Problems we face today cannot be solved with the same level of thinking we were at when we created them (Albert Einstein).
It is unlikely that any Managing Partner would claim that their role over the past 18 months has been easy. The time commitment for management activities alone will have increased substantially, and any Managing Partner who also continues to have a client-facing role will have struggled to meet all the demands which have presented themselves in recent times.
In addition, it has been necessary to ensure that their fellow fee earning partners (or members) have a thorough understanding of the pressures of cash flow management and are doing everything they can to ensure their respective departments are operating as effectively as possible. This may well have been a difficult task, as prior to the onset of this recession, many partners had been able to concentrate on using their legal skills without the need to be involved in aspects of financial management to the extent now required.
Issues being faced currently are unlike anything that has gone before, so it is time to look at the existing management structure and to consider whether it is necessary to take a different approach for 2010 and beyond.
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A typical structure for a mid-tier practice has historically been to elect a Managing Partner (whose time is split between management and client work) and to appoint a Finance Director (generally a qualified accountant) to report to him or her. Without sound financial reporting, the Managing Partner cannot hope to make informed decisions in this climate.
With the increasing importance of managing finances, the role of the Finance Director has become key to the sustainability of the business. Indeed, many lending organisations will be judging the capabilities of this person in deciding whether to provide funding.
The Legal Services Act has now made it possible to appoint an individual holding this position as a partner, giving the business the ability to recognise the importance of this role.
However, there seems to be very little movement in this direction by legal practices. Why is this, when on the face of it, this would appear to be an attractive move for both the business and the Finance Director?
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Cultural issues may play a role: in the past the role of Finance Director has frequently been undervalued by partners, with the individual holding that position, no matter how highly qualified or experienced, not being seen as ‘one of the partners’. Finance Directors often do not feel that they are listened to sufficiently or treated as an equal. “Promotion” to partner status, even if this happened, is therefore unlikely to change the perception of the partner team.
Ambitious Finance Directors who feel trapped in this way may look to move to a new firm where they can enter at a different level, and not carry the ‘perception’ history that they feel is holding them back at their current firm. It is worth bearing in mind that many legal practices have year ends of 30 April, and after the end of year accounting requirements have been dealt with, this could be the time when we see those individuals looking for pastures new. If you find yourself having to recruit, then consideration as to status and perception at the outset will be extremely important.
In the emergence from the recession, widely considered to be a more difficult stage for any business than in the recession itself, it could be extremely disruptive to lose people who know the business well. Against this backdrop, it is perhaps worth reconsidering the status of the existing Finance Director in light of the Legal Services Act, but this may not be realistic depending on the individual concerned or the nature of their particular role.
However, this is not the only option which practices are considering.
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A number of mid tier practices have opted to keep the status quo with their finance team, but have taken a lesson from industry and made changes to their management structure by appointing a Chief Executive (CEO) i.e. someone who is not just seen as being at a similar level to the partner group, but in charge of it.
This role may be filled by an accountant or other professional with significant management experience and will cover business strategy in a wider capacity than finance alone. There are many advantages of such an appointment but it is vital that the person selected has the appropriate business experience and skills, and most importantly, understands the culture of the practice. This person needs to be able to muster the support of the partner group in the direction he or she intends to develop and implement the strategy.
Having a full time professional as CEO may mean that there is no need for a Managing Partner, or will at least alleviate the pressures of this role if it is maintained. It also gets around the issue of the Managing Partner who, after his or her term of office, wants to return to client work. This can be difficult if they have had to give up much of their client-facing role during this time.
A steadily increasing number of mid tier firms are changing their management structure in this way, having weighed up the cost/benefit equation, and it is likely that many others will follow. It is also anticipated that the provisions of the Legal Services Act will make it likely that the person appointed to the CEO role is made a partner.
What is not yet so widely seen in practice is the appointment of a Non-Executive ‘director’ at mid tier level. This may be a sensible compromise for practices unable to justify the cost of having a full time CEO. The role of the Non-Executive typically would involve attending management meetings and advising on strategy, as well as reviewing financial reports. There are likely to be some real advantages in having someone on board who has other external roles and therefore a current insight into what is happening in the commercial environment outside your practice.
Whatever management structure you choose to adopt, it will be critical to ensure you have the right people in the right roles and commanding the necessary level of respect, in order to be able to drive the practice forward in the climate we now face. Remember – the future of the legal firm is already changing – management also needs to change to stay ahead of the game.