Q&A: Mark Carter, Allen & Overy LLP

Heading up the finance team of the London office of a magic circle firm is no small task. Mark Carter, CFO at Allen & Overy LLP, tells Caroline Poynton about his role and why the finance function plays such a central role in the law firm of today.

Can you describe a little more about the responsibilities and challenges you face as CFO at Allen & Overy LLP, including how your finance team is structured?

There’s an obvious challenge in managing a finance team of 65 people. At any one time I’m dealing with a number of HR issues, as well as managing seven direct reports who look after the main areas of finance. The two central finance functions are the revenue and credit control functions:

The revenue department. There are several challenges at different levels in this area. We need to establish and meet our weekly, monthly and annual billing targets. We also need to liaise carefully with the practice group heads and with individual partners who are responsible for billing the matters, so that they understand what we need to be billing in the near and not-too-distant future. That’s possibly one of the biggest challenges in my role because it’s never ending – you finish one month, just to start the process again in the next, and so on. I have to support the team to keep on top of the work in progress, motivating them to produce accurate forecasts, which we can then feed up to management. I also need to motivate the team to go out and exhort the partners to get their bills out. And it can be difficult because partners in law firms perceive billing as administration, which they don’t like doing. But it’s the lifeblood of the firm. If a firm doesn’t get its bills out then it obviously doesn’t realise the underlying value.
The second element to the revenue function is ensuring that our bills are compliant with all the various rules and regulations that are imposed upon us both in the UK and in other jurisdictions where we practice. We have to ensure that bills are prepared, drawn up and sent out in the format that we’ve agreed with the client or that the client expects of us. We’re increasingly finding that we have to provide a detailed breakdown of the time that has been spent on what; clients are seeking increased transparency. More clients are also asking to be billed electronically, so we’re investing a lot of time in ensuring that we can first of all educate our clients as to what e-billing is and then help them to set it up if that’s what they want to do.
The second major area in our finance team is credit control. Every law firm in the City probably has a bigger receivables ledger than it would like. Getting the clients to pay is not always easy. There are a number of reasons for that. I think credit control is one of the most difficult jobs in the finance function. Getting money out of clients is something that you’ve got to get on top of – you’ve got to work very closely with the partners and with the clients, and there’s no right or wrong way of doing it. Each client will be receptive to different types of approach.
Other finance functions at Allen & Overy are client money – as a large law firm we have from time to time very large sums of money moving through our ledgers. We need to ensure we’re doing that in accordance with Law Society rules. There is also accounts payable, which manages the firm’s liabilities.

For many firms, e-billing appears to be quite a contentious topic. How do you view the changes in this area and how has your firm so far responded?

E-billing means different things to different clients. At one level, people understand it as attaching a PDF copy of the bill to an e-mail. But more sophisticated clients are seeking us to provide them with a file extracted from our accounts that feeds directly into their accounts so that they can see the precise breakdown of every hour worked by every single fee earner in every location. And they can use that information in a number of ways: first, to understand what they’re paying for; and second to enable them to understand which firms are giving them value for money. We very much support that, but we have also been keen to point out to clients that e-billing does have its limitations. It’s not widely accepted in the UK, for example. We’re working with the LEDES Oversight Committee (LOC), as well as lots of law firms and clients, to come up with a standardised set of task-based billing codes that would be applicable to the majority of work that most UK and European firms are doing. But the standard isn’t quite there yet.
There’s also a little bit of a sense that e-billing is the latest ‘fad’. Perhaps not so much now, but certainly six months to a year ago, clients were saying that they needed to have e-billing without understanding what it meant. They have to make a significant investment too – it’s not free – and I think a number of clients have recently said let’s stand back from this, let’s understand what our law firms can deliver, what’s reasonable, what we want, how we’re going to use it and then decide how it’s going to work best for us. We’ve been very supportive of all our clients and what they’ve wanted to do with e-billing. And we’ve had clients at all ends of the spectrum.

What wider challenges do you face as London CFO?

More generally, partners are not particularly well trained in understanding financial matters – as a result they tend to have a bit of a phobia of them. A large part of my role and where a lot of the challenges lie, therefore, is in interpreting our financial performance for partners and giving that to them in a way that they can digest. Giving them quality not quantity of information and targeting it to them in ways that they can use to increase the prosperity of the business and improve their own performance. I think we’ve found this issue in the past – it’s very easy to present partners with huge amounts of information but actually targeting that in ways that is useful is a bit of an art. And it’s something that’s come to me over six years of experience working in a law firm.

What key areas of finance do you think law firms will struggle with, and why?

We all face the challenge of getting our partners to bill and our clients to pay. I think we can address that internally by motivating good people who can ensure we are on top of our working capital. There will always be a rate at which clients pay their lawyers. It’s probably unrealistic for us to always expect our invoices to be paid within the terms for lots of reasons. One, for example, is that many of our invoices are not paid by our clients, but by their clients. So if you’ve invoiced a bank for work that they’ve done on behalf of their clients, then they have no real interest in chasing their clients to pay our bill.

Do you think it's harder for the legal profession than other sectors to attract talented finance professionals?

At Allen & Overy we’ve been successful in attracting very high calibre individuals into finance. I think it is hard for any law firm to provide a hierarchical structure for those in support functions because we can’t offer the level of training that corporates can to trainee accountants – we can’t offer them stepping stones up to, say, divisional financial controller and then on from there. It’s quite a flat structure and, for many people, not an easy career path to the top. But we provide a stimulating environment to work in and quality work, excellent opportunities to hone business skills, and we have been exceptional at attracting and retaining excellent quality individuals at all levels of the finance function. If you look around at the more senior people, who have been around for quite a few years then you’ll see that you won’t survive unless you’re good. It’s not a stuffy little back office where people are going to sit out their careers.