Making the board
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Finance directors are increasingly playing a senior management role in law firms, which is leading to large salary increases, according to a recent survey.
The survey, carried out by Carter Murray, looked primarily at the salaries and bonuses paid to finance directors in firms throughout the UK; 34 per cent of the firms estimated that salary increases in 2001 would be even higher than last year.
With firms increasingly using general business practices, they are more likely to need finance directors, who are capable of playing a strategic role within the firm on top of their administrative duties, principally to integrate innovative techniques that will help to improve the partnership's profitability. Many of the larger partnerships are also likely to require a team of finance professionals to relieve the partnership of the administrative burden placed on them in the financial management of the firm.
Recruiting at entry point level would also appear to make financial sense and enable junior accountants to be trained in law firm practices. There are, however, problems with this strategy. Newly qualified accountants are unlikely to have considered a position in a law firm, so higher salaries might be necessary to tempt them away from more traditional career paths. According to the survey, a recently qualified financial or management accountant can earn more than £42,000 with a top 20 firm, whereas a London plc is unlikely to be offering more than £38,000.
The survey shows that average salaries for a finance director in a large London office (up to 80 partners) is £161,250, with top earners being paid up to £245,000, compared with £64,950 in firms with 30 or less partners. Nationwide, finance directors still demand high salaries - anything up to £96,000 in large firms of 80 partners or more.
All this is especially significant as the divide between those that do and those that do not widens. That is, firms that emphasise the input of the finance director in the partnership and those that do not.
Jon Sedgwick, director of finance at 80-partner City firm Rowe & Maw, attends all the board meetings and reports on financial matters directly to the board. A proposal is currently being considered to formally make him a member of the board, although Sedgwick is not convinced that this is a necessary move. "In practical terms, any such move will make little difference," he says. "It will just formalise the situation, although I can see that this may be useful as far as the rest of the partnership is concerned, as it will give some clarity."
Rowe & Maw does have an operations partner in Stephen Bottomley, and in terms of management control Sedgwick reports to him. The firm also employs a finance team, which Sedgwick oversees, as well as working on projects and on an ad hoc basis. "I'm always looking at how individual parts of the business work and looking at how we can improve profitability," says Sedgwick. He believes there is a growing trend to devolve services to professionals. "With that comes the realisation that firms need to have full-time professionals managing certain areas," he adds.
Slaughter and May has adopted a slightly different approach, taking advantage of technological improvements to streamline the way it is managed as a business. "The firm reached a stage when the administrative system could be dealt with by one person. Before this, there were three partners dealing with finance, personnel and technology respectively," says a Slaughters spokesman.
Now just one partner, Melvyn Hughes, deals with finances, as well as human resources and administration generally.
Slaughters, though, does have a finance director in Rick Brabiner, who sits in on board meetings and reports to Hughes. "Larger firms rushed to get finance directors in the 1980s," says Brabiner. "This was not born of fashion, but of a realisation that partners are better occupied earning fees." He adds that the firm now employs more newly qualified accountants than ever before, but thinks this is more to do with improving the spread than with cost-effectiveness.
The Slaughters spokesman says: "We don't see a need for a non-lawyer finance partner, but it all very much depends on how a firm is financed and how much input is needed from senior level. For example, some firms may need higher input to deal with borrowing."
It is clear that this approach is born of commercial advantage. "Law firms are a business with known outgoings and variable incomings," added the spokesman. "We all need to maximise our profitability in that matrix."
Eversheds financial director Bob Rabone is a chartered accountant tempted over from a plc to join the Eversheds team. As such, Rabone believes he brings specialist knowledge and background to the financial management of the firm. "One measure of the maturity of a business is the presence of a finance director, his role and his influence," he says. "Many businesses didn't recognise the need early enough, and firms came to the conclusion at different stages in their development."
Rabone is the only non-lawyer to sit on the executive and is therefore also a member of the board, being involved in financial transactions, participating in report writing and commenting on issues covering every aspect of the business.
Whatever approach a firm adopts, there is no escaping the increasingly strategic role of non-lawyers, and particularly finance directors, in a firm's development. While their input comes at a steadily rising cost, it is also a sign of the growing maturity of partnerships as businesses; and with 84 per cent of finance directors on the main board or management committee, it is a price that the majority of firms are more than willing to pay.