

So - let's just have a quick look at these four areas. There are some things that you can check quickly...

Risks

Check your Risk Register - you do have a Risk Register, don't you..? Make sure that your list of risks is up to date and reflects any changes that have happened since the last time you checked. Make sure that your Risk Team/Group/Committee think about all the risks and have thought about how Chambers might react if the incident or event happened (and, of course, you do have a Team/Group/Committee...). Then see what you could do now to reduce the possibility of the incident or event happening. Simple.

Staff

Are the staff motivated for the year ahead? Do they know what Chambers is trying to achieve (and it really isn't obvious, I assure you). Make sure that they know the Plan (you do have a Plan..?)  and make sure that you have spoken with them about their role and Chambers' expectations. Talk with them about their expectations - you're likely to be pleasantly surprised. Are the staff happy? It is well documented that happier staff are more productive staff, so it is one of those rare win-win situations where everyone ends happy.

Marketing

Check your marketing plan (you do have...) - is it still appropriate and does it address the needs of Chambers. Have you got the required resources and budgets and to all the right people know what the plan is,, what they can spend, what they should spend and how they and the plan will be measured. Make sure that members of Chambers know what their role is and what they will be expected to do - and how they will be measured. Make sure that the marketing is part of the members' practice reviews.

Processes

This is the most boring one, sorry. If Chambers has some standard ways of doing things (we consultants like to call them processes because it sounds more complicated that way) then members of Chambers and staff will finding doing those things a little easier. Things like Petty Cash; Expenses; Marketing Spend; Practice Reviews. If the standard ways of working are available in a process then everyone can do them in the same way, be measured in the same way and know that their 'thing' will be done fairly, just like everyone else'.

Simple - honestly.

Of course, I would be delighted to help with any of this. See my web site for more details - http://www.mar-aon.co.uk.

Delivering

I've had a lovely summer. After a couple of weeks on the beach (both figuratively and actually), I have spent the rest of the time in Europe either working or marketing (although I prefer to think of it as hustling for work). 

This, of course, has involved quite a lot of travel. Since my work in the months leading up to July had a lot of UK travel, I've been in a position to compare UK & European travel. 

The first thing that seems to surprise friends I have spoken with already is that train travel in the UK is no worse than in England - and is often a bit better. I'm typing this blog on a train from Caen to Paris. The connecting train was 40 minutes late and there wasn't a word of explanation or apology.  The train was starting from Caen and so I can see no reason for it to leave 5 minutes late - and again there is no explanation. At least with UK trains, you are usually inundated with messages giving a reason for the delay. 

The second thing I've noticed - in the UK and in Europe - is that most stations of any size advertise free WiFi or have a free WiFi signal available. In most cases they don't work - either you can't log on or the logging system is broken or  simply nothing happens. 

My point? Simple - just deliver on your promises. When I book a train leaving at 11:36 and arriving at 13:15 I, possibly foolishly, expect that the train will leave at 11:36. That was the deal and no amount of tea & coffee and music at the waiting area is going to disguise the fact that the operating company has failed in its most basic requirement. 

The same is true with WiFi. If you're going to supply it, then make sure it's working. If I ever mention the fact that the WiFi isn't working (and I've generally given up now) it is usually impossible to find anyone to take ownership of the problem (as we consultants say). 

Now, these are, I am happy to admit, very first world problems. It is, however, worth thinking about, I suggest. How does this work with your own enterprise? If you're a barrister in chambers are you delivering on the basic requirements of your clients? Do you even know what they are? At this point, too, let me categorically state that if you have not asked your clients, you might well have no idea what they think is a basic requirement. 

So today's lesson - deliver on your promises and deliver for your client. It's not complicated.

We need to talk about... Pensions

We really do need to talk about this. I am a little horrified how few chambers (and smaller law firms) know enough (or indeed anything at all) about the new Auto-Enrolment Pensions. Those people who do know a little about it quite often say to me "Oh we don't to worry about that now - it's years away for an organisation of our size" - but then usually can't tell me just how far away it is.

Some background might help. Auto-enrolment is a system by which every employee will be automatically part of a pension scheme to which both the government and the employer will have to pay in. Individual employees can choose not to be a part of this, but experience with large firms, which are already part of the scheme, suggests that very few will choose to opt out of the system.

So - when is it coming in? Well that depends on the size of your business. On the assumption that most of the chambers I deal with have fewer than 30 employees (the minimum cut-off that the Pensions Regulator outlines), the answer is some time between November 2015 and April 2017 (depending on the last two characters of your PAYE employers code - see here for the detail).

I can already imagine some rolling eyes from members of chambers and the expression "I was right - it's ages away so we don't need to think about it yet" being used.

