The Role of Law Firm Treasurer

Recently, we had the opportunity to spend time with two executives, Jeff Hohner, Treasurer for Kirkland & Ellis, LLP and Rick Nietsch, Treasurer of White & Case LLP. These two men are at the forefront of managing the increasingly complex and global fiscal requirements of today's leading law firms.

It should come as no bold revelation that the financial management requirements of law firms continue to grow more complex. As the demands of comprehensive fiscal management became more intricate, law firm managing partners, CEOs, and CFOs have recognized the importance of bringing corporate expertise and structure to law firm management. Over the past decade, there has been an increasing influx of managers and executives from the corporate world as a result of or in response to the changing business environment in which law firms operate.

Hohner and Nietsch are perfect examples of the trend in law firms to look for executive talent outside the legal industry. Hohner has been with Kirkland & Ellis for a little less than a year, coming to the firm with experience as Treasurer of Arthur Andersen LLP. Nietsch joined White & Case more than two years ago, having served as Treasurer of a $2 billion dollar NYSE manufacturing company.

The inclusion of a treasurer position in the management hierarchy of many law firms is further evidence of the changing leadership of law firms. Historically, many of the tasks and responsibilities now handled by the treasurer were performed in some measure by CFOs or controllers, if at all. Now, due to the continued growth, additional duties and responsibilities have arisen, particularly in regard to growth and international expansion. However, to limit these responsibilities to 'cash management' would be an understatement of the role a treasurer plays in today's law firm. In order to get the inside perspective, we spoke to Hohner and Nietsch and discussed with them topics such as how they see the role of the treasurer in a law firm: challenges they face and how they see their roles changing in the years to come.

The Role of the Treasurer

The specific duties and responsibilities of a treasurer differ from firm to firm, depending on such factors as the size of the firm and/or the global footprint of a given firm. For most treasurers, the roles they fill are often an outgrowth of duties formerly held by the CFO. Hohner indicates the CFO, 'Saw an opportunity to leverage the experience I had gained outside of the law firm industry in treasury and procurement.' Hohner's responsibilities include oversight of treasury functions, procurement, and business insurance. By combining these functions under the treasury umbrella, it facilitates an opportunity to influence two of the prime directives of law firm financial management: 1) control and reduce costs; and 2) mitigate risk to the firm. A treasurer is able to utilize financial acumen to add value to areas not always directly associated with the treasury function.

Nietsch was attracted to the opportunity to 'start up the treasury function and the department.' He spent most of his first six months setting up the department and centralizing the various treasury functions at that time being handled by multiple resources into the domain of the treasurer. His responsibilities further expanded to encompass the billing and collections departments. These are both global operations, and they are distinct, independent departments. The three functional areas within his scope of responsibility are cash treasury operations, billing, and collections. Nietsch describes his overarching responsibility as, 'managing the cash flow timeline.'

Cash and Debt Management

The globalization of law firms brings additional challenges and opportunities for a treasurer. The treasurer will often be responsible for working through the complexities of expansion, including interest rate and exchange risk and the repatriation of excess cash in foreign offices.

Growth also means additional space is required to house the attorneys, the support staff, and facilities. One of Hohner's priorities for 2008 relates to the new building space Kirkland will be occupying; financing new technology; and, 'finding ways to leverage the spend on our new building for the benefit of the entire firm.' Whether it is through the expansion of existing space or the occupation of new space, the financial investment required to develop the space, acquire additional technology, and put in place the myriad support facilities required by a law firm is substantial. Most often this will require financing arrangements, well suited to fall within the treasurer's purview.

Administering capital loan programs is an additional component of the financing function of a law firm. Law firms are very cash-driven, both as tax entities in the United States, as well as the way they operate. While an organization's preference for incurring debt to finance operations and/or capital improvements will differ from firm to firm, the management of debt is integral to a firm's successful fiscal management.

Lease management, both real property and equipment, is another task on some treasurer's lists of responsibilities. This is certainly an area that has both cost and risk associated with it. Next to personnel costs, occupancy costs are usually the greatest area of expense for a law firm. Hohner indicates that one of the priorities identified for him prior to his joining the firm would be to support the Real Estate group as it looks to lease additional office space as the firm expands.

Risk Management

Law firms tend to be conservative, and as such have a low tolerance for risk. Therefore, risk management is an essential element in the role of a treasurer. Unlike other business corporations, law firm risk management has two major components. From a financial viewpoint, risk management centers on mitigating financial risk, from contracts with vendors, financing of major projects and acquisitions, monitoring cash flow, interest rate risks, and managing currency risks in foreign exchange. Some firms now are more aggressive in their investment strategies for excess cash than in years past. Monitoring the credit markets for interest rates and spreads, even interest rate risk management may all be part of the treasurer's responsibilities. As an example, Nietsch worked with one of his financial services providers to lock in a favorable long-term interest rate on the firm's term debt through an interest rate swap. This is an example of the type of opportunity brought to the legal industry by treasurers with outside experience.

