Legal Business Blogs

Comment: The bottom line is, well, the bottom line – numbers always settle the score

At a recent drinks evening with a leading City law firm, Legal Business heard a familiar refrain from a veteran corporate partner about how the team he leads is doing very well but has had its reputation – and that of the firm as a whole – dragged down by the sniping of ex-partners.

Several weeks previously at a dinner, another major firm had run through its strategy and performance, making a great play of the claim that, though the firm had clearly suffered a few reverses since the banking crisis, it was performing ahead of peers.

The linking point? It is striking that no matter how much time commercial lawyers spend working alongside business people, clients and finance professionals they forget the fundamental point that the numbers always, always settle the argument. Both firms had on conventional measures been at best average-to-poor performers over the last five years and that, in essence, is that. Indeed, the only time anyone pays any attention to the views of partners on their former firms, or the thoughts of peers, is when the numbers are bad.

Ex-partners think the management is bad, the strategy a joke and the partnership a mess. They may be right, they may be wrong – they clearly have a bias, so call it even and move on. When the numbers are bad, there is a problem, then the chattering takes on significance because market participants will start trying to work out what is wrong.

Management can profess the firm is collegiate, has great and motivated partners, a clear future and satisfied clients. They can say it, but the most accurate benchmark of whether such statements hold credibility is the numbers on the medium term. The numbers contain the sum total of the thousands of decisions made by partners, staff and clients.

People talk about brand and reputation in law. If it is not in the numbers, no-one cares. And nothing boosts the brand and confidence more than a robust run of organic growth.

If the right people are motivated, if the right people are staying and joining, if the right clients are instructing you – that turns up in the numbers on a three-to-five-year basis. Take revenue, revenue per lawyer, profitability and organic revenue growth and chart that against a dozen broadly comparable peers. If your firm is well into the third quartile, you have a problem. In the fourth quartile, you may have an impending crisis.

It is a five-minute analysis – it is easy to do – and contrary to the oft-made claim, it is well-nigh impossible to game, unless your finances are utterly opaque – hello verein firms – which solves one problem for management but tends to result in long-term drift as the absence of a clear yardstick weakens performance and leadership rigour.

Yet often partners and even managing partners carry on as if a listing institution had been a robust performer in contradiction of the facts. It is hard to recall a period in which there has been more denial in the legal profession in the Square Mile. Just look at the numbers.