In the years before the financial crisis, being a CFO of a law firm was (for the large part) about crunching numbers. With an hourly rate structure, it wasn’t as complex as some industries and for the large part CFOs supported strategic decisions rather than made them. However, an increasingly competitive market post-crash, and a change in perspective on firm billing has moved the goalposts. CFOs now must design financial strategies to make the business more competitive, understand new fee structures and ensure they are sustainable. Technology, more than ever, is essential to supporting and informing them. Welcome to the new generation of legal CFOs.
Obviously, the modern CFO still needs to be able to complete their traditional functions – financial modelling, processing transactions and budgeting. However, new regulatory barriers and a change in the lawyer/client relationship is adding to their workload. But why? During the economic downturn, the legal market because increasingly competitive. More work stayed in-house for budget reasons and clients themselves demanded increasing transparency about the work being done for them.
Not only did this push firms towards an increasing use of fee arrangements, but it also caused them to work more efficiently. And this change in structure had a knock on effect for the CFO. Increasingly complex financial arrangements and a call for strategy ideas to streamline processes. According to Tony Climas of EY, CFOs found themselves in a new role, being shaped by:
Risk and uncertainty
Stakeholders’ scrutiny and regulationTony Climas, Ernst & Young
In all aspects CFOs are changing traditional processes, full of office heavy work, to forming a bridge between technology and people in support of the business.
How is technology helping?
While many standard finance processes are being automated, technology is also supporting CFOs in their new broader roles. Technology gives a better grip on data, which gives a more accurate picture of how the firm is doing in the new age of fixed fees.
Leading CFOs can become change agents within their firms by championing the implementation of transformative technologiesKevin Gold, Managing Partner at Michon de Reya
Furthermore, technology and data insights can support better decisions which in turn reduces the pressure of uncertainty hanging over many firms. Clocktimizer works with CFOs to support many of these key goals. By using Clocktimizer to build fee quotes based in data (and keeping budgets on track in real time) firms are reducing financial uncertainty. CFOs can also use Clocktimizer to look at the financial implications of new technology. Comparing new and old processes to see if they are faster or more profitable after the introduction of a new tool. This reduces the barrier to entry to new technology for many firms by enabling low cost tests before committing to a firm wide roll out.
Seeing the bigger picture
Law firm management structures are much more interconnected than they have ever been. Not least because the challenges firms are facing require collaboration on a number of different fronts. Changing client requirements, increased understanding of business needs, shifts in technology. These are things to be tackled together. CFOs are no stranger to this. The modern CFO must straddle both small financial details and large shifts in the ways firms work.
CFOs are now embracing the power of data to increase competitiveness. And it’s working. At a time when AM Law is seeing its worst collection rates in years, increasing operational efficiency is essential.
Another interesting dynamic described was the contrast between billed rates and collected rates. Since 2008, billed rates have increased 21%, while collected rates, the money actually paid for legal services has increased at a lesser rate of 16%. For large law firms, the collected rate is even worse, with the AmLaw 100 notching a collected rate of just north of 81% of standard rates.Legal Executive Institute
Addressing these issues puts CFOs front and center. And identifying new efficiencies through data streams is key to remaining competitive.
Its a collaboration not a competition
There is much discussion in legal media about ‘disruptive technologies’ replacing much of the work done by CFOs. However, we think that this is an extreme exaggeration. What we do see is an evolution of the work CFOs, and indeed all legal professionals, are doing. The modern CFO now must balance technology, and the benefits it brings, with people management and strategy. The role of CFO is more than just number crunching. It is about understanding how the firm works, and how to improve these processes. About understanding client needs and evolving how they are met. It is about forming a connection between data and people. Lets just hope the new generation of CFOs also have enough time to kick back and enjoy themselves!