The other element of risk management present in a law firm is primarily associated with client and matter management, with an emphasis on conflicts of interest and other Bar-related concerns. One treasurer we spoke with indicated that in his firm, the internal audit process was as much designed around these client-related concerns as with any internal control issues or auditing of the firm's books. As mentioned earlier, growth and expansion play an important role in all of these risks. Mergers, acquisitions, and lateral movement of attorneys, both to and from a firm, produce additional complexities to risk management, both financial and client-oriented.

Another risk management-related responsibility held by treasurers in many firms is managing the firm's business insurance. This goes hand-in-hand with lease and financing management, as a law firm's business insurance primarily focuses on property loss and business interruption. Professional liability insurance, due to its specific nature, is less likely to be the responsibility of the treasurer or even the CFO, in many firms.

Strategic Sourcing and Procurement

In Hohner's case, his background in strategic sourcing and purchasing, combined with his financial skills and experience, lent itself perfectly to overseeing the procurement function within his firm. The sourcing and procurement process is one important function where more law firms are implementing formal strategic procedures and as a result, are recognizing significant financial benefits. This responsibility includes such tasks as negotiating with vendors and performing lease vs. buy analysis on capital acquisitions.

Nietsch has also been instrumental in directing the firm's focus on sourcing and procurement. As a result of a review performed by outside consultants who identified substantial potential savings, White & Case has established an in-house global procurement department. This department has a full-time manager and, while it does not fall under the treasurer's umbrella, the team is available to assist with analysis as required.

Cash management, cash flow forecasting, and other treasury functions are universally inherent duties and responsibilities of a treasurer, but as these aforementioned responsibilities imply, the role covers much more territory. These are all elements that are now part of and expected in the role of the treasurer in many law firms.

Operating in the Legal Environment

Another topic discussed was the difference between the corporate and the law firm environments. In most cases, the roles and skill sets required are not dramatically different; however, there are several ways in which the environments significantly differ. A major difference, highlighted by both of our treasurers, and something that, for them, added a layer of complexity is the direct relationship with partner owners of the firm. Working with multiple constituencies, from individual partners to the various governance committees, presents a unique environment. 'An interesting aspect of professional service firms is the sometimes blurred line drawn between 'firm' and 'partner' level of service,' says Hohner. 'Adapting to this difference between law firms and the corporate environment, and managing these internal relationships is important.'

From a strategic standpoint, law firms operate differently from corporations on several other fronts. For law firms, the investment horizons are typically shorter, with a different focus. As an example, Nietsch notes, 'While a manufacturing concern might be looking at investing in a new plant or facility with an extended investment timeline, a law firm may be more concerned with developing certain practice areas or establishing an office in a strategic geographic area.' Further, Hohner adds, 'An important aspect that is different is the partner distribution schedule and how that impacts our cash flow management and investment decisions.'

Nietsch also expects to see more of a 'dashboard' approach, with enhanced software tools that allow an even greater use of performance metrics, as the treasurer position continues to evolve. For example, Nietsch is currently reviewing new software tools that will provide more robust metrics with a more proactive delivery of this data to the people responsible for acting on the information.

With the advent of Sarbanes-Oxley, many large firms have implemented some of the procedures prescribed in the law. Although not governed by Sarbanes-Oxley, both Nietsch and Hohner note that many of its provisions make sound business sense and have become a part of the risk management process employed by many firms. In addition, firms have taken a more rigorous approach to internal audit, in many cases adding it as a separate department, under the treasurer's umbrella. Just as most law firms of a certain size have annual audits conducted by outside CPA firms, even though they are not required by law, (Note: in some cases, both internal and external audits may be required by a firm's bank) implementation of internal auditors and adherence to provisions of Sarbanes-Oxley reflect a more corporate approach taken by many law firms.

Non-Financial Activities

As expected, most of the duties and responsibilities of the treasurer are financial in nature. However, there are some instances where there is involvement in non-financial activities. Working with the marketing department or determining ways to make better use of the firm's global network are a couple of such activities. As an example of the ways a treasurer can contribute, White & Case has a professional skills institute to which Nietsch has been a key contributor.

