The role of the law firm Finance Director has come under increasing scrutiny during the recent years of turmoil and economic contraction. Now that the economy has been growing for some time and firms that have run a tight-ship look to exploit the resurgence of demand for their services, it is perhaps apposite to reflect again on the range of functions that a good FD (or CFO) can perform.
Two years ago we were prompted by a piece of McKinsey research on the role of the CFO to consider how law firm FDs can drive the financial performance of their firm, identifying financial managers who range from the traditional compliance and process expert to the more strategic leader of growth and performance transformation.
From Process to Strategy
The role of the FD continues to develop and strong, well-qualified finance professionals have never been more integral to the management of a successful law firm. In a similar vein to the earlier McKinsey research, Deloitte have recently suggested that the CFO can perform four distinct (but often overlapping) functions. These include the steward and the operator, who ensures financial management is efficient and effective, to the strategist and the catalyst, helping to shape strategic direction and driving transformation to improve financial processes and performance across the firm.
Unlike many large companies in other industries, where the CFO has for many years been a key ‘C-Suite’ level leader and has been seen as crucial in not only ensuring that funding is available for the business’s strategic initiatives, but has also had an important part to play in setting that direction, in law firms even the most senior finance person has often been regarded primarily as the ‘bean counter’.
This has changed in recent years, especially for the largest firms, but in the middle market there can still be a lack of appreciation for the extent to which a really effective FD can be truly transformative.
Necessary but Not Sufficient
That a Finance Director should have (or have access to staff with) an expert knowledge of the compliance and risk issues facing the firm, and that they should be able to conduct sophisticated financial planning and analysis in order to manage the firm’s assets and operations in such a way that efficiency and value are maximised, is not in doubt.
However, when it comes to questions of growth and the most appropriate business models to facilitate expansion, investment and, in certain cases, divestment, the FD can have a crucial part to play. They will also be indispensable in securing finance to support the business strategy.
Strategy and Operations
There will also be situations where a change in direction will necessitate a change in operations – where cost structures will need to look radically different, procurement could be done in different ways, or pricing strategies (and their implementation on the ground) need to be remodelled. The FD ought to be an invaluable asset in planning, but also in execution – and often the FD’s mandate (with the support of the Managing Partner) can be a vital stick in persuading staff to adopt new priorities.
A law firm’s strategic direction will always be driven primarily by the law, and rightly so – after all, this is its core business and this is why people choose to become lawyers. However, a recognition of the role the FD can play in helping to set the agenda and create the conditions for success is no longer optional, as competition from ABS and well-run larger firms will not abate.
