The changing role of general counsel in infographic form:
As guardian of the corporate purse-strings, the finance function has long enjoyed a privileged influence on strategic and operational decision-making. But that influence is now being threatened by other executives keen to gain the confidence of the CEO. To investigate this changing dynamic we spoke to Jamie Lyon, Head of Corporate Sector at global accountancy body ACCA. Jamie leads ACCA’s global thought leadership, research and insight programme on the CFO agenda and the future of the finance organisation.
The real skill is about being commercial while making sure the business ticks over day-to-day.
The real skill is about being commercial while making sure the business ticks over day-to-day.
The role of the finance function in changing across the corporate world. The drivers of this change are largely external. “The state of play of the global economy dictates what corporates expect from their finance people,” says Jamie. For example, during the economic downturn, and for a considerable time afterwards, the watchword was survival. This meant the finance function focused on its core responsibilities to control costs, encourage efficiency and maintain cash flow.
Now market sentiment is more buoyant and many mature economies have returned to sustained growth. This different market environment brings with it different expectations on how the finance function can best serve its partners in the rest of the business.
As other corporate functions become more involved in strategic decision-making, the finance team also needs to take on a wider, more commercial role. There is an opportunity for finance professionals to collaborate with departments such as Sales and Marketing to work out which channels to market are most profitable.
So how can the finance department adjust to this new role and remain a trusted business partner to the rest of the executive team? For Jamie Lyon the answer lies in balancing the competing demands of the role: “The real skill is about being commercial while making sure the business ticks over day-to-day.” He shares three important tips:
1. Align the finance function to the KPIs that really drive value
As the corporate agenda switches from efficiency to growth, so too should the priorities of the finance function. “One of the big challenges that corporate finance functions face is aligning their finance work and commercial support to the things that drive real value in the business,” says Jamie Lyon.
This requires a sophisticated understanding not just of the core business activities, but also an appreciation of how value is assessed by the rest of the business. What is it that colleagues in other functions genuinely value? How should this be appropriately measured, tracked and reported? This insight will help the financial team put in place the right KPIs and prioritise efforts on activities that will maximise value-creation.
2. Be open to risk
Taking risks is not a natural element of the typical CFO’s psyche. The training that finance professionals receive is often compliance-focused; it priorities financial controls and rigid assessment of the payback on investment. This leaves little room for taking risks.
However, Jamie’s advice is clear: “Finance teams must be prepared to take calculated risks to seize growth opportunities. They are used to taking a rational and measured approach. With the current business environment still shrouded in uncertainty, this is the right time for many businesses to reassess their risk appetite.”
3. Make the most out of available data
“The balance between financial and non-financial data is becoming more important. Finance professionals have to step up to the mark and accept that there’s a lot of change happening,” says Jamie Lyon. Senior executives want to be able to assess the health of their organisation in the round, and are looking beyond the balance sheet. With increasing frequency, information about other organisational priorities – risk, talent, technology, innovation and customer – are being given equal attention alongside financial data when boards take business decisions.
To be an effective finance leader and business partner means showing willingness to work with and synthesise this range of data, and investing in the systems and processes to do so efficiently. “Finance teams need access to good tools which will allow them to conduct the data synthesis, extrapolation, forecasting, modelling and progression that they require,” says Jamie.
To be an effective finance professional means learning to adapt to the changing expectations of colleagues, and having the right skills, mind-set and confidence to work collaboratively across the business. The rewards for those willing to embrace this new model can be significant: the most commercial finance teams are viewed by their colleagues as facilitators of growth, not policemen of cost. This means they are able to secure a privileged influence over strategic decision-making for years to come.
Research conducted by Meridian West and Financial Times shows financial professionals are perceived by their clients to be less commercial than other advisers. 34% of senior executives say legal professionals are excellent at providing advice that shows commercial insight, compared with just 15% for accountancy and finance professionals.
Why should this be? With their grip on the numbers, financial professionals are close to the heart of any business. Yet external advisers are becoming increasingly specialised – able to give clients a view on the intricacies of transfer pricing in Eastern Europe, say – often at the expense of being able to share a broader, more commercial perspective. Compared with lawyers, accountants are disