“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body - the producers and consumers themselves.” Herbert Hoover, 31st President of the United States

Law firm and chambers finance directors have a window of opportunity to reinvent themselves, and materially impact their organisations’ fortunes by facilitating pricing innovation.

Back in the day…

Todays’ law firm finance directors have reached their position within the firm because they demonstrate amongst other things the vital ingredients needed to help ensure their business is well managed through poor macro conditions as well as boom times.

Ultimately, that requires strong financial foundations, absolute technical integrity, commercial insight and the ability to build and lead a team so that the finance function works cohesively with the rest of the business.

The role has diversified in such breadth and depth over the past decade that there is more potential than ever for the law firm finance team to exert significant influence over setting and executing strategy. Combined with their importance, especially during difficult economic times, and their capacity to ensure that business decisions are grounded in sound financial rules, finance directors have a significant opportunity to positively impact the firms’ profitability.

This contrasts with the traditional view of the finance directors’ role which was principally seen as the setting of budgetary objectives and regularly reporting against those metrics. This is of course an over-simplification but that is how many partners would understand the role.

A new breed of finance director is born…

However, a new breed of finance director is beginning to emerge; one that understands the interplay between their traditional role, which remains as important as ever, and the use of those same skills and disciplines to initiate and drive pricing innovation.

Why is this going to become increasingly significant and where do finance directors fit?

First, pricing innovation is a process, not an end game. By definition, innovation is constant. Any firm serious about reinventing itself in the pricing space will need contemporary pricing professional development and training to provide a platform for innovation. Having done so however, ongoing progress and success will be heavily influenced by the firms’ willingness to make a long-term commitment to pricing excellence and innovation. Central to this is the appointment of a pricing champion/leader within the firm.

The finance director will often be well suited to this role or close involvement with the role.

Second, many firms are struggling with the increasing demand for fixed pricing in contrast to hourly rate pricing where the client generally carries the pricing risk. The ability to consistently manage fixed pricing profitably, particularly with more complex work and litigation, relies in part on relevant historical data mining and careful analysis together with ‘soft metrics’ around the clients’ perception of that amorphous concept of ‘value’.

Finance directors can make a very significant contribution to that process.

Third, more sophisticated internal reporting will be required in future. There is no great challenge around reporting billable hours, total fees, realization rates and the like. In future however, firms that implement increasingly bespoke pricing solutions for clients will have to develop equally sophisticated, granular and nuanced reporting metrics and dashboards to satisfy the information demands of the partners.

Finance directors can make a very significant contribution to that process.

Fourth, partners should be immersed in what they do best; high quality legal advice and strategy. Finance directors therefore have an opportunity to put themselves at the vanguard of pricing change within their firm; an aspect of the firms’ management that sits comfortably within their existing framework but with the ability to add significantly greater value to the firm.

Scorched earth? Done that, what now?

It is a truism that in business you increase profits by increasing turnover and/or reducing costs. Without in any way intending it to be a pejorative observation, I think it would be fair to say that over the last four years, the focus of most law firm finance teams has been to identify waste, and non-productive cost and wield the scythe.

Fair enough. Every business needs that from time to time. That strategy was fine in the immediate aftermath of the GFC. However, once that ‘pruning’ is complete, the question becomes, ‘where to from here?’ My sense is that this is where many finance directors are sitting at present.

It is perhaps time to refocus attention on the top line. Everyone knows that ‘normal transmission’ has not and probably never will be resumed. Time for something different. Although many firms are slowly beginning to understand the opportunities that post GFC (and in the case of UK firms, post Legal Services Act-inspired), contemporary, innovative, customized, strategic pricing presents, there remains a lot of rhetoric, with few doing it and even fewer doing it well.

Cometh the moment…

There remains therefore an invaluable window of opportunity for finance directors to reinvent themselves as their firms pricing champions, and in so doing bring game changing innovation and leadership to their role.

Nothing, not even my passion; strategic pricing for lawyers, is a financial panacea, but I am in no doubt at all, that one of the characteristics of tomorrows’ successful law firms and chambers will be pricing excellence. Finance directors are not the only ones able to lead the charge for their firm but they are perhaps uniquely placed to do so.