Banking

The relationships between bankers and lawyers are more than just that of bank and customer, lender, and borrower. Many of these relationships are predicated on business development and client referrals. Banks and bankers may also be clients of the firm. There is give-and-take with portioning out business to keep bankers happy. The treasurer plays a role in these relationships, but the primary focus is on managing financial service institution priorities.

While most major banks have groups or departments dedicated to serving professional services firms, one further element of responsibility is to ensure that bankers understand the role of the treasurer in a law firm, and continue to bring the services and tools required for the treasurer to maximize his or her effectiveness. Nietsch also states that 'many banks are pleased to be able to work with a treasurer who understands banking issues as well as their law firm issues.' As such, many of the tools commonly used by corporations are being introduced to law firms through the treasurers. For example, Nietsch is contemplating utilizing a Treasury Workstation, now that prices have dropped for these types of tools.

Many banks have groups focused on serving law firms, and it is a growing niche to which banks are paying more attention. These niche-focused groups can be dedicated to solving challenges of law firms and their partners. From the perspective of the treasurer, as these groups continue to mature and stay abreast of the changing nature of the law firm business environment, they will become more proactive in servicing law firms. The groups must recognize firms are becoming more sophisticated in their financial management practices, and the expectation is they will work with law firm treasurers to bring solutions to the challenges and opportunities presented.

We expect tools that are available to corporations ' more online cash management capabilities, electronic loan payments, and other tools and services ' will continue to advance to meet the growing requirements of law firms.

Challenges for the Future

Just as law firms continue to grow and change, the role of a law firm's treasurer must continue to evolve in order to meet the challenges and opportunities that lie ahead. A clear challenge for a treasurer is to not only remain flexible and adapt to the firm's strategic initiatives, but to also play a role in the formulation of strategy. Firms will continue to grow in size and expand both domestically and internationally. The role of the treasurer in a law firm must continue to evolve to meet both the challenges and opportunities that lie ahead. It was obvious from our vantage point that both Hohner and Nietsch have brought new ideas and insights to their respective law firms and that the impact of the treasurer in a law firm will be increasingly important, bringing significant value to the law firm and its partners.

John Hutchinson, a member of this newsletter's Board of Editors, is a Managing Director with Huron Consulting Group's Legal Consulting Practice. He can be reached at 312-880-3242 or [email protected]. Bill O'Connell is a Certified Public Accountant who specializes in helping law firms optimize operations. He can be contacted at 240-994-2223 or [email protected].

Recently, we had the opportunity to spend time with two executives, Jeff Hohner, Treasurer for Kirkland & Ellis, LLP and Rick Nietsch, Treasurer of White & Case LLP. These two men are at the forefront of managing the increasingly complex and global fiscal requirements of today's leading law firms.

It should come as no bold revelation that the financial management requirements of law firms continue to grow more complex. As the demands of comprehensive fiscal management became more intricate, law firm managing partners, CEOs, and CFOs have recognized the importance of bringing corporate expertise and structure to law firm management. Over the past decade, there has been an increasing influx of managers and executives from the corporate world as a result of or in response to the changing business environment in which law firms operate.

Hohner and Nietsch are perfect examples of the trend in law firms to look for executive talent outside the legal industry. Hohner has been with Kirkland & Ellis for a little less than a year, coming to the firm with experience as Treasurer of Arthur Andersen LLP. Nietsch joined White & Case more than two years ago, having served as Treasurer of a $2 billion dollar NYSE manufacturing company.

The inclusion of a treasurer position in the management hierarchy of many law firms is further evidence of the changing leadership of law firms. Historically, many of the tasks and responsibilities now handled by the treasurer were performed in some measure by CFOs or controllers, if at all. Now, due to the continued growth, additional duties and responsibilities have arisen, particularly in regard to growth and international expansion. However, to limit these responsibilities to 'cash management' would be an understatement of the role a treasurer plays in today's law firm. In order to get the inside perspective, we spoke to Hohner and Nietsch and discussed with them topics such as how they see the role of the treasurer in a law firm: challenges they face and how they see their roles changing in the years to come.

The Role of the Treasurer

The specific duties and responsibilities of a treasurer differ from firm to firm, depending on such factors as the size of the firm and/or the global footprint of a given firm. For most treasurers, the roles they fill are often an outgrowth of duties formerly held by the CFO. Hohner indicates the CFO, 'Saw an opportunity to leverage the experience I had gained outside of the law firm industry in treasury and procurement.' Hohner's responsibilities include oversight of treasury functions, procurement, and business insurance. By combining these functions under the treasury umbrella, it facilitates an opportunity to influence two of the prime directives of law firm financial management: 1) control and reduce costs; and 2) mitigate risk to the firm. A treasurer is able to utilize financial acumen to add value to areas not always directly associated with the treasury function.

