Legal management – who gets to see what financial data?
Law firms have perfected the art of spewing forth financial data to aid legal management. Tired of the constant requests for yet more information, finance departments send out reams of paper to partners far and wide. But data is not the same as information. Without a context, data is just numbers. The context is the firm’s business plan, because the question that the numbers are attempting to answer is “How are we tracking against plan?”. At the risk of being pedantic, the problems stems from defining “we”, “tracking” and “plan”.
“We”
The whole firm is the only financial entity that matters. If the ship is sinking it doesn’t matter that your end is currently above water. So senior partners should concentrate on the whole firm’s performance, acting as main board directors rather than shop stewards for their own departments. Sadly most remuneration systems encourage solo or silo mentalities, because the price of dealing with partner under performance (and rewarding superstars) was increasing difference in individual partner reward.
At the more junior partner level it makes sense to let the partner see the data which they can influence; their own figures, plus those people who look to them for work. Partners are not good at screening out unnecessary data; their job depends on reading those things that other people ignore. Thus faced with huge quantities of data they can become absorbed in other people’s issues (“why is Sue in private client only recording 3 hours a day?”) rather than the 2 or 3 people who really matter to them. The overall departmental figure can be useful if they are rewarded for the departmental result, but again they can become voyeurs rather than actors.
At the FE level the individual needs to see the data that will affect their performance review. Lawyers are competitive, and need the answer to “how well am I doing?”. Since the finance data is usually all we have got (see my point on tracking) they need to see it, and then be guided as to what to do about it.
The truth is that financial data can identify where the ship is letting in water, but does not offer the remedy. In fact the detailed data rarely reveals anything those whose job it is to address the situation didn’t already know. Which shows one weakness of financial data. Knowing there is a problem doesn’t immediately lead to change, as my white paper (see below) explores in greater detail.
“Plan”
For many firms the financials are synonymous with the plan. The plan is to achieve a (revenue – costs / equity partners) that is acceptable. The plan created at the beginning of the planning cycle is rarely holistic, strategic or even referred to throughout the year. This is true at the whole-firm level, where the firm’s plan is often a collection of departmental documents, but also at the departmental level where the analysis and planning rarely maps onto in-year activity. If you disagree, read your 2011 plan and ponder when did you last read it, and did you do what it said?
Thus the pan is really just business as usual. Whilst attempting to be strategic – by which firms mean advocating sector focus and building niche teams – few firms turn work away. Hence they remain trapped in doing the poorly-profitable work for off-strategy clients because it “keeps the lights on”. Plans need to be accepted, executed and rewarded activities if they are to change from aspiration into activity
“Tracking”
How would you know if the plan was actually working? I have written separately about the need for balanced scorecards, particularly as the race for survival or expansion is moving from getting clients to getting profitable clients. The financial data can only tell you what has happened, not what is happening or more importantly what’s ahead. So how would you know if your firm was successful if you couldn’t see the financials? What are the indicators that there is vitality in your firm? In former days the managing partner could use the amount of mail as a rough guide to vibrancy, and walking the floor as a good guide to morale. What are your modern day equivalents? How do you capture this information, and report it to others? This is the information which provides the wharf to the financial weave to provide a true tapestry of what’s going on.
Summary
So, “Who gets to see what?” In summary, the individual partner needs to consider all the information – not just the financial information – which will enable them to deliver their part of the firm’s plan, and support the other parts in the whole-ship mentality. Getting them to change their behaviour as a result of this information is a separate challenge, as the white paper touches upon. It also looks at the manner of reporting – not just the content.