I disagree. Each employer will be paying a minimum of 3% of each persons' pernsionable salary (which includes bonus, overtime etc) but there is a total minimum of 8% which must be contributed and so if the employer is going to only pay the minimum then the employee will have to pay 5% - which, of course, they will generally see as a 5% cut in wages. Both of you need time to get used to the payments (although the 8% is 'rolled-in' itself between now and October 2018) and so should consider setting up a scheme early and, perhaps, adding a 1% contribution a year for both parties. Note that doing that, you still won't avoid a 'jump' in payments if you are in the last batch that are required to set this scheme up. Now is not too soon to be thinking about this.

You should be making sure that employees know about Auto-enrolment - perhaps even taking the unusual step of having a meeting with them all and asking about how they would prefer to do this. Before any meeting, however, chambers needs to know what they want to do - do they want to avoid a cash-flow shock and not start until they have to, then taking a 3% hit in one year (and not worrying too much about the 5% hit for the employees until they all complain about it); or would they prefer to work into the scheme? Are you going to pay only the legal minimum of 3% or are you going to offer, say, 4% so that contributions are half-and-half with the employee? Are you going to offer more?

This means that chambers needs to be up to speed with the scheme and know all about it so that sensible and informed decisions can be made.

Chambers will also need to decide what sort of scheme they will offer and who will provide and administer the scheme.

I know that almost no members of chambers want to talk or think about pensions for their employees - but now is the time to start. Perhaps you could think about a scheme that members of chambers could join too...

More details on all of this from the Pension Regulator's web site here - or get in touch for a translated view. I'd be happy to explain what is necessary and to help with the planning process.

Get a Professional

The days of the enthusiastic amateur - so far as running a legal business is concerned - are over.

In the past a law firm - even a large law firm - was entirely run by a management board headed up by a Senior Partner and/or a Managing Partner. In some cases the Managing Partner might have a discount from his or her billing target in recognition of the work they did to run the firm - but I've seen law firms with a turnover of nearly £50million where no-one got a discount. This means that the management of the firm - the discussion and setting of strategy, the planning to implement the strategy, the measurement of performance, fee-earner motivation and management, staff management, etc etc - is all done part-time, often at the end of the day, at night and at the weekend.

In a set of chambers, there are no billing targets to discount and so, if the member of the management committee, Head of Chambers or Chair of the management committee (assuming there is one) do not want to see a reduction in their own incomes, the situation is the same.

This has meant that for far too long, legal organisations were often run by enthusiastic amateurs. Some of these people have an extraordinary talent for management and so some firms have been able to perform very well. It is, however, too much to expect that someone will be an expert in their field, attracting high quality clients and high paying cases and that they will be an expert in business management.

Most law firms start to notice this problem as they get bigger and the management problems increase. They are often forced to 'outsource' some of the management of the firm to a professional manager - although that can lead to communication and expectation difficulties.

In this current and very difficult market for the law, the need for professionals has never been greater. More direct and public access means that members of chambers and clerks are suddenly dealing with a type of client with whom they are unfamiliar and who has a completely different set of requirements. Professional clients in law firms now have marketing teams who expect to be able to talk with their peers. Professional marketing from one part of the profession needs to be answered with professional marketing. Homely and home-made will no longer work.

It's not just marketing. With the importance of IT, more and more firms - and more and more chambers - have noticed how little they can get done if their systems aren't working. It's all very well to go for a fully hosted solution, but you still need to have someone on-site who is knowledgeable and who can translate what the 'techie' has said the problem is - and who can switch the router back on when someone accidentally switches it off, thereby saving the cost of an engineer's visit and (more importantly) about 2 hours.

The timescales have reduced. Clients expect emails answered immediately; twitter messages need to be dealt with in minutes sometimes; IT problems have to be resolved as soon as possible. I remember the days of the five day turnaround to answer a letter - but they have long gone. Staff problems will not wait for the next meeting of the management committee.

Professional management is also required. Unless you are trained and experienced in staff management, the chance of making a huge and eventually expensive error are high. Chambers and law firms need to have someone who can spend all their time getting the business to run better, making sure that the staff are motivated and know what they should be doing to support the strategy. The other professionals need to be managed by someone who knows what they are doing and makes the time to do it - and the legal professionals need to be released to do what they do well.

Clients don't want to have part-time and amateur legal advice - why should solicitors and barristers have to put up with poor support. The days of the amateur are over - long live the professional.

Asking for Help

I speak with quite a number of lawyers who are running their firm or chambers for the first time and there is often a reluctance on their part to admit that there might be some areas lacking in terms of their skills or experience. 

