13 October 2008
The majority of law firms circulate some form of management information on a regular basis. However, while it is generally the case in business that over time a standard practice develops, in the case of management information at law firms this does not seem to have occurred.
In fact, management information packs circulated by law firms seem to share a characteristic with fingerprints – no two being the same. So what is the reason for this, and should firms take a fresh look at their management information to see whether improvements could be made?
For most firms the management information packs circulated to partners will have developed over time, with many of the individual items included having been added to meet specific individual requests (rarely are items removed). Those now receiving the information are often unsure of exactly what to do with it, or even why it has been sent to them. Other than providing a history of the firm, the information circulated is often of limited value and is given brief attention by partners before they turn to more pressing client matters.
So what information should be circulated and what role does it have in helping a firm achieve its strategic aims?
There are three main reasons to circulate management information to a firm’s partners. These are:
•to inform them of the business’s historical performance;
•to assist them in managing their client engagements; and
•to motivate them and generate desired behaviours.
A particular feature of professional partnerships is that there is no separation between the owners and managers of the business. Therefore, despite there being either no – or, in the case of an LLP, limited – statutory requirements to provide information to owners, the partners, in their capacity as owners, are likely to desire information.
This information can be viewed as being akin to the information provided to shareholders of a listed company in its annual report. It might cover the business’s annual performance (provided by way of a profit-and-loss account and a cashflow statement); the financial position of the business at the year-end (provided by way of a balance sheet); the transactions with the firm’s capital providers (in a law firm this would consist of information on capital requirements/drawings/profit figures by partner); and, in addition, narrative on how the business has performed and its future outlook.
Managing client engagements
Where the partners of a firm have delegated the overall management of the firm to an individual or board, that person or body will need certain information to enable them to manage the business. This would include staff numbers, cash requirements, cost levels and margin levels. However, in contrast, ‘line partners’ will only need certain information to allow them to manage their own portfolios. This will relate to their client engagements and is likely to encompass metrics on recovered rates, utilisation, leverage, debtor days and work-in-progress days.
One of the most important but often neglected attributes of management information is its ability to generate desired behaviours among a firm’s partners. The key consideration here is what point of comparison should be provided against which the metrics circulated can be compared. Few partners would not wish to cast their eye over how their performance compares with that of their peers’. Possible points of comparison are other partners, other practice areas, other firms or the firm’s own budget.
Consideration of the above three areas should help determine what information should be provided. Thought should then be given to the format of the information. Circulating a large management information pack, each page populated with dense rows of figures, is unlikely to hold the attention of those receiving it. It is therefore crucial that tables, graphs, bar charts and pie charts are used to grab the attention of the reader and allow the relevant message to be communicated in a way that ensures the user can assimilate quickly the key points.
Jeremy Black is an associate partner at Deloitte