Editor's letter

How will we manage?

Management may not be the most exotic of topics to pontificate on – albeit a subject this humble column regularly explores – but if the past year has taught us anything, it is that this is a set of skills that can be woefully underestimated.

As the inevitable credit crunch blame game began many fingers were pointed in many different directions of course. But the overall verdict was pretty unanimous: excessive risk taking had been allowed to escalate unchecked – in some cases then rewarded with excessive remuneration.

Whether this is indicative of the failings of politicians, regulators or chief executives and their teams, somewhere along the line this certainly means inadequate supervision. Inadequate risk management.

In February 2009 The Financial Services Authority (FSA) made one of the more dramatic observations concerning the failure to prevents banks’ collapses, saying its remit for regulation had been too “light touch” – an approach it felt was encouraged. Hauled before the Treasury Committee to account for its role in the economic crisis, FSA chairman Lord Turner said regulation needed to be more thorough – looking not only at the physical processes in place, but also at long-term strategic aims and their associated risk profiles. Strategic over-reaching has, of course, been somewhat epitomised in this crisis – fairly or unfairly – by the RBS 2007 purchase of Dutch bank ABN Amro. In February 2009 RBS then went on to announce the largest annual loss in UK corporate history – £24.1bn.

Perhaps more interestingly, however, in the same grilling FSA chief executive Hector Sants added that in future the regulator would have more influence over the appointment of senior management figures in the first instance – an area in which the body had previously had little significant power.

Some will already be breathing at least a little easier now that the G20 agreement has revealed considerable consensus in terms of the need for more stringent financial regulation worldwide, extending this to hedge funds, drawing up international accounting standards, and with national commitments to investigate and align remuneration models. The need for the right people in place at the top, however – in other words, the right leadership – should be every bit as apparent.

This is no less true of law firms than it is of the banks, but in their case it is complicated of course by the considerably flatter management of a partnership structure. Traditionally the managing partner often continues with his or her fee-earning into the term, and (quite absurdly) may even be reluctant to find themselves landed with the role. They are first and foremost a lawyer, they will say, just as focused on their clients’ interests, but one of them has to manage the others into some form of cohesive effort.

Naturally this becomes even harder as those firms expand, whether internationally or into new sectors, and increasingly the managing partner either has significant ‘support’ in ‘non-legal’ business expertise, or indeed makes way for a non fee-earning chief executive. While a lawyer by background, for instance, the well-known face of DLA Piper’s Sir Nigel Knowles, whom I interview for this issue, is a prime example of one who saw a need to sacrifice his client work for the future of his firm. For many years now he has chosen to devote all his energies to effective management instead, with the rise of DLA subsequently being seen as something of a strategic showcase. In 2009 Knowles was even knighted for his services to the legal profession in The Queen’s New Year Honours List.

And now we all embark on a potential fresh chapter in law firm management. 31 March 2009 saw the arrival of the first non-lawyer partners at the first 14 legal disciplinary partnerships (LDPs). A key change brought about by the Legal Services Act 2007, up to 25 per cent of the partners in an LDP can now be non-lawyers, giving other business know-how and professional management experience even more potential weight (and recognition) in driving strategic thinking.

No doubt some will see 14 as a rather meagre proportion of those who might have taken up this opportunity, and therefore question whether law firms have the appetite for such a radical shift.

One thing’s for sure. Hurting as never before in this recession, the importance of management to law firms can no longer be misunderstood. Wherever it is sourced, it had better be good.

Richard Brent

Editor

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