This is, of course, completely understandable - they have, after all, only just been selected for the role they are new to and it is a difficult thing to admit one's weaknesses. It is, however, fantastically important to understand your own skills sets - and particularly to know which skills you are missing. Those areas in which you need some help.

There is nothing wrong in asking for help - I do it all the time. Anyone who knows me will be aware of my weaknesses in marketing myself. I understand some of what is necessary but I'm just not very good at it. I'm very lucky that I don't need to market my business too much - but I know that I need help every so often and so I have a list of people who I ask for their professional help and advice. 

Having asked for help, I am now very careful to listen to my expert. I too have fallen into the trap of saying "Yes I know" as someone who knows a great deal more than me in a specific area tells me something. I too have found it difficult to hear some criticism and to amend my own behaviour.

Having acknowledged a weakness it is vital to (a) find and expert and the (b) listen to them. That sounds very obvious - but I do spend a great deal of my professional life stating the obvious - that often seems to be my role.

I'm good at what I do - and so are other people, I'm no longer afraid to admit it. My name is Peter and sometimes I need some help!

Communication, Transparency & Democracy - and Leadership

Many sets of chambers and law firms suffer from a surfeit of democracy in a mis-guided belief that  this is the best and fairest way to make decisions. It rarely is.

There is a confusion in many of these sorts of organisations that communication means meetings, and that every member of the organisation should be involved in decisions. In discussions, most people will agree that they don't need to be involved in every decision - just the important ones…

This generally leads to a sclerosis - a situation where change becomes impossible and each new level of decision has to be preceded by open and full discussion leading to changes in the terms of reference for the decision leading to new demands for discussion since the context of the last discussion has changed…

It can be enormously frustrating for those caught up in it - even those causing the sclerosis can feel hugely frustrated.

The way out of this is through much less democracy - but balanced off with much more openness, more transparency and much more communication. So - let's say that a decision has to be made about leasing a building. A small group is appointed to examine the options and propose a single decision. The appointment of the group is made public within the organisation as is their job. The proposal they make is available not only to the Management Committee or Board but to the members of the organisation too.

Their proposal is examined by the appointed Management Committee or Board (having made it clear that a decision was going to be made) who make a decision. This decision is communicated to the organisation as soon as possible.

This process allows those who have strong opinions to make them and those who would like to get involved to get involved. It allows the body appointed to make decisions to make those decisions.

What I am talking about, of course, is Leadership - something sadly lacking in too many organisations. Leadership does involve good management, but it is more than that. It is taking a position, it is driving a message, it is communicating and, while listening, pushing the message to everyone in the organisation. It is about passion and belief in the way that the organisation needs to move. It is about taking a risk when necessary, being honest when 'fudging' the message would be easier, and about doing the difficult things yourself.

I didn't say it was easy...

I Want it All

Ah Christmas. My daughter is grown up now (mostly) but I remember when she was much younger and the conversations we would have in the run up to Christmas about choice - which of the many presents she had mentioned did she actually want. Inevitably, at some point, she would say, "But I want then all!".

I was reminded of this when reading the words of Lord Justice Gross, as reported in Legal Futures (link here), I quote:

"I am anxious to ensure that a conflict between shareholder value or business interest on the one hand and professional ethics should always be resolved in favour of the latter – and the point is worth making because the pressures to the contrary can arise in subtle form through small, imperceptible steps..."

I appreciate his concerns. In another part of his speech, he says:

“Money is in short supply; that is a reality. There are many priorities and supplicants for public funds. That too is understood. However, reducing cost – in the sense of tightening the legal aid budget – must, over time, impact on the willingness of the best and brightest to practise at the publicly funded Bar. What will this do to the quality of our justice system over time, in areas such as crime and family?”

This seems to be axiomatically true. It does, however, also smack a little of wanting it all. The Bar - the Justice system - should be well funded, firms and sets should be careful in cutting costs and outside investors should not have influence over the firms they invest in.

That doesn't sound quite right to me. Why would an investor provide a large slice of capital to a firm but have no control over its direction? Why shouldn't firms cut costs sensibly? Perhaps most importantly - why should external investors in a law firm have any lower ethical standard than the lawyers who currently invest (in one way or another) in the firm? It is possible, surely, that an additional external oversight might actually work to keep some firms on the straight and narrow.

We can't have it all. In times of economic difficulty, criminal justice will be asked to cut costs. Law firms and chambers should work to ensure that their systems are as efficient as possible and so make the best use of the money available. Firms should look to external investment expertise - and accept the requirements placed on them by the investors in terms of reporting and control systems. Who knows, we might end up in an ethically, as well as financially, stronger position...

The Virtual Director

Staffing in a barristers' chambers is always a contentious issue. Sets are under pressure as never before (particularly those involved with publicly-funded law) and members of chambers are very keen (understandably) to make sure that their staff are good value for money - no matter who they are, what they do and what they cost.