Nietsch was attracted to the opportunity to 'start up the treasury function and the department.' He spent most of his first six months setting up the department and centralizing the various treasury functions at that time being handled by multiple resources into the domain of the treasurer. His responsibilities further expanded to encompass the billing and collections departments. These are both global operations, and they are distinct, independent departments. The three functional areas within his scope of responsibility are cash treasury operations, billing, and collections. Nietsch describes his overarching responsibility as, 'managing the cash flow timeline.'

Cash and Debt Management

The globalization of law firms brings additional challenges and opportunities for a treasurer. The treasurer will often be responsible for working through the complexities of expansion, including interest rate and exchange risk and the repatriation of excess cash in foreign offices.

Growth also means additional space is required to house the attorneys, the support staff, and facilities. One of Hohner's priorities for 2008 relates to the new building space Kirkland will be occupying; financing new technology; and, 'finding ways to leverage the spend on our new building for the benefit of the entire firm.' Whether it is through the expansion of existing space or the occupation of new space, the financial investment required to develop the space, acquire additional technology, and put in place the myriad support facilities required by a law firm is substantial. Most often this will require financing arrangements, well suited to fall within the treasurer's purview.

Administering capital loan programs is an additional component of the financing function of a law firm. Law firms are very cash-driven, both as tax entities in the United States, as well as the way they operate. While an organization's preference for incurring debt to finance operations and/or capital improvements will differ from firm to firm, the management of debt is integral to a firm's successful fiscal management.

Lease management, both real property and equipment, is another task on some treasurer's lists of responsibilities. This is certainly an area that has both cost and risk associated with it. Next to personnel costs, occupancy costs are usually the greatest area of expense for a law firm. Hohner indicates that one of the priorities identified for him prior to his joining the firm would be to support the Real Estate group as it looks to lease additional office space as the firm expands.

Risk Management

Law firms tend to be conservative, and as such have a low tolerance for risk. Therefore, risk management is an essential element in the role of a treasurer. Unlike other business corporations, law firm risk management has two major components. From a financial viewpoint, risk management centers on mitigating financial risk, from contracts with vendors, financing of major projects and acquisitions, monitoring cash flow, interest rate risks, and managing currency risks in foreign exchange. Some firms now are more aggressive in their investment strategies for excess cash than in years past. Monitoring the credit markets for interest rates and spreads, even interest rate risk management may all be part of the treasurer's responsibilities. As an example, Nietsch worked with one of his financial services providers to lock in a favorable long-term interest rate on the firm's term debt through an interest rate swap. This is an example of the type of opportunity brought to the legal industry by treasurers with outside experience.

The other element of risk management present in a law firm is primarily associated with client and matter management, with an emphasis on conflicts of interest and other Bar-related concerns. One treasurer we spoke with indicated that in his firm, the internal audit process was as much designed around these client-related concerns as with any internal control issues or auditing of the firm's books. As mentioned earlier, growth and expansion play an important role in all of these risks. Mergers, acquisitions, and lateral movement of attorneys, both to and from a firm, produce additional complexities to risk management, both financial and client-oriented.

Another risk management-related responsibility held by treasurers in many firms is managing the firm's business insurance. This goes hand-in-hand with lease and financing management, as a law firm's business insurance primarily focuses on property loss and business interruption. Professional liability insurance, due to its specific nature, is less likely to be the responsibility of the treasurer or even the CFO, in many firms.

Strategic Sourcing and Procurement

In Hohner's case, his background in strategic sourcing and purchasing, combined with his financial skills and experience, lent itself perfectly to overseeing the procurement function within his firm. The sourcing and procurement process is one important function where more law firms are implementing formal strategic procedures and as a result, are recognizing significant financial benefits. This responsibility includes such tasks as negotiating with vendors and performing lease vs. buy analysis on capital acquisitions.

Nietsch has also been instrumental in directing the firm's focus on sourcing and procurement. As a result of a review performed by outside consultants who identified substantial potential savings, White & Case has established an in-house global procurement department. This department has a full-time manager and, while it does not fall under the treasurer's umbrella, the team is available to assist with analysis as required.

Cash management, cash flow forecasting, and other treasury functions are universally inherent duties and responsibilities of a treasurer, but as these aforementioned responsibilities imply, the role covers much more territory. These are all elements that are now part of and expected in the role of the treasurer in many law firms.

