Following last week’s exclusive story in The Lawyer of Hammonds’ woes, law firm financial management has never been such a hot topic.
While Peter Crossley wages a heroic battle to take control of his firm’s wayward finances, other firms have also recognised the merits of going back to basics. I’ve lost count of the number of partners this week who have expressed relief that their management teams have been unadventurous.
Clifford Chance‘s decision in January to abandon its $150m (£79.6m) private placement in order to return to a more traditional financial strategy, was the first sign of this flinty realism. It was an open secret that Clifford Chance chief executive officer David Childs had been sceptical of newfangled methods of borrowing, so redeeming the placement was only a matter of time.
Hammonds partners will be green with envy at the highly conservative approach of another national firm. Wragges may have scraped £208,000 in average profit per partner last year, but the Birmingham firm had £15m cash at bank and £17m in partner capital on a turnover of £80m at the end of 2003-04. Senior partner Quentin Poole admits, if anything, he would like Wragges to loosen up. This I doubt. Given the firm’s risk-averse partnership culture, laced with Schadenfreude at Hammonds’ predicament, I can’t see Wragges flashing the cash just yet.
Perhaps Crossley should take heart from Addleshaws’ experience. This may sound faintly cruel, given that Addleshaws has just precipitated a crisis in Hammonds’ Leeds office by hiring five construction partners, but the story is instructive.
When Mark Jones took over as managing partner of what was then Booth & Co in 1992, he faced a tricky situation. Booth & Co’s borrowings were the equivalent of 33 per cent of its gross annual turnover of £15m. Within five years, Booth & Co’s turnover had grown from £15m to £24m, but it had managed to reduce its borrowings to zero. How did Jones manage this? Answer: for two years partners were told quite simply that there would be no quarterly drawings.
Of course, Jones was lucky. Back then, the legal profession was not as transparent – or indeed gossipy – as it is now. Nor did partners move around very much, so options were more limited. But it does show that the key issue in changing a law firm’s financial status is to get buy-in internally. In today’s more fickle profession, oaths of allegiance will have to be renewed constantly.