The current fashion in many sets is to move to a Chief Executive model. It sounds good - have someone to come in and run the business of chambers. In smaller sets - and nowadays fewer than 60 barristers is a small set - it is, however, difficult to justify the expense of a professional general manager. Often what chambers mean when they say they want a Chief Executive (or Chambers Director or whatever name is decided on), they actually want someone who has a primary focus on sales - not even marketing. This probably requires the prospective CEO to have a marketing background and to enjoy the sales role - and to be able to sell to solicitors, insurers, corporate clients and public agencies (a difficult task as we all know).

Having sales at the centre of a small business like a set of chambers is entirely correct. Unless chambers is large enough to support a marketing/sales function (that a good general manager can then direct), the senior administrator will be responsible for sales (it is likely that it will be referred to as marketing, but generally it is sales).

So - how does a set of chambers get access to the strategic thinking, the strategic administration, that a good, experienced, general manager can provide.

This is where the 'Virtual Director' comes in. Chambers can find an individual or an organisation who has the administrative skills required  - but who does not join the payroll. Chambers then has access to an individual who can offer advice about:

• strategic thinking
• regulatory compliance
• purchasing and procurement
• supplier contracts
• supplier liaison
• staffing issues
• leadership coaching
• soft skills training
• etc

These are all issues that arise in chambers. It can be quite a challenge for a Marketing Director or a Senior Clerk or a Director of Clerking to (a) know about these sorts of things and (b) have the time required to address them properly.

This is where the Virtual Director comes in. With an up to date understanding of the regulatory framework (as it applies to the business of chambers) and expertise in running business, the Virtual Director can offer expert advice to chambers as well as its members and staff. There is generally no on-going commitment (although chambers can choose to pay a retainer which will ensure that the Virtual Director does not work with any chambers engaged in the same area of law) and payments can be decided in advance for project work. On-going advice is simply charged as done - rounded to the nearest minute.

Smaller sets of chambers now have access to the sort of expert advice only normally available to the very largest (richest) sets.

The Sales Bit...

I would be delighted to discuss your requirements and to discuss how the Virtual Director might work in your set of chambers. Email Peter Blair for more information.

And continue...

I've had a busy few months. Since January I have been working exclusively for a set of Chambers in London. It has been a mad, busy time, but with the arrival of August, I am done.

I have restructured the staffing and helped to facilitate significant changes of personnel - something that the Chambers management had wanted for a while. That took about six months, but then staff issues have to be very carefully handled and since I respected the people I was working with I wanted to make sure that it was handled as well as possible. I believe that we managed to get the best result for everyone - including the member of staff who ultimately left (and who looked much happier last time I saw him).

I also project managed the complete change of all the IT systems. We moved platform for Chambers Management System (to Lex from Iris - and I'm sure I will go into more detail in a forthcoming post about the mess that Iris made of the transition); we moved hosted systems platform (from Iris to CBSIT); we moved versions of Office.

It is right and proper that most of the barristers in Chambers saw little in the way of inconvenience and have no concept of how difficult that all was. If you have been part of a transfer like that I'm sure you can sympathise. There was a huge amount of planning and then quite a few weekends and over-nights to get things working. The hard work of the two project leaders (Damien Briengan for Lex and Mike Sutton for CBSIT) was invaluable and contributed to the success. We were a bit of a victim of our own success - because the process was, for most people, painless, they assumed it was simple.

Those were just the 'big ticket' items. We sorted out a number of suppliers and replaced a copier contract (these things are notoriously easy to get in a mess with). We introduced some formal risk management. Communication is better, policies are in place, documentation is up to date, financial reporting is much improved, etc etc...

With all that done, the focus has now changed to Sales and Marketing. While I have run successful Marketing teams, I am not a Marketing specialist and am certainly not a Salesman. So the time has come to move on and see what new challenges and new organisations are out there.

Looking forward to it!

Rewarding Behaviour

Motivating people at work can be a difficult thing. Not everyone is as driven and committed as you are and so an entire industry has developed which aims to help organisations get the most from their "most important resource".

Sadly, as difficult as it is to do it well, it's very easy to do it badly. Accidentally rewarding the wrong behaviour happens all the time. Consider the item posted by "Roll On Friday" about Morton Fraser(see here). They have, apparently, abolished the annual fee targets for their associates. This step is a very good one, given the poor value gained from using hours worked, or turnover, as a measurement of success. Sadly this is not their only change. Morton Fraser have also chosen to adopt what they call "Peer Benchmarking" whereby "...a league table is created for each level of fee earner, and the aim of the game is to get to the top of it."

