Firms must focus on wider issues than PEP
16 April 2007
Average profit per equity partner (PEP) is no longer an appropriate measure of the success of a law firm. It should be replaced by measures that take account of both client satisfaction and staff and partner motivation. Sustainable profitability is nevertheless an essential prerequisite for the long-term health and independence of the legal profession as a whole, but that sustainable profitability will only be found in an environment that seeks satisfied clients and motivated people.
The adoption of PEP as a key metric over the past 10 years has led many firms to concentrate on their internal partnership structures and to subordinate the elements that will determine sustainable success. One of those elements is the ability of the firm to attract high-calibre recruits from diverse backgrounds and to satisfy their aspirations. It is clear that a competitive remuneration structure plays an important part in this process. It is equally clear, however, that the most significant feature of a successful and highly motivated firm is that it attends to the broader needs and aspirations of its people. In essence, this means finding an answer to the question: "What kind of firm do we want to be?"Surveys of all Allen & Overy (A&O) staff in both 2004 and 2006 confirmed the general position that staff wish to be paid at the upper end of market rates, but also seek a working environment that satisfies a broad range of criteria that are unrelated to pay. Ninety two per cent of respondents last year said working for a firm that is socially responsible is important to them, while 87 per cent put a premium on the firm being environmentally friendly.
If we accept the basic premise that there is an overwhelming wish to be part of a firm that behaves responsibly, we are then faced with the task of translating this general aspiration into everyday life. At A&O we have identified four broad areas covering the firm's responsibility and the people to whom they are owed. These areas, which offer a convergence of self-interest and public interest, are our people, our marketplace, our communities and our environment.
•People. We must now accept wider responsibilities to our staff that go beyond the normal contractual requirements. Providing greater flexibility and devising alternative career paths, particularly for female lawyers with families, are among such responsibilities. We also need to provide a working environment that is much more sensitive to the diversity of our staff. This encompasses future generations, and we need therefore to assume broader responsibilities for widening access to the profession.
•Marketplace. In relation to our suppliers, we have adopted a new global procurement policy that introduces non-financial criteria into our decision processes. We have recognised the need to engage and support local suppliers more proactively. We have also accepted that we should play a constructive role in the wider development of our profession. This means participating in wider debates on the role of law in society. We believe that we have a wider duty to devote resources to maintaining the rule of law for future generations.
•Communities. This encompasses projects and activities around the world that offer our people the opportunity to volunteer their services to the wider community, some of which involve pro bono legal services.
•Environment. We are in the process of measuring the firm's environmental impact with a view to setting achievable goals for reducing that impact. While we will offset a substantial part of our unavoidable carbon emissions, we have decided, as a matter of principle, that achieving real carbon reductions should be our primary focus.
Our starting point was to determine what sort of firm we wish to be. It is clear, however, that any answer to this question will also need to consider what sort of firm our clients wish us to be. But for those who may be worried about a concentration on non-financial issues, rest assured that anyone smart enough to meet these broader challenges will certainly be smart enough to prosper financially.