Jean-Yves Gilg

Editor, Solicitors Journal

Financial management, risk, compliance, and success

Financial management, risk, compliance, and success


Eric Fletcher discusses the relationship between these key factors and their importance in managing and coaching staff and creating a framework for progress

I recently held a seminar
at Legalex to explore the link between financial management, risk, compliance, and success. One of the questions I asked was whether the key to success was ABC
or 123.

Lawyers like ABC, the letters. Accountants like 123, the numbers. Most of the time these two diverse sets of individuals stay in their own comfort zones. Then we have the managers, the risk and compliance people. How does it all fit together?

How much understanding of each do you need to make your firm successful and where is the crossover in the disciplines? At what point of growth do you need specialists in non-fee-earning disciplines or should you just divide the burden among fee-earning staff? Should you train your existing or prospective partners in areas outside their own expertise, and if so, on what should they be trained, to what extent, and
by whom?

Strategy for success

A short definition of success would be to achieve a defined outcome. Hopefully your firm has a strategy with defined outcomes.

General management is
a complete responsibility, including profit and loss accountability, for the performance of a business.
The manager has to have many skills, including leadership, organisational skills, and good judgement. But if this manager has responsibility and accountability, how do we choose them or measure their success? How long should a law firm keep a manager in post? How does partners' tenure compare to other industries?Risk management

There are many kinds of risk
area. For a law firm, risk is the potential of gaining or losing something of value from a given action or inaction, foreseen or unforeseen, and taking on risk
is the intentional interaction with uncertainty. There is a relationship between risk
and reward.

In general, compliance means conforming to a policy, standard, or law. Solicitors are burdened with the law firm-specific rules like the Solicitors Regulation Authority (SRA) Handbook and Accounts Rules, as well as the Data Protection Act, the Proceeds of Crime Act, the Money Laundering Regulations, and many more. It is the cost of entry to the profession - the golden ticket that allows a solicitor to charge for providing a service at a premium price.

The outcomes in chapter 7 of the SRA Code of Conduct state that you must comply with your legal and regulatory obligations; run your business or carry out your role in accordance with proper governance; have effective systems and controls to comply with the SRA Handbook; and identify, monitor, and manage compliance risks.

But remember that outcomes-focused regulation is not a tick-box approach. I emphasise this because I have seen too many good firms which thought just that, and it has not ended well. These were profitable firms that had all the quality marks, the manuals, the risk registers, the clean accountants' reports, and the compliance people.
But none of these dealt with
the major issues - sometimes systematic failures - that caused the real problems, and in some cases those firms are unfortunately no longer in business. Financial management

Financial management refers
to the efficient and effective management of money to accomplish the objectives of the organisation. Sharing financial information and ensuring that the stakeholders understand it and can challenge it is an important part of risk management. Key decision makers need to know what to look for in financial statements and internal accounting systems. On a broad view, some of the main issues to understand
are the difference between
profit and cash; gearing and capitalisation; how to unearth and deal with hidden problems; and how to capture value.

Financial management and the right systems and controls link into a compliance culture, where sensible questions are asked. Who are we acting for? How do we get paid? When do we get paid? What expertise is required? How do we resource this? What are the associated risks? What are the costs of those risks? Then, once you have management systems and controls that are designed
to ensure the firm works as a team, you may start to ask: does everyone know their role? Does everyone know who their boss is? Does everyone understand the objectives of the firm? Does everyone share clients with colleagues? Does everyone understand the internal rules or are some people ignoring them and doing their own thing? Do
I really know what is going on?

Think about getting the systems and controls right while training that very precious resource called people. Talent needs to be coached and managed in a compliant framework for success.

Eric Fletcher is compliance consultant at Symphony Legal @symphony_legal