Let's just look at the behaviour that this system will encourage and reward:

1. Reduced communication. There is no benefit, now, in associates helping each other or in discussing the matters that each is working on. In fact, the more secretive they are, the better, since each associate is in direct competition with every other associate
2. Reduced cross-selling. As mentioned above, there is no benefit for an associate to sell the services of another person if there is a chance that he or she is simply bumping up the hours of a competitor.
3. Slower work. More hours = more turnover, unless the client is on a fixed fee. Not only that, but there is actually a disincentive for associates to do a handover of going away on holiday. If the associate working on a matter is going away for a long weekend, it is in their benefit to lock the files away so that no one else can work on them.
4. More focus on turnover. As any regular readers will know, I detest the obsession with turnover that is displayed by most law firms. This system simple enforces a belief that more hours and more turnover is a good thing. No wonder the "long hours culture" remains.
5. No focus on profit. Associates are being rewarded for earning more for the firm. It doesn't matter if the work produced a net profit of 1% (or even a loss), the associate will still be rewarded for doing more work. This could be fatal for the firm.

So what should they do? 

Well, removing the annual fee target is a good start. Why not have a "Contribution Target" instead - based on the profitability that they have added to the firm? Why not have a "Client Satisfaction" target and a "Partner Satisfaction" target for the associates they have worked with (and while on that subject, why not have a "Partner Satisfaction" target where the associates have some input).

Focus on cashflow and profit (in that order) and then, and only then, turnover.

The Matter Gross Profit.

In an earlier post, I discussed the sort of measurements that most firms could be using and the different view of the firm that they provide.

So what?

Well the point of finding and using better measurements is to provide a better record for managers to be able to run the firm in a more efficient and effective manner - or just better. Most law firms tend to have fairly short term views of their own success. You will see many items in the legal press highlighting increases in either turnover and/or PEP 'compared to last year'. It is, however, trends that are important rather than one year 'blips', whether upward or downward. By looking at the trend in the firm over a five or ten year period, even turnover can become interesting and useful. By looking at that period, it becomes quickly apparent which years are anomalies  - and so which sets of results should be set to one side when deciding if the firm is successful.

So having decided that a longer term view is sensible, just what trends should you be watching? Although most law firms enjoy talking about PEP and turnover, by far the best measurement is a long term examination of 'Matter Gross Profit' - that is turnover less direct costs and staff costs (including partner remuneration). This is a measurement of profit that helps to focus fee earners on those aspects of a matter that they can most easily influence - the price and the allocation of work.

Continuing the examples form the previous blog entry, the Matter GP figures do not look good:

The Matter GP percentage is reducing:

It is possible, therefore, to conclude that the firm is less efficient than before, even though, as previously discussed, it would probably think of itself as successful.

The Matter GP measurement can be used by the firm to reverse the trend (together with sensible cost-control measures). All fee earning staff should be bonused not on hours billed or turnover - but on achieving a Matter GP target for their section, department and for the firm as a whole. In this way, every fee earner is motivated directly to consider the profitability of work and will find that it is not in their interest to simply throw resources at a matter as a deadline looms.


Much more about this subject and about firm governance is available in my new Report, available from the Ark Group (publishers of Managing Partner magazine). Follow this link for details.

The Right Numbers

In the last few weeks I seem to be concentrating on financial analysis for and with clients. I have worked both with sole traders and with larger, multi-million pound organisations, and with both sorts of organisations I have led discussions about which of the metrics firms should be watching.

Any regular readers of this blog will know that I have a problem with firms spending too long (or indeed much time at all), watching or thinking about turnover - no matter how tempting it can be. With my sole trader clients I've had some very interesting discussions about accounting systems. As a non-accountant who has run accounts departments, I have some key reports I look for from accounting systems. For me, any system needs to be able to delivery quick, accurate and useful management accounts - reporting on cash flow, gross and net profit. I want to be able to see what money the firm is owed, what money the firm owes, who the aged debtors are, and the bank position.

In my own business, I use Kashflow (an online system which works on monthly subscription thereby meaning I can avoid a capital outlay for software - and that my data is backed up by Kashflow) which seems simple enough to use and which provides an opening dashboard to give me the information I need at a glance. I can also use an iPhone/iPad app to access my account information and so see it when travelling. There are a few competitors - Sage has just brought out a similar, cloud-based, product - but I like Kashflow, the price is good, and the online and email support is pretty good.

In larger firms, I try to introduce the concept of a 'Project Gross Profit' (or a 'Matter Gross Profit' in lw firms) - which examines Revenue and then accounts for direct costs and salaries to arrive at PGP. This is a way of examining the immediate profitability of individual projects or tasks while accounting for the most liquid of overheads - people. It is usually easy to allocate time to projects and tasks and so the calculation is simple. I also try to get this measurement adopted at the Costing stage - so that the firm can be sure that the work they are pitching for will be profitable, and not just some attractive-looking turnover.