Operating in the Legal Environment

Another topic discussed was the difference between the corporate and the law firm environments. In most cases, the roles and skill sets required are not dramatically different; however, there are several ways in which the environments significantly differ. A major difference, highlighted by both of our treasurers, and something that, for them, added a layer of complexity is the direct relationship with partner owners of the firm. Working with multiple constituencies, from individual partners to the various governance committees, presents a unique environment. 'An interesting aspect of professional service firms is the sometimes blurred line drawn between 'firm' and 'partner' level of service,' says Hohner. 'Adapting to this difference between law firms and the corporate environment, and managing these internal relationships is important.'

From a strategic standpoint, law firms operate differently from corporations on several other fronts. For law firms, the investment horizons are typically shorter, with a different focus. As an example, Nietsch notes, 'While a manufacturing concern might be looking at investing in a new plant or facility with an extended investment timeline, a law firm may be more concerned with developing certain practice areas or establishing an office in a strategic geographic area.' Further, Hohner adds, 'An important aspect that is different is the partner distribution schedule and how that impacts our cash flow management and investment decisions.'

Nietsch also expects to see more of a 'dashboard' approach, with enhanced software tools that allow an even greater use of performance metrics, as the treasurer position continues to evolve. For example, Nietsch is currently reviewing new software tools that will provide more robust metrics with a more proactive delivery of this data to the people responsible for acting on the information.

With the advent of Sarbanes-Oxley, many large firms have implemented some of the procedures prescribed in the law. Although not governed by Sarbanes-Oxley, both Nietsch and Hohner note that many of its provisions make sound business sense and have become a part of the risk management process employed by many firms. In addition, firms have taken a more rigorous approach to internal audit, in many cases adding it as a separate department, under the treasurer's umbrella. Just as most law firms of a certain size have annual audits conducted by outside CPA firms, even though they are not required by law, (Note: in some cases, both internal and external audits may be required by a firm's bank) implementation of internal auditors and adherence to provisions of Sarbanes-Oxley reflect a more corporate approach taken by many law firms.

Non-Financial Activities

As expected, most of the duties and responsibilities of the treasurer are financial in nature. However, there are some instances where there is involvement in non-financial activities. Working with the marketing department or determining ways to make better use of the firm's global network are a couple of such activities. As an example of the ways a treasurer can contribute, White & Case has a professional skills institute to which Nietsch has been a key contributor.

Banking

The relationships between bankers and lawyers are more than just that of bank and customer, lender, and borrower. Many of these relationships are predicated on business development and client referrals. Banks and bankers may also be clients of the firm. There is give-and-take with portioning out business to keep bankers happy. The treasurer plays a role in these relationships, but the primary focus is on managing financial service institution priorities.

While most major banks have groups or departments dedicated to serving professional services firms, one further element of responsibility is to ensure that bankers understand the role of the treasurer in a law firm, and continue to bring the services and tools required for the treasurer to maximize his or her effectiveness. Nietsch also states that 'many banks are pleased to be able to work with a treasurer who understands banking issues as well as their law firm issues.' As such, many of the tools commonly used by corporations are being introduced to law firms through the treasurers. For example, Nietsch is contemplating utilizing a Treasury Workstation, now that prices have dropped for these types of tools.

Many banks have groups focused on serving law firms, and it is a growing niche to which banks are paying more attention. These niche-focused groups can be dedicated to solving challenges of law firms and their partners. From the perspective of the treasurer, as these groups continue to mature and stay abreast of the changing nature of the law firm business environment, they will become more proactive in servicing law firms. The groups must recognize firms are becoming more sophisticated in their financial management practices, and the expectation is they will work with law firm treasurers to bring solutions to the challenges and opportunities presented.

We expect tools that are available to corporations ' more online cash management capabilities, electronic loan payments, and other tools and services ' will continue to advance to meet the growing requirements of law firms.

Challenges for the Future

Just as law firms continue to grow and change, the role of a law firm's treasurer must continue to evolve in order to meet the challenges and opportunities that lie ahead. A clear challenge for a treasurer is to not only remain flexible and adapt to the firm's strategic initiatives, but to also play a role in the formulation of strategy. Firms will continue to grow in size and expand both domestically and internationally. The role of the treasurer in a law firm must continue to evolve to meet both the challenges and opportunities that lie ahead. It was obvious from our vantage point that both Hohner and Nietsch have brought new ideas and insights to their respective law firms and that the impact of the treasurer in a law firm will be increasingly important, bringing significant value to the law firm and its partners.

John Hutchinson, a member of this newsletter's Board of Editors, is a Managing Director with Huron Consulting Group's Legal Consulting Practice. He can be reached at 312-880-3242 or [email protected]. Bill O'Connell is a Certified Public Accountant who specializes in helping law firms optimize operations. He can be contacted at 240-994-2223 or [email protected].