By Bill Shelford, who recently retired as Senior Partner, Cameron McKenna (bill@shelford.net)
- Reputations gained over years of diligent practice by generations of dedicated professionals can be lost in a matter of days.
- Those who ignore potential risks are putting the livelihoods of many innocent members of staff at risk.
- The internationalisation of practice has brought with it misunderstandings in language, concepts and ethics.
All stark thoughts; even if many of the risks have not in essence changed, the penalties for ignoring the risks are markedly more severe, and the number of interested parties who have an ability to influence the future of a professional firm continues to grow.
Consider just a few of those interested parties:
The Banks: Banks loan not only working capital and the costs of some investment items but also the capital that individual partners are required to invest in the business. Experience has taught Banks that some professional firms 'blow up' and so they will require to approve budgets and monitor performance quarterly, or even monthly, against that budget. Woe betide the firm whose cash flow does not keep in line with forecast. The Bank will insist on monthly drawings being cut, and then what about mortgage payments, school fees and supermarket bills? Just imagine the effect on morale.
And another worry: bankers and finance directors in law firms watch the level of recorded hours like hawks, because budgets are prepared on the basis that a certain number of hours will be sold each year. Yet selling those hours is far from certain in these days of fixed fees and success fees.
The Insurers: Professional indemnity insurance has not been profitable and rumours of large claims confirm that view. Underwriters have to compete globally against other subsidiaries with potentially more profitable areas of business. So professional firms must continue to expect larger deductibles, tighter wording, and the need to provide evidence of preventative risk management. In the final analysis insurers will refuse to insure firms whose track record is worse than average. The answer may lie in mutuals, but in the US, firms who insure within a mutual but have a bad claims record, are inspected by representatives of other firms within the same mutual to see if they have suitable internal controls and standards: if they do not measure up, they are thrown out.
The Staff: It goes without saying that staff will not stay unless they are being trained adequately in a supportive atmosphere with proper feedback and appraisals, and an enlightened package of benefits. But beware if partners or others under pressure lose their tempers, make a pointed joke when letting off steam, or worse, indulge in some inappropriate behaviour. Although that behaviour may have happened in a distant country where mores are very different, information will be quickly picked up by the legal and national press. Staff then cease to identify with the firm; many feel depressed, and view every announcement with profound cynicism. Within minutes of a report in the national press, grannies will be telephoning their grandchildren asking why they are working in such a 'loose' firm. That lost reputation is hard to regain when the fiasco often reappears as a final paragraph of press reports for years to come.
The Clients: A firm is judged by the types of organisations who instruct it so beware of putting too much emphasis on winning new clients for the sake of promised riches. Beware also of alluring success fees, which often prove to be a mirage. At best dodgy clients may give inadequate oral instructions leading to future disputes; they often ignore bills and fail to pay for months, hurting that important cash flow. They may use the firm's reputation to enhance their own. A short independent check may spare later tears and months of unravelling.
The Regulators: A report of involvement in money laundering may be the death knell: respectable quoted companies will think twice about instructing a firm that has aided a money launderer, even if the only sin has been to fail to make adequate enquiries before taking on a new client. The regulators will seize the opportunity to make an example of a professional firm. Even the inability to deal with a complaint quickly and fairly may lead to trouble. Not many solicitors know that if the Office of Supervision of Solicitors reduces fees for whatever reason by more than 50%, the case is then investigated as a possible disciplinary offence.
The Partners: Partners may be tempted to leave if there is inadequate communication from the centre or if they have not been consulted on and bought into the strategic plan. They will also be disgruntled if perceived problems are not dealt with quickly and decisively, so it is essential to maintain a clear and robust partnership deed enabling managing partners to deal with anyone who is no longer contributing fully. It is galling when leavers take their teams of specialists with them, trained at the expense of the firm from which they are departing.
Succession is the lifeblood of a partnership and if the younger professionals do not see first class rewards in the partnership, coupled with a prosperous future, they will leave along with many ambitious partners. A firm without the ability to attract and to recruit first class staff will fail even before the bankers have spotted slippage in the figures.
So what should a professional firm do? The answer is short: Do not seek to drive up profits regardless of other concerns, even though profitability is a key to short term partner happiness. Act professionally and guard that reputation daily. Make no assumptions that everyone understands the risks or even the standard of ethics that is required in the United Kingdom. And remember to think through foreign associations and to spend time on knowledge management, disaster planning and training all staff in preventative risk management.