Why an advisory board could give your law firm a strategic edge
Using an advisory board to help improve the operations of law firms makes sense, but careful consideration must be given to how they are structured and the board members you choose, writes Peter Ellender.
Partners of law firms run their business; they are, after all, the owners of the business, the shareholders, the stakeholders and the main drivers of their firm.
In the case of large firms with many partners, a management structure is typically put in place either with a managing partner, a chief executive partner or chief operating officer and a group of practice heads delegated to make operational decisions as an executive committee on behalf of the whole partnership. Strategic decisions may also be delegated to this group, which typically consists of senior partners and those with a particular interest in the overall firm, rather than just their own practice area.
One of the drivers of becoming a partner of a law firm is to be able to run the firm the way you want it to be run and to make the decisions about strategy and direction, although the operational issues also still have to be dealt with. But who is going to review and advise on a proposed lease renewal, or provide governance when canvassing the suppliers for the most suitable IT platform, or whether to take over or merge with another firm?
Just as law firm partners encourage their clients to seek involvement and counsel from their lawyers and experts, why would the collective group of partners not seek to use the skills and capability of external advisers when it comes to running their business?
The use of an advisory board can be of great value to firms of any size, but particularly those with more than eight partners. However, the introduction and adoption of such an initiative requires a degree of maturity and planning to get the best out of the board. Smaller firms which do not choose to use a formal advisory board often co-opt mentors or consultants to assist with some of the firm’s strategic moves.
An advisory board can be defined as a body that provides non-binding strategic advice to the management of a corporation, organisation, foundation or, in this case, a law firm partnership. The informal nature of an advisory board gives it greater flexibility in structure and management compared with, say, the board of directors of an ASX-listed company that consists of elected members who are representatives of the shareholders.
What is their role?
The role of board members may differ from firm to firm and depending on where a firm stands in its life cycle. However, there are some fundamental characteristics that an advisory board should have, with a core one being the ability to provide independent information and advice to partners on strategic initiatives and risks confronting the business.
Independence is a key element to setting up a successful advisory board. Invited members should have the freedom to ‘tell it how they see it’ and not be inhibited by longstanding relationships with other board participants and vested interests. Selecting the right members to join a board is, therefore, a critical element to gaining value from the exercise.
Who should you choose?
It is beneficial for advisory board members to have a good appreciation of professional services and, if possible, be users of legal services, but it is not recommended that they be lawyers themselves; in fact, this should be avoided. The value of independent thinking, alternative experiences and capabilities is what adds increased benefits from the relationship, so inviting members of the family or extended family to participate as board members is also not recommended.
The board structure is as important for a law firm advisory board as it is for an ASX-listed company. There is value in having a board composition with differing skills-sets and experience to leverage greater value. At different times in the development of a firm, the skills needed on the board might change, such as having expertise in finance available when looking to refinance core debt, or perhaps in business development when looking to expand the client base.
Qualities to target
There are some other qualities that are important, other than independence and their expertise, when it comes to selecting advisory board members. Importantly, there should be a connection with the firm and a shared commitment to the success and development of the firm that takes it in the direction that the stakeholders have set.
This infers a mutual respect, trust and belief in the people involved both at the board level and across the partnership. Ideally, they will be successful people in their own right and confident of their own standing, such that they can make a strong contribution even if their advice is not ultimately implemented.
As board members will be exposed to the inner workings of a firm, including some of its key issues and road bumps, there is a need to be entirely comfortable in sharing inner-sanctum-type matters with them in order to seek advice; this is where the personal trust factor is paramount as the board meetings must be a ‘safe’ place to discuss significant items.
How many do you need?
It may be tempting to extend board numbers to accommodate those who want to be on the board, but for most organisations five participants is preferable, six maximum, with two external independent members. Large boards covering a range of disciplines can seem to be beneficial, but a small efficient board is more effective and, if needed, others can be co-opted for discrete projects as required.
Communication of the items being considered at board meetings to the other partners is important; after all, the partners have delegated responsibility for the firm’s operations to the board. There is no suggestion that the board meetings should displace partners’ meetings; rather that such meetings are directed towards other elements of the practice such as client service and staff development.
Governance – a major benefit
Governance is one of the key benefits to be gained from a well-constituted advisory board. It provides discipline and oversight to major decisions, including investments, whether they are related to assets, investment in human resources, or undertaking a merger or acquisition.
Governance may be in the form of ensuring that a range of possible solutions are tested prior to making a decision, or that the appropriate level of due diligence has been carried out when making a significant investment; for example, in merging with another practice or even when selecting the next practice management system to install. The discipline of having ideas and proposals tested is a good one and can provide a catalyst for improving decision-making and managing risk.
Regular meetings of an advisory board provide pivotal points for the review of a firm’s performance and act to establish a discipline of setting time aside to work ‘on the business’ rather than ‘in the business’. Setting up eight to 10 meetings a year at least six months in advance locks in time that is committed by those on the advisory board. It also provides the discipline of having deadlines; times by which financial reports must be completed or capital proposals are prepared for consideration.
The allocation of time to carry out these types of reviews is often skipped or missed in firms which operate in a more ad hoc manner. The mere fact that a board meeting is forthcoming presents a deadline by which proposals and critical thinking must be crystallised to enable the meeting to consider the options and recommendations presented.
What about remuneration?
If you are asking highly experienced professionals to give up their time and provide you with their insights and knowledge, then remunerating them reasonably is a must. However, you are not asking them to take on the responsibilities of an ASX-listed company, so the rate paid should reflect an equivalent level that a partner of the firm would charge for the same investment of time.
Advisory board members would typically not be required to spend a great deal of time outside the meetings, other than reading the papers and attending the occasional additional strategic workshop. Remunerating board members in this way will also ensure the time spent at meetings is reasonable – with meetings lasting about 1.5 hours and being kept relevant and on topic. It also adds weight to the process of prior preparation and the circulation of board papers.
A smart way to approach the operation of an advisory board in a larger law firm is to invite members of the wider partnership to attend as rotational members of the board. Typically, a two-year appointment is used to gain the best from a rotational member of the board, given the time it takes for them to get comfortable with the role and then to be able to make meaningful contributions to the discussions.
This exposure provides a much broader view of a firm’s operations and, therefore, the type of strategic decisions that are considered is extremely valuable and moves partners from not only considering their own practice area or group but towards a broader perspective.
To this end, such an approach can also be considered as a positive step in succession planning, whereby up-and-coming partners are exposed to a leadership role that they may well be taking on in a future term. Similarly, from the firm’s perspective, it is also an opportunity to see which of those potential partners actually has the aptitude, motivation and ability to take on the stewardship of the firm in the long term.
Are you ready for it?
Establishing an advisory board can be extremely beneficial to a law firm. It provides an independent perspective when tackling strategic items and lets the business tap into the expertise and experience of respected board members who can add value to the firm. Selecting the right candidates for the role of advisory board members – those who have an aligned culture and value set – will ensure the best outcomes, but first of all firms must have the maturity and openness to accept advice from an outsider.
Dr Peter Ellender is the chief executive officer of Carter Newell Lawyers, an award-winning law firm based in Brisbane that provides legal advice to Australian and international corporate clients.