Times are still quite tough for most firms, and so it is more important than ever to be sure that every project, every person and every task is providing profit to the firm - and that the firm has the information to be sure that this is happening.

Succession Planning - Thinking Ahead

I have been talking with a number of clients over the last few weeks on the subject of succession planning. It's the art of making sure that you know what you will do as positions become free in your organisation - and the actions you will take to make sure that the right people are ready in the right place with the right skills to do the job. Simple!

I'm no longer surprised at the number of people I speak with who are not making plans for the future - whether that it succession planning, strategic planning or anything. Working mostly with law firms and now schools, I regularly hear "Oh I'm far too busy to have time to deal with all that". Sadly I don't think you have time not to.

Worryingly, some other bloggers seem to have what I think are slightly relaxed ideas about this too. I was reading "What Makes a Great Managing Partner" on the Adam Smith Esq blog and found myself muttering in disagreement from time to time. The blog argues that having a formal succession plan cand invite "jockying for position, ...concomitant gossip, innuendo and navel-gaxing, and distractions for the incumbent...". The blog goes on to suggest that without a formal succession plan you invite "chaos...when the Managing Partner does step down, intergenerational conflicts and a divided electorate".

All of this is, of course, possible - but only if you try to put a succession plan in place in isolation. If it is executed as part of a strategic plan and if the succession plan is talked about, and if everyone in the firm has a proper development plan, then there should be few problems - and certainly many fewer than by not having a plan in place at all.

To be fair, I think that 'Adam Smith' and I mean the same. His final paragraph (in that section) says "Don't put a formal process in place..." but then describes what I would think of as one type of formal succession plan.

Perhaps I'm just not that formal a person.

The point is that you must think about the future - your firm or school will depend on it. Think about where you want your organisation to be, have a plan, think about the succession and develop your people to the point that they can do the jobs you need them to do. Yes - you will develop some of your best people out of the door as they are headhunted into bigger (and better?) places. This is, however, a good thing. You gain a network of people you have helped into positions of success, your current staff see that you want to help them, and you will have the right people when you need them.

Succession planning really is one of those few "win/win" situations.

New Term - New Report

"The Lawyer" has just released it's "UK 200 Annual Report 2010" (which is available online here). It is interesting reading. There are a number of claims about new measurements - but the focus on revenue remains as does the industry's fascination with PEP.

I encourage you to have a thorough read of the report. What the suggests is that, by adopting new scales such as "Days to Profit" (on page 6 of the report), the magazine is keen to try to reduce the "gaming" of statistics that goes on. For example - an easy way to increase PEP is to reduce the number of applicable equity partners - something a number of the top firms have done. It's certainly easier (if perhaps more expensive in the long run) than trying to increase profit.

While the "Days to Profit" is interesting, I was more taken by the table on page 8 of the report showing the top firms by cost reduction. The report orders the firms by the size of the one-year reduction from last year to this, but for me the interesting numbers are those in the five-year difference in costs. The leading "one-year-cutter" is Freshfields who have cut their costs by 19.3% in one year. Without more detail I can't comment on the efficacy or long-term effect of this size of cuts, but it is, I will guess, related more to the booking of redundancy costs in the previous year than to anything else. Over the last five years, Freshfields have increased their costs by 22.93% which doesn't seem too bad. Hammonds show a five-year change of -5.9%, although I'm not sure I'd use Hammonds as s good example. Wragge & Co show restraint with a five-year increase of less than 10%. These longer period measurements are more useful because they avoid the peaks and troughs of "spend and cut" than tend to characterise the industry.

The tope four firms are analysed in some depth and their performance examined over five years, but with the rest of the firms in the listing, it is business as usual in terms of focussing on turnover, PEP and figures for a single year.

Surely if there is one thing that the last two years have taught us, it is that looking at performance for one year is now use at all in terms of examining the success of a firm. I look forward to the day when firms are ranked by their rolling five-year net profit, amongst other longer-term measurements.

Still - small steps, and the new measurements are better than before.

From the report, my highlights are:

• Barlow, Lyde and Gilbert for strong five-year cost reduction
• Beachcroft and Wragge & Co for doing well on the "Cost per Lawyer" category
• Dickson Minto for achieving 7th place in the "Revenue per Partner" list and performing well again in the "revenue per Lawyer" category
• Sacker & Partners for achieving 7th place in "Revenue per Lawyer"

Fault, responsibility and strategy - or none of the above...

Dear oh dear - what a mess.

