Digital transformation raises finance chiefs’ stock
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Many finance heads at top legal practices have become careerists in the industry, tending to stick to either a single or series of law firms.
For some chief financial officers, the allure of being the only “numbers”
person in a partnership of lawyers can provide a sense of status; for others, having shareholders wander the corridors outside their offices makes the job intensely personal.
In the past, the role was not comparable in complexity to that of a CFO of a publicly traded company — but this is beginning to change. Many big commercial law firms are now billion-dollar businesses with complex financial challenges.
Jay McAveeney, chief financial officer at Reed Smith, a global law firm, says: “We may not have inventory like a manufacturing business, but we have borrowing, capital exposures, currency exposures.” For him, the complexity and enjoyment of the role comes from the partners who are both co-workers and owners.
Mr McAveeney has served as both CFO and chief operating officer at
various law firms including Baker & McKenzie and Kirkland & Ellis, two of the largest firms in the world by headcount and revenues. Some law firm finance chiefs have also served as the COO, but this is becoming less common as the top roles become more defined.
The slowness of many partnerships in recognising business professionals and support functions for the value they deliver has contributed to the industry being slow to adopt digital technology.
“Law firms have not completely digitally transformed themselves. [Digital] is a small part of the business today but it is changing,” says Jason Haines, chief finance officer at Allen & Overy, a global law firm.
Mr Haines, who has also served as A&O’s chief information officer, feels the pandemic has reinforced the importance of the finance chief at law firms.
“Cash flow is essential. We did a capital raise in the middle of the pandemic and put in cash measures to keep the business resilient. It is an essential role of a CFO but often underplayed,” he says.
He plays a role in A&O’s digital strategy and focuses on the benefit the firm can realise from its technology investments. With an IT background, Mr Haines sees himself as a poacher turned gamekeeper. He is wary of the term “digital transformation” as he feels it is overused and can mean many things to different people. However, he says, “if law firms don’t do this [go digital], they will find it hard to keep up”.
A&O was one of the first big firms to invest in a digital legal information business, Aosphere, which has been running since 2001. Via Fuse, A&O’s start-up incubator, the focus of the firm’s digital investment is now on legal technology.
Linklaters, another magic circle firm, also invests in legal tech start-ups. Finance chief Peter Hickman sits on the investment committee, which closely monitors two of their ventures: Nivaura, which focuses on automating processes in capital markets, and another start-up established with the International Securities and Derivatives Association. But this work accounts for only a small part of his role. “The core of the job remains focusing on the firm’s finances and engaging with the partners,” says Mr Hickman.
He is an advocate for greater efficiency and says partners are still too involved in the billing process. The shift to fixed fees may streamline this, but partners often like to have oversight. “If I had a magic wand, I would minimise the role of partners in billing and embed more financial advisory support in the practices,” Mr Hickman says.
Linklaters and others have moved to electronic billing. But Mayank Patel, finance director at Mishcon de Reya, a midsized UK-based law firm, says: “Until lockdown, we were a manual billing firm, on paper. Now we have moved to an electronic process via email.”
For others, going digital is transforming CFOs’ ability to advise the partnership. Reed Smith created a Financial Intelligence Unit in 2019 to provide partners with real-time information via interactive dashboards. It became an essential tool in helping the firm respond to the pandemic, and which Mr McAveeney says had a “snowball” effect in getting the firm to embrace data.
“Our leadership team can now ask complex questions and we can reply about what we know based on experiences across the firm to help inform their decisions,” he adds.
The digital approach is also creating opportunities for the firm’s practice areas to enhance their legal expertise and success for clients. “We will have the data analytics expertise to work with our lawyers and to help assess the probability of successful outcomes in our representations,” says Mr McAveeney.
With evidence at the heart of what lawyers do, if finance chiefs can show partners the power of digital, the shift could have a positive bearing on legal firms’ digital transformations.