Evolution of a Law Firm CFO

The 'Professional' Era

When I began working in the legal industry, the law's status as a profession discouraged most law firms from having a professional management staff. We had only one other non-lawyer professional at the firm: the Administrator. As such, I was forced to wear many different hats that would not typically be included in a Controller's day-to-day responsibilities. For example, at various stages of my early career I directly supported the firm's:

• Technology ' the system we used for time, billing, and accounting functions was the firm's only computer, so I had to become an instant computer expert;
• Operations ' often I was the only person to assist in marketing-related activities; and
• HR ' notably involving benefits.

By challenging me to step out of my Accounting and Finance comfort zone, these responsibilities rounded out my professional development and helped me gain a much better overall understanding of the business of law.

Business Revolution

About halfway through my career at the firm, the legal profession started to take its business aspect much more seriously. Legal industry consolidation took hold, and many law firms began to professionalize their administration to help manage explosive growth. The suite of C-level executives at law firms swelled to six or even more professional non-lawyer managers, rivaling many public companies.

Now called K&L Gates, the midsize firm I started with has grown into one of the world's largest law firms, with 1400 lawyers on three continents. And my CFO position has evolved into something much different than I initially envisioned. Here are just a few of the roles you might find me playing on any given day:

M&A Due Diligence/Strategic Advice. Today's law firm CFO is perhaps the single most important non-lawyer professional critical to the success of any merger, particularly those involving international elements. All aspects of a merger transaction touch on the finance area ' the cost of the deal; managing through different regulatory environments, taxing regimes, and foreign currencies; operational efficiencies; ROI of the deal; etc. The effective CFO must be able to navigate all these areas and will often be called upon to quarterback the deal to conclusion.

Shareholder Relations. A law firm is still a private entity (but for how long? see below), and accordingly there are no SEC or other external reporting requirements. However, a CFO must view the firm's partners as any corporate shareholder-relations officer would view a public company's shareholders. Much information must be shared with a law firm's partners ' why are we expanding into the XXX area? What is the ROI on this investment? What are the financial commitments underlying a new lease for office space? Why are we apparently losing money in office A or Practice Group B? Often I am seen doing a road show to answer these questions more generally for the benefit of all the firm's partners, particularly in the M&A area.

Treasury Management. Cash-based legal accounting may have struck me as unchallenging years ago. But at K&L Gates, we now operate with six different currencies, and the USD has declined to decades-low exchange rates against some of them. Recently in New York City, I attended an executive seminar on the single topic of managing foreign currency risk. Of approximately 50 law firms represented, only a handful had a Treasurer; we hired one earlier this year to focus on firmwide treasury functions and global cash management. (But I felt less special when attendees were polled about having a formal strategy for foreign-currency hedging; only three raised a hand.)

Financial and Strategic Visionary. No longer is it good enough to report last year's or even last month's financial results. Today's CFO must have a keen eye toward the future. Annual budgets are still integral to the job, but more important is a rolling five-year budget that is constantly updated to reflect changing conditions in the marketplace.

Client Facing. Interaction with clients is an increasingly important and critical function for the law firm CFO. Negotiating new fee deals, explaining alternative fee arrangements, implementing matter budgets, justifying billing-rate increases, and responding to RFPs are all important functions that increasingly land on the CFO's desk.

Change Agent. The law firm CFO must constantly bring new best-practice concepts into the firm's day-to-day management. Moreover, the CFO must persuasively communicate the need for such changes to the group most likely to resist ' the partners.

Capital Markets. Law firms going public? Who would have thought this was even a remote possibility a few short years ago. But the UK has removed regulatory roadblocks to public ownership of law firms, and we have now seen the first law firm actually go public, in Australia. Can the United States be far behind? I'm going to dust off my SEC books.

Conclusion

My reservations of 22 years ago proved totally unfounded. After helping my firm successfully manage four office openings and six mergers ' including one of the largest-ever law firm mergers encompassing both domestic and international markets ' I can attest that being a law firm CFO has been a challenging and rewarding career.

Glenn H. Graner is the CFO of Kirkpatrick & Lockhart Preston Gates Ellis LLP (www.klgates.com). Based in Pittsburgh, he can be reached at [email protected] or by phone at 412-355-8272.

Twenty-two years ago, I received a call from a headhunter looking to hire a Controller for Kirkpatrick, Lockhart, Johnson & Hutchison, a midsize and growing law firm with about 150 lawyers.