Ian Austin, the former Managing Partner and Executive Chairman of Halliwells, has been talking to "The Lawyer" (see here for their story) - or rather he has been giving his version of their descent into administration. It turns out that it was the partners' fault, or the external consultants, or the boards' or... someone else's decision or fault. I quote one example from Mr. Austin:

the decision to move into Spinningfields was a decision taken by a board, by external consultants [Sheppard Robson] in conjunction with group heads. This was not a decision of my own making..

What? He was the Managing Partner - his is the responsibility, whether or not it was his fault. He is also quoted as saying that the loss of the insurance team in December last year was the "straw that broke the camel's back". One of the comments on the story points out that his firm was still recruiting & promoting 6 months later.  In a limited company or a PLC surely this would be "trading insolvently"...?

I suppose I should be more shocked at the lack of responsibility that is shown here and at the lack of strategic thinking that allowed the firm to distribute £15million to the equity partners in 2008 (keeping  a whole £5million for investment in the future - well in the firm's future). Mr. Austin's excuse/justification for this seems to be along the lines of "the money was there and we wanted it" or "at the time everything looked rosy". On a much larger scale this is like saying "I didn't need an umbrella - it wasn't raining yesterday. It's not my fault I got soaked". I'm not sure this even qualifies as short term planning.

As I said in a previous blog (see here), one of the most shocking aspects of the Halliwells debacle is that the equity partners walked into new jobs - the very people responsible for the mess are those least affected by it. Mr. Austin himself negotiated his own safe transfer from the sinking ship before the deal on Halliwells' assets was completed - an action he justifies as being "...the right thing for me."

That last phrase sums up the state of management and ethical behaviour in Halliwells - the equity partners removed £15million of cash from the firm 18 months before it went bust because they wanted it; the same people walked into new roles, leaving trainees and junior staff to their fate, because they could and it was the best thing for them. With that level of strategic thinking and personal thinking rather than firm thinking, my only wonder is that it took them so long to go bust. I'm sure Manches are heaving a huge sigh of relief that they didn't merge (or buy) with Halliwells in 2009.

Responsibility and Leadership

As regular readers will know, I have issues about the way that many law firms are managed - specifically that firms are, in general, run by "enthusiastic amateurs" who have an instinctive suspicion of those professional managers who do not have a law degree (merely having advanced degrees in management, for example).

I was reading the story of Halliwells over the weekend (see here for the least impartial view) and was struck at the difference in the outcomes for partners, junior legal staff and support staff. It would appear that many of the partners have simply walked into new roles at other firms while most of the others are currently - or will soon be - out of work. I am sure that most of them will secure new employment soon, but it is striking that it is the owners and managers of the business - those who presumably made the decisions that got the firm into its current mess - who are least affected by its failure.

It occurred to me, however, that I might have been thinking about this in the wrong way. I have been constantly comparing law firms with more commercial organisations when, perhaps, they are not business at all. Most are simply collections of solicitors who have no consideration of the firm as an entity and who seem to have no motivation to look after anyone but themselves.

Does this sound too cruel? Perhaps. I'm sure that I am describing one end of the continuum. I am, however, sure that many partners seem to have a poor understanding that the firm is larger than just them, their team or the legal staff. My recent analysis of 186 of the top 200 firms (as measured by "The Lawyer") showed that, on average, 45% of staff in those firms were non fee-earners (with the maximum being 64% and the minimum being 12.5%). That is a large number of people to look after. The partners in law firms have a responsibility for these people, even if many of them seem to think that this responsibility can be discharged by email...

So - the learning is this. Your firm is more than just you. It is a collection of real people who (in general) work hard to provide you with additional profits and who, in return, hope for consideration and respect - and a long term future. As a partner, you are asked to be a leader for the whole firm in return for which you are given wealth, status and security. It is not sensible to assume that you can have one without the other. Lead your firm, please.

What's the problem with PEP?

I had an interesting conversation yesterday. I was talking with a lawyer friend of mine (who will remain nameless) and was continuing on my recent theme of measurement within law firms and, specifically, the problems with PEP (profit per equity partner). I won't repeat my issues with PEP here - just have a look at my last post if you'd like to see what I think.

My lawyer friend is not a partner (yet). He suggested that, since he was going to be a partner, and since PEP was published for almost every firm, this measurement gave him a fine way to compare firms. Our conversation went something like:

"PEP is great - I can see which firm is best", he said.

"No - you can see which firm might give you the most money when you are an equity partner. PEP isn't a measurement of which is best"

"Well it's the same thing, really..."

I countered with a story about a mutual friend who is a corporate finance manager in a large company. He had recently moved firms and during the process had gone through the books of prospective firms in great detail, examining profit flows, balance sheet health, forward strategies and client surveys. Yes of course he was concerned about the amount he would be paid - but he was as concerned that the company he was about to join was healthy.

