Perhaps I have been spending way too much time studying corporate finance in school the past month, but the topic that has remained in the back of my mind is whether our jobs, as staff in a law firm, is to maximize the long-term value of our partners. The longer that I have considered the question, the more that I fundamentally believe that it is. Granted, we are not corporations (yet), so we don't have a legal duty to our shareholders (equity partners), but does it really change our obligation as employees of our firm owners?
What does this mean though? As a pricing person, I think it means that my department needs to measure its impact, not only to demonstrate and report it, but also to understand what is working and what isn't. It means that we should compare the matters we are involved with to the ones we aren't so we know we are making the right kind of a difference to create long-term value. It also means that we need to think about the types of projects we find ourselves involved in and prioritize those that will either grow revenues or reduce cost (improve efficiency) to improve net income. For example, if a pricing person recorded their time in the firm's time entry system against 2 non-billable matters (one for client work and one for non-client work), it would be easy to develop a simple guns and butter chart (think macro-economics) to determine how much time was spent on high-value activities versus lower-value activities. Overall, I think this mindset provides a fairly clear method for prioritization.
From a legal project management perspective, it also has implications on both the revenue and net income lines. For net income, it implies process optimization to reduce the cost to deliver legal services (particularly under value-based fees). It also implies leveraging work to the proper level timekeeper that will be a balance of the most efficient and the most cost-effective resource to do the work. It will mean that LPM efforts will need to be measured in the same way the pricing efforts are so that we actually understand if we are making a positive difference in net income (versus just hoping that we are). Finally, it also implies proper capture of the experience so future endeavors benefit from the past. On the revenue side, successful LPM initiatives (a.k.a. people) can be very effective in boosting revenues if their firms promote their successes to their clients.
From an IT perspective, it means that projects undertaken should generate at least $1 of return for every $1 of firm investment. It means that the IT department needs to measure what creates value and how much. It needs to learn how to quantify its efforts (often difficult) to ensure that the return exceeds the total cost of ownership. For some things (e.g. security-related), perhaps that is measured in risk-weighted avoidance, but in other things (like intranets), it means figuring out how to value the return. There are many ways to calculate ROI to decide whether to invest in a project, but I think it becomes extremely important to continue to measure the return on a project after it is launched to ensure that the final actual costs are known and the return generated.
From an Accounting perspective, it means that we should not fall prey to SALY (same as last year) thinking. Particularly in today's market, SALY is the antithesis to innovation and process improvement.
From a law department perspective, this idea does not mean that we should make a bunch of near-term decisions that destroy our relationships with our clients, but rather that we do the best job serving them in the manner you want and need to create a long-term sticky relationship with you. Those working in public companies will recognize this idea and know that it does not mean that you alienate your customers. Public companies wouldn't survive long doing that and neither would law firms.
There are many other implications in this philosophy that I find endearing. It embraces the notion that law firms need to run themselves as businesses and not as a collection of practices. It implies that we will evaluate the financial impact of our decisions before we make the decisions (and not shy away from math or income statements).
At any rate, this is what I have been pondering...how do I maximize the long-term value for my partners? I can tell you that I have yet to hear one partner tell me that I am thinking about the wrong thing.
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