Doing the business

"Remind people that profit is the difference between revenue and expense. This makes you look smart."(Scott Adams, creator of Dilbert)

Recently, it being a slow news month, I received a request for interview from a UK legal magazine. Soon afterwards I received 11 questions, the first of which was: “Do law firms now recognise the need to embrace the business of law?” It was a little depressing that the editor should think this was still worth asking. And it struck me that with the exception of medicine and social work, it would probably not be asked of any other profession. You would hardly ask, “Do accountants recognise the need to embrace the business of accountancy?” Much the same goes for architects, surveyors, management consultants and indeed journalists.

But on reflection, maybe it is not such an unreasonable query. Many firms are superb businesses, whose leaders are a match for anyone, in any sector, anywhere. But for every firm shooting for the stars, there is another full of people shooting themselves in both feet. Why, when our profession is full of smart people who generally agree with Bertie Wooster’s uncle Tom Travers, that “A little bit added to what you’ve got makes just a little bit more”? Well, as my parents used to reassure me after trudging through yet another report card riddled with “IMPROVEMENT REQUIRED”, brains aren’t everything.

Rules are for others?

There are some common themes. Partners crave the autonomy to do things their way, and generally, the more senior they are, the greater the craving. Practically everyone involved in law firm management is familiar with the bleat that while this or that system or process is doubtless a wonderful thing and should of course be observed by everyone else, in the bleater’s unique situation the rules should not apply. Breathtaking quantities of ingenuity, energy and chutzpah are employed in subverting the rules. In theory, everyone accepts that a profitable business needs discipline, and it is certainly there when dealing with clients’ affairs, but often it goes AWOL when dealing with the firm’s.

Take, for example, time recording. Regardless of whether a matter is billed by the hour or otherwise, accurate time recording is indispensable. Yet performance across the profession is at best patchy. Walk through a law office on a Friday, and you are likely to hear the distinctive ululation of the lesser-spotted fee-earner, trying frantically to remember and record what they did from Monday to Thursday, and leaking unfeasible amounts of cash in the process. It is not just that time is recorded late, incompletely, or not at all. Frequently it is edited in the interests of sparing the fee-earner’s blushes. For example, if time on a matter has been underestimated at the outset and is not entirely recoverable, people tend to just stop recording, to avoid a write-off and awkward questions.

Many partners take a similar approach to lock-up. It does not seem to have occurred to them that a fee rendered is quite different to a fee paid. Thus, huge sums are tied up in unpaid bills not pursued as they should be due to laxity, insouciance or fear of offending clients. Those clients who pay their bills on the basis of who shouts loudest, cannot believe their luck.

Attitudes to performance

It would be easy to emulate a well-known washing machine and go on and on about other areas where similar attitudes to the cost of production, allocation of resources, pricing, creating profit and looking after cashflow are, if not the norm, highly visible. They stem primarily, I think, from people seeing their role as being on the bridge directing operations, not getting their hands dirty in the engine room, dealing with the grunt which is fundamental to the financial health of the business.

It is a tough nut to crack, and nuts can only be cracked (in more ways than one) if performance on these issues is driven by the right mix of reward and sanction. For example, one Big Four accounting firm I know requires every team to commit to a minimum level of cash collection at the beginning of each quarter. If it is not achieved, not only does every team member forfeit their quarterly bonus, so does the local board. The result is that nobody wants to be reviled as the hapless dolt whose performance brought about this catastrophe, and it hardly ever happens.

I suspect that any attempt to introduce such a regime in the typical law firm would be met with insurrection. But by such hard-nosed attitudes are Big Four car parks full of exotic machinery, driven by people who never have to field the question: “Does your firm recognise the need to embrace the business of accountancy?”