PEP gives no idea about the health of the firm. Look at the results from Shoosmiths (as published by Roll on Friday). They have published an increase in PEP of 70% despite a decrease in revenues of 9% - and have issued a statement that this has been possible because of "...developing existing clients and ...winning new ones". Just to repeat - they have managed to take more money out of the firm, even though less came in. Not only that - but they justify this by saying that they have "developed clients". What does this tell us about the health of the firm. On the face of it, nothing at all. In fact, however, it suggests that Shoosmiths either have no idea about forward planning and building reserves, and so are content to pump money out of the firm at the very time that it needs it - or that they are content to paint a rosy picture to prospective employees and partners. Neither is very good at all. I am not suggesting that Shoosmiths are any worse than any other law firm. The majority of the larger firms (by revenue) have posted similar increases in PEP and decreases in revenues - while suggesting that this is good.

I suggest that prospective partners look well beyond revenue and PEP before moving from one firm to another. At the very least I suggest that they:

• Look at five years worth of balance sheets to see
• the ration of liabilities to assets
• the amount of band debt written off
• reserves
• Look at the strategy of the firm and whether it has actually been implemented
• Look at the marketing strategy of the firm to see if it actively supports the firm strategy and whether pervious measures of success have been achieved
• Look at staff and partner satisfaction surveys
• Look at client satisfaction surveys
• See evidence of business training for partners - after all, you will probably be asked to take some sort of role in the management of the firm.

If a firm is unable to supply any of the above - if, for example, they have no firm measurements of success for marketing or do not take satisfaction surveys - I'd be a little worried. It might not be a deal-breaker, but it's a large red flag that suggests that the firm you are looking at may not be amongst the "best" after all - no matter how much money they might give you.

Understanding the Numbers

Revenue down - bad. PEP up - good! That seems to be the message from the industry as published by The Lawyer (see here). The top 30 firms (as always, measured by revenue) have shown a drop in revenues of nearly £0.5 billion. "Don't worry", would appear to be the message, "PEP has risen".

I know that this has been a theme of mine recently, but let's just see what this means.

Revenues down
This means that clients are spending less. There is a smaller amount of money in the industry. It's not a small sum of money, either. The industry has contracted significantly and so almost the same number of firms (sorry Halliwells) will be chasing a smaller pool of work.

In any other industry this would see prices fall as market power moves to the client and would see businesses doing everything that was required to get their organisation through the difficult times - cost control, improvements in efficiency, increasing or using reserves as required (this is the rainy day that every firm should have been saving for).

Firms have been talking about cost controls - but for most law firms this means firing people. Care needs to be taken, however, since there are significant costs associated with both firing and with hiring staff - redundancy payments, legal fees, lost work time for meetings, poor use of executive time, recruitment charges, "ramp up" costs (as new staff find their feet in a new environment) etc etc. The last time I did a calculation for a law firm, it was cheaper to retain an associate if they were likely to be fired and then someone hired 17 months later. Let me repeat that - it was cheaper for the firm to pay an associate to sit at their desk doing nothing than for the firm to fire them and buy someone else in 17 months later. Never mind the fact that there would be some useful work for them to do - or the PR/HR benefits in being seen to retain staff wherever possible.

I'm not seeing many efficiency improvements. Many firms seem unaware that they have processes never mind looking to see how these could be made more efficient. As for reserves - most law firms seem to think that these are not necessary. I'm am amazed that there is no appetite to smooth out the highs and lows in PEP. Reducing pay outs in the good years would enable a smaller reduction in the bad. May daughter understood this piggy-back mentality when she was ten...

PEP Up
At first glance this seems to be good news - Profit per Equity Partner has gone up. Surely if profit has improved that is a good thing? Yes - except that PEP does not simply measure net profit. PEP is a measure of the net profit that has left the firm. This is the amount of money that the Equity Partners removed from the firm to their own accounts.

Why would firms boast about this? I will never understand why the most favoured measurement of a firm says "look how much we've stripped from the firm!". I don't know of any other industry that makes such a noise about partner or executive payments.

What would be more impressive for the good of the firm would be a measurement of retained profit or a statement of reserves. Why have law firms not been building up reserves to see them through this sort of market? Yes, there are tax advantages in the way things are done now - but this is a very short term view of business.

What is unfortunate is that PEP makes lawyers as a whole and partners in particular look greedy.

Neither revenue nor PEP should be the numbers the industry discusses. Let's look at simple net profit or retained profits or profit per fee earner over five years - or the trend in profit per fee earner or partner over five and ten years. These are useful measurements which focus on the firm rather than on the industry or the personal interests of the partners.