Case study: Berwin Leighton Paisner

All hands on deck

As law firm profits are directly related to performance, regular monitoring of that performance – by practice group, team and all levels of individual fee earner – is essential to help drive improvements.
Measuring performance, and setting appropriate targets and benchmarks to win fee earners’ buy-in, is a challenge. But it is of vital importance if they are then going to be appraised and rewarded financially on the basis of achievement of those targets. It is essential that fee earners understand the measures against which they are being appraised. Some may wish to leave the numbers to management and the ‘bean-counters’ but, ultimately, better knowledge of how law-firm finances work, and of their own performance, will help make them better lawyers. The best law firms need to ensure that their fee earners are financially literate.

Training
Fee earners need to understand the significance of performance measures for themselves, for their teams and for the firm as a whole. Achieving this requires training and, at Berwin Leighton Paisner, we are constantly striving to improve the training in law-firm finances given to all levels of our fee earners – particularly in those areas that they can play a part in influencing. We have introduced a career-development framework for fee earners, clarifying the activities and skills the firm expects at each career level, from trainee to senior equity partner. Each career level’s activities cover five areas of work, one of which is financial management. For example, while trainees are expected to input into effective financial management by fully recording all time, senior equity partners are expected to help manage practice-group profitability. Performance is assessed against these activities and feeds directly into both our appraisal process, and our training and development programme.
We have a focused skills and management training programme, tailored for different levels of fee earners. Aspects of financial-management training are included at all levels. Associates, for example, attend residential career-development courses, one of which includes a managing finance module. At this stage, they are introduced to the concept of ‘levers of profitability’ (productivity, leverage and margin), to working capital management, and to budgeting and target setting. Hopefully they also begin to understand the influence they can have over a number of these areas.
Our senior associates have attended management training sessions with Harvard Law School professional-services-management specialist Professor Ashish Nanda. Law-firm economics were covered, again with focus on the parameters driving profitability. These sessions will help embed the messages communicated by Professor Nanda in the six years that he has provided training to the firm’s partners and senior management team.
Each year a tailored partner training programme is devised, targeting those areas relevant to the partner role and to the business needs of the firm. Law-firm finances obviously feature. We have recently introduced a ‘profit challenge’ business game (prizes help motivate!) during which partners compete to produce the most profitable practice-group performance model by adjusting key parameters including headcount, chargeable hours, charge-out rates and recovery rates. Where partners incorporate seemingly unrealistic assumptions, they are challenged to explain how they think they could be achieved. The game has proved useful in demonstrating the interaction between the key parameters and the impact they have on individual, practice group and firm profitability. Additionally, it encourages discussion on the importance of managing credit exposure and cash management, and the important role that partners have to play in optimising their working capital performance.

Financial information
Different levels of fee-earning staff require different types of financial information to enable them to carry out their roles efficiently and effectively, and, where necessary, make performance improvements. They should not be swamped and should be clear as to requisite levels of performance for each measure reported to them. Historically, financial information has not always been passed down to associates. Some firms still maintain that it is wrong or unnecessary to disseminate any financial information below partner level. We believe that providing a certain amount of financial information to associates and trainees can help them manage their contribution to the firm more effectively. They are unlikely to be motivated to improve their performance unless they know how they are doing. Our web-based accounts system provides associates and trainees with the ability to view their own performance statistics, both current and historical, at any time
The statistics provided are those that they should feel they can influence, notably chargeable and investment hours, billing, recovery, and work in progress. Associates and trainees also have access to billing and working-capital figures on files for which they are the designated ‘billing timekeeper’, as they have an important role to play in assisting partners managing the finances of these files. Additionally, all associates have the facility to run a ‘performance detail’ report. This document summarises an associate’s own personal billing, recovery, work in progress (and WIP days), utilisation and investment hours. To set these figures in context, the report provides benchmark figures (for billing, recovery, WIP days and utilisation) and average figures for all associates in the relevant practice group.
Providing information regarding one associate to another is often thought to be divisive. We believe that allowing associates access to average performance figures for their peers will allow them to learn from and encourage each other and potentially produce a greater team spirit. Additionally, providing associates with financial information encourages them to ask questions (why is my recovery rate lower than benchmark? How can I improve my utilisation so that it is above the average for my colleagues?). It also engages them in trying to understand more about their own and the firm’s performance.
Partners are given wider access to personal performance information and may view any other fee earner’s statistics on the system. Obviously this additional information enables them to review the performance of the fee earners they supervise and helps direct discussions on developmental issues and identify training needs.

Appraisals and rewards
For all levels of fee earners, financial measures and performance against targets form an important part of the appraisal process at Berwin Leighton Paisner. Associate performance is reviewed formally once a year, but interim ‘personal development plans’ are also scheduled, so that under-performance against targets can be identified and addressed as early as possible and further objectives (such as improving utilisation levels) can be set. Linking associate performance against targets to bonus payments is a challenge. Obviously it is necessary to reward success, but should ‘success’ be measured at the individual level, or team or firm level? One only needs to read the recent headlines in the legal press regarding ‘associate pay wars’ and law firms’ bonus structures – especially those dependent upon achievement of chargeable-hours targets – to gain a sense of the level of debate around these issues.
Another hot topic is that of partner reward, with more debate than ever surrounding the relative merits of lockstep and performance-related systems. The important factor in designing a performance-linked reward system is transparency; partners need to know what is being measured, how targets are set and how their behaviour and achievements will be rewarded.
Berwin Leighton Paisner operates a modified lockstep with 80 per cent of profits allocated as part of the lockstep and the remaining 20 per cent forming the performance fund. The key performance measures reviewed as part of the allocation of the fund include personal, client relationship and team billing, practice-development activities, working capital and management, and strategy involvement. Different weightings are applied to each of these areas and it is important that partners understand the criteria adopted and have confidence that they have been applied fairly and consistently.
Working capital management may also be improved by the use of targets. Targets relating to work in progress, billing or cash collections at the firm, practice group or individual level can help significantly, especially when linked to monetary incentives such as accelerated or delayed partner drawings or profit distributions. Setting stretching but achievable targets can provide a challenge for partners and will hopefully drive improvements in performance.

Friendly competition
A particular challenge for law-firm management is to adopt measurements and targets to create friendly competition and drive performance. Care is needed here so as not to bombard fee earners with information and to ensure that provision of personal financial measures to other fee earners does not cause divisive behaviour, jealously or ‘work hogging’. Differing tactics are employed by different practice groups within Berwin Leighton Paisner, with personal performance relating to house-keeping issues a good example. Several groups use the league-table approach to highlight the number of timesheets outstanding per fee earner or the average delay (in days) in finalising timesheets. Fee earners in some practice groups have adopted the role of ‘time recording tsars’ or ‘WIP monitors’, and have the task of assisting group heads in maintaining best practice and improving fee-earner performance in these areas.
Above all, remember the old management adage that you can’t manage what you can’t measure. Unless fee earner, practice group and firm performance are measured, you don’t know if it is getting better or worse or how improvements could be delivered. Measure those areas considered important to the firm and that are aligned to the firm’s strategy, communicate performance figures and benchmarks to fee earners – and reward good performance appropriately.

Carolyn Stanton is a financial planning and analysis manager at Berwin Leighton Paisner. She can be contacted at carolyn.stanton@blplaw.com.