Since I aspired to be a partner in a CPA firm or a Public Company CFO, the initial telephonic interview left me thinking this opportunity wasn't for me. No SEC or 10-Ks, no Board or Audit Committee meetings, no significant research to conduct: Just how challenging could it be to work for a cash basis business that didn't even require GAAP accounting?

Deciding nevertheless to give Kirkpatrick Lockhart a try, I soon learned that challenges for a law firm financial administrator were not at all in short supply.

The 'Professional' Era

When I began working in the legal industry, the law's status as a profession discouraged most law firms from having a professional management staff. We had only one other non-lawyer professional at the firm: the Administrator. As such, I was forced to wear many different hats that would not typically be included in a Controller's day-to-day responsibilities. For example, at various stages of my early career I directly supported the firm's:

• Technology ' the system we used for time, billing, and accounting functions was the firm's only computer, so I had to become an instant computer expert;
• Operations ' often I was the only person to assist in marketing-related activities; and
• HR ' notably involving benefits.

By challenging me to step out of my Accounting and Finance comfort zone, these responsibilities rounded out my professional development and helped me gain a much better overall understanding of the business of law.

Business Revolution

About halfway through my career at the firm, the legal profession started to take its business aspect much more seriously. Legal industry consolidation took hold, and many law firms began to professionalize their administration to help manage explosive growth. The suite of C-level executives at law firms swelled to six or even more professional non-lawyer managers, rivaling many public companies.

Now called K&L Gates, the midsize firm I started with has grown into one of the world's largest law firms, with 1400 lawyers on three continents. And my CFO position has evolved into something much different than I initially envisioned. Here are just a few of the roles you might find me playing on any given day:

M&A Due Diligence/Strategic Advice. Today's law firm CFO is perhaps the single most important non-lawyer professional critical to the success of any merger, particularly those involving international elements. All aspects of a merger transaction touch on the finance area ' the cost of the deal; managing through different regulatory environments, taxing regimes, and foreign currencies; operational efficiencies; ROI of the deal; etc. The effective CFO must be able to navigate all these areas and will often be called upon to quarterback the deal to conclusion.

Shareholder Relations. A law firm is still a private entity (but for how long? see below), and accordingly there are no SEC or other external reporting requirements. However, a CFO must view the firm's partners as any corporate shareholder-relations officer would view a public company's shareholders. Much information must be shared with a law firm's partners ' why are we expanding into the XXX area? What is the ROI on this investment? What are the financial commitments underlying a new lease for office space? Why are we apparently losing money in office A or Practice Group B? Often I am seen doing a road show to answer these questions more generally for the benefit of all the firm's partners, particularly in the M&A area.

Treasury Management. Cash-based legal accounting may have struck me as unchallenging years ago. But at K&L Gates, we now operate with six different currencies, and the USD has declined to decades-low exchange rates against some of them. Recently in New York City, I attended an executive seminar on the single topic of managing foreign currency risk. Of approximately 50 law firms represented, only a handful had a Treasurer; we hired one earlier this year to focus on firmwide treasury functions and global cash management. (But I felt less special when attendees were polled about having a formal strategy for foreign-currency hedging; only three raised a hand.)

Financial and Strategic Visionary. No longer is it good enough to report last year's or even last month's financial results. Today's CFO must have a keen eye toward the future. Annual budgets are still integral to the job, but more important is a rolling five-year budget that is constantly updated to reflect changing conditions in the marketplace.

Client Facing. Interaction with clients is an increasingly important and critical function for the law firm CFO. Negotiating new fee deals, explaining alternative fee arrangements, implementing matter budgets, justifying billing-rate increases, and responding to RFPs are all important functions that increasingly land on the CFO's desk.

Change Agent. The law firm CFO must constantly bring new best-practice concepts into the firm's day-to-day management. Moreover, the CFO must persuasively communicate the need for such changes to the group most likely to resist ' the partners.

Capital Markets. Law firms going public? Who would have thought this was even a remote possibility a few short years ago. But the UK has removed regulatory roadblocks to public ownership of law firms, and we have now seen the first law firm actually go public, in Australia. Can the United States be far behind? I'm going to dust off my SEC books.

Conclusion

My reservations of 22 years ago proved totally unfounded. After helping my firm successfully manage four office openings and six mergers ' including one of the largest-ever law firm mergers encompassing both domestic and international markets ' I can attest that being a law firm CFO has been a challenging and rewarding career.

Glenn H. Graner is the CFO of Kirkpatrick & Lockhart Preston Gates Ellis LLP (www.klgates.com). Based in Pittsburgh, he can be reached at [email protected] or by phone at 412-355-8272.