Q&A: Free your mind

With the post-Clementi, post-Legal Services Bill world approaching fast, Andy Raynor, chief executive of professional-services firm Tenon Group, provides a few tips on going public.

What was the group’s biggest hurdle in going public?

These hurdles were probably unique to the specific circumstances – Tenon was a shell public company with an objective to build a business, rather than a business going to flotation.

The greatest hurdle was therefore persuading investors that the management team and concept would lead to success.

An existing, profitable business would not face these challenges.

What are the primary benefits of being a public company?

It is commonly held that the primary benefits relate to profile, access to capital, and use of capital as an incentive (rather than the extraction of capital from partners), which is true. However, one of the major advantages, often unsaid, is that public companies are routinely and constantly tested on their efficiency, commerciality and growth objectives. Regular scrutiny of management, performance and future vision ensures that public companies are striving to fulfil clear business goals.

As the UK legal profession prepares for impending deregulation, which firms, in your opinion, will most likely benefit from going public?

Frankly, any outsider would be making guesses about an individual firm’s real suitability for a public presence.

However, the genetics of a successful flotation are clear. The firm will have: An existing corporate structure; a culture of performance management; scale, probably on a national level and at least with the ambition to be represented in all major commercial centres; a demonstrable track record in mergers and transactions (importantly on their own behalf, not on behalf of clients); ambition and energy; and a clearly articulated vision for the medium term.

The legal profession is often accused of being years behind the accountancy profession in terms of accounting systems and business processes. In a financial-management context, what hurdles will law firms face if they decide to go public?

For firms that have the culture I’ve described above, that criticism is vastly overstated. Any successful business has to have financial management that identifies levels of performance with accuracy.

Perhaps, as with the accountancy profession, this is more about mindset. We may be in a profession, but we are also a business. While our professionalism, our ethics and our conduct will sustain us and create stability and longevity within the business, they have to be managed properly.

Not all excellent professionals are also good business managers – and they should defer to the ones that are.

If they do, they themselves will have a more profitable future.

Law firms that float as public companies could change the way they remunerate their key people by issuing shares and options. Do you think this will be good for the profession?

Yes it can be, if it’s handled properly, and this has been comprehensively demonstrated by the increasing number of accountancy practices that are adopting corporate structures not only in their management but also in their constitution.

The fundamental point of this model is a product of this change in remuneration structure: Capital is not required to be injected by the partners, and therefore the business is not constrained by the limitations of their capital.

Correspondingly, the business can grow faster, should become more profitable and ultimately rewards can be more competitive for those who are willing to take the new corporate responsibility.

Examples abound in people businesses – advertising, banking/corporate finance, fund management, etc. I have no doubt that this is the ultimate future.

Has going public helped the Tenon Group remunerate and reward staff more effectively?

Yes, more effectively, more fairly and far more related to individual and team performance, rather than ownership status. This culture of merit is very attractive.

Is there anything else that you would like to add?

The process of going public can free the mind. It means that businesses will not stick simply to the traditional confines of a profession but will think far more objectively about the requirements of their target market and bring to the business a more objective commercial strategy. This is all about business focus, and it is an exciting opportunity to grasp.

Andy Raynor is the chief executive of Tenon Group plc.