A dead end?

The finance role in the legal profession

It may seem that much has changed in the legal profession. Support divisions – that is, marketing, HR, finance and IT – have all evolved to play important roles in the development of the legal business. With the impending Legal Services Act, the influence of ‘non lawyers’ in the profession is only likely to grow; indeed, with the Act opening up legal partnerships to non lawyers, many support directors may be clamouring to receive their just rewards – by becoming partners themselves.
Drilling down into the finance role, however, there is surely something amiss. Here are professionals who can bring outside and, more importantly, commercial expertise to law firms. Not only can they ensure firms are compliant with increasingly complex rules and regulations, but they may also bring much needed business experience, helping firms to improve profits, reduce overheads and generally run their businesses far more effectively. Some finance professionals have made it all the way, to become chief executives or chief operating officers. Of those, a small number may even bear those titles with the full authority to implement change and make decisions... not an easy win in a partnership environment. But for most, that path will end at finance director, reporting to a managing partner who has long been a lawyer in the firm.
It’s not even that this is necessarily bad – the finance director role in law is a senior position with broad and growing responsibilities. However, when a finance director at a large mid-tier law firm recently mentioned that it would be extremely difficult for him to now move out of law, back into accountancy, or into the corporate world (because he would no longer have the right skills), it struck me that legal finance professionals might be losing out. Not only are most seemingly barred from the top management jobs that are still largely reserved for members of the partnership, but all the while, they are also developing legal-specific skills that rule them out of opportunities elsewhere. And if this is even a vaguely accurate summation of the situation, it seems to me that the legal profession’s ability to keep and further attract financial talent may be sorely tested.

Getting to the top
It might help if the legal profession had successfully overhauled it image to entice outside professionals; but, for some, the legal profession still appears the last bulwark of a long-gone age, rooted in tradition and intransigent to change. Certainly, before Chris Bull joined Osborne Clarke in 1996 as finance director, he admits that he had some fairly outdated ideas. “I kind of had this view of law firms with lots of guys sitting in their own rooms pushing quill pens around. I was quite staggered that there were so many large legal businesses around,” he says. When he joined, he even had some warning words from his colleagues at Ernst & Young, who asked him if he’d really get respect from a legal partnership and whether he was worried that he wouldn’t be listened to.
Bull has since gone far, though, moving from finance director to become the firm’s COO, where he works alongside the managing partner on a broad range of management and strategic issues. But he attributes some of that success to the firm’s former managing partner Leslie Perrin, rather than anything offered by the profession as a whole. “He had been managing partner for a year when I started, and he particularly wanted to build the finance director role. He made a point of telling the firm that I had ‘partner status’ even though I obviously couldn’t join the partnership. That meant I would go along to all the partner meetings and sit on the management board etc,” he says. Bull thinks that much has since changed across the profession. “It’s much easier now to come into senior roles with outside experience, ability and personality, and get the respect you deserve, without having to get any kind of ‘partner status’ badge,” he says. But for those that are not lucky enough to join firms with a supportive managing partner and/or forward-looking culture, are there really the same opportunities to progress? Or is it still incredibly difficult for non-lawyers to make it in law?
For a start, there are numerous unique challenges to successfully conducting the finance director role in a law firm. Brian Riches has long experience of the legal profession, having joined Theodore Goddard in 1994 (becoming finance director of Addleshaw Goddard when the firm merged with Addleshaws in 2003). In January 2006, he moved to Lane & Partners LLP, a firm that he describes as “also looking for an experienced, commercially minded finance director to help them take the business forwards”. In his years in law, he has experienced various potential obstacles to meeting these objectives, though, including:

Too much democracy – in his experience as finance director or managing director in a corporate environment, Riches found that he had the responsibility and accountability to identify the issues and make the relevant decisions. “Partners in law firms (well the ones I have experience of, no doubt the largest firms are different), like to participate in the decision making on a collective basis,” he says. “It slows down the decision-making progress and is also highly risk averse.”
Slow to change – Riches thinks that most lawyers are inclined to hold tight to their behavioural habits of a lifetime and do not appreciate the speed of change, in particular of electronic technology;
Limited commercial experience – lawyers have little if any experience of working in a commercial environment, which means, as Riches says, that they also tend to have a blind spot where numbers are concerned. “I had expected that partners would be highly motivated on increasing the profits but, while they monitor their success by the average profit per partner, they do not seem to associate the effect that giving discounts to clients or incurring unnecessary expenses has on the size of that profit.”;
Partnership ethos – Riches thinks that partnership collegiality can lead to reluctance to deal with a poorly performing partner. “Discipline or removal is much slower and more difficult than it would be of staff in a corporate environment.”;
Highly intellectual – while lawyers are, by definition, highly intelligent, Riches also knows that can mean they are challenging to work for. “They enjoy the minutiae and are excellent de-compilers,” he says. “That means that you have to sharpen your powers of persuasion!”

While all of the above could be addressed in an open, forward-looking culture – such as it seems Chris Bull found himself facing at Osborne Clarke – in other firms, such challenges could conspire to block a finance director’s abilities, right from the start. Okay, a firm might want a finance director with the commercial expertise to move the business forwards, but where progress conflicts with ingrained traditions, stalemate may quickly follow. “Too often, the accounts team is merely there to keep the score. They are not used as business advisers to improve profitability and develop strategy,” says William Wright, finance director at Devonshires. “Partners need to involve the support functions more in the delivery of the service and the development of the firm.”
Bull agrees that there was a time when finance directors would be little involved in a firm’s overall business development. “I was surprised in my first four or five years in legal. I’d go to events and network with finance directors and accountants from other firms, and I was surprised at just how reactive, how unstrategic some of their roles appeared to be,” he says. “I wondered if we were attracting the right calibre of people into the profession.” But, like his experience at Osborne Clarke, he also thinks that firms have changed in their attitudes to finance. “We’ve seen people come into finance roles, become finance director or CFO, and be incredibly influential. I think that a lot of people have also extended or expanded the finance-director role. And we’re seeing a lot more people becoming chief executive or chief operating officer, where there is much more responsibility – they are not just number two to the managing partner,” he says. To reinforce his point, Bull mentions that he takes part in a regular informal meeting of several COOs in London, from firms including Herbert Smith, DLA Piper, SJ Berwin, Clifford Chance and Lovells. “All these firms now have such positions, and they are not alone,” he adds.
Indeed, take Paul Stothard, chief executive at Shoosmiths. A chartered accountant by profession, he worked at Ernst & Young, Midland Bank, WH Smiths, and the BBC, before he joined the legal profession – first as chief executive at Townsends, before joining Shoosmiths as finance director in 1999 (he was elected to chief executive in May 2002). When FD Legal’s sister publication Managing Partner profiled Stothard in 2004 (vol. 6, iss. 9), he talked about his ‘three-year stints’ at previous companies; and he was clear that he would also move on from Shoosmiths if he could no longer add value to the firm. Three years on, he is still there and has just been elected for a further term of three years. Not only that, but he is a widely acknowledged to be a true chief executive– far from being beholden to the partnership, he has the leadership authority to agree strategy and then make the necessary decisions to implement change. The extent to which he has developed the role far beyond finance is obvious when he describes the firm’s biggest achievement since he became chief executive: making the firm’s brand truly reflect the values and behaviours of the people in the firm. “Only two weeks ago, we got an award at the Managing Partners’ Forum for the ‘Best Brand in Practice’. It’s the best award we’ve had in all the time I’ve been here, because it’s something we put so high on the agenda, right at the beginning,” he says.
Stothard also agrees, however, that Shoosmiths is “by far the largest firm to have a non-lawyer at the top of the firm and a non-lawyer who is truly in a chief executive role”. And for every example like Stothard, there seem to be several others where the non-lawyer chief executive role has just not worked. In February 2006, for example, speculation surrounded the departure of Christopher Honeyman Brown from ASB Law. Honeyman Brown left to pursue other interests, but rather than replacing him with another chief executive, the firm reverted to the more traditional managing partner position. As with other firms, the leadership experiment with a non-lawyer came to a close.
“It’s still a rarity to find chief executives or CEOs in a law firm,” says Stothard. “I think the difficulty is that firms get to the point where the traditional model isn’t working. They decide to bring in a non-lawyer chief executive as a reactive measure – they basically want a white knight to come in and rescue them. But that may mean that from day one, you’ve got somebody coming in from outside practice who has zero knowledge of the firm or of how legal practice works. They can’t pull together a strategy, because they have no real position or authority within the partnership.” Stothard is convinced that a far more effective route for ambitious finance professionals is to work their way up through the finance roles. “It’s a far better way to progress, because you’re already in there and you’ve gained your own credibility for your own professional expertise,” he says.

To FD, and beyond...
Getting the respect of the partnership and climbing the ladder through finance, however, brings us back to the challenges mentioned above. As a finance professional in law, it may well be that your goal is to become a senior finance director in a top-level firm; broader management responsibilities encapsulated in the CEO or COO role may not even interest you. However, whether your title is finance director, CEO, COO or anything else, today’s finance professionals in law should be at the heart of the business, like never before. And to do that, you will need to overcome the obstacles. “Good finance directors will bring commerciality – a keen eye on how to improve profits through optimising income (pricing mechanisms, utilisation, delegation) and minimising overheads. They must also have compliance skills for LLP accounts, money laundering, Solcitors’ Code of Conduct, accounts rules, employment regulations, health & safety etc. And they will need good business skills, so that they can deal firmly and fairly with banks, staff and suppliers,” says Riches.
At the same time, to advance, finance professionals in law will need to be able to work with the unique characteristics of a law-firm partnership. “In the legal profession, respect has to be earnt,” says Wright. “That is true between lawyers and it is no different for their professional advisers. Once you have respect, you are then encouraged to make a major contribution to how the firm develops.”
“Being a finance director in a law firm is certainly different to being in a corporate or even with a firm of accountants,” agrees Riches. “The experience of the democratic style, the flat management structure and the unique compliance regulations would have limited benefit in a corporate environment. But earn your spurs in law and you are rewarded with the highest levels of responsibility and autonomy.”

There may be a way up, but is there a way out?
While there may now be more opportunities than ever for finance professionals to make it up the ladder in the legal profession, there is still this issue over getting potentially trapped in law. With little exposure to corporation tax or accounting issues such as Sarbanes Oxley, legal finance professionals are at risk of rapidly losing touch with the outside world. And the more legal expertise that is acquired, the less likely it is that such skills can be transferred. “If someone intended to keep their career options open, they would need to ensure that they were up-to-date with developments, although the adoption of LLP status by many firms means that legal FDs are dusting off their GAAP manuals,” says Riches. “However, most law-firm finance directors that I know tend to have stayed within the profession. Once you are comfortable with the unique culture and gain the relevant experience to handle the special compliance issues, finance directors appear inclined to stay.”
Of course, it makes sense that with growing sector knowledge and expertise, so develops a sense of loyalty and commitment to that profession or industry. It is not so surprising, then, that finance professionals that join law may quickly find themselves at home there. However, there is still a sense that law firms have not quite got it right. To attract and recruit the very best financial talent, from people who will really be able to contribute to business growth, there surely needs to be a credible belief that the very top leadership job is attainable – even if most finance professionals don’t choose to follow that route. That Paul Stothard is still one of the very few non-lawyer chief executives who really has the leadership authority to implement change is telling. Quite simply, most law firms do not yet trust anybody but a lawyer to take the helm. And perhaps that is fine too – some lawyers have proven themselves to be excellent managing partners who have transformed their firms into truly successful business operations. But, despite the Legal Services Act promising to open up partnerships to non-lawyers and law firms needing outside commercial expertise like never before, it still feels like there is a glass ceiling for ‘support’ professionals, who may do exceptionally well, but only as long as they are kept within the confines of their department. And for existing or potential legal finance professionals who have the talent and ambition to go all the way, that could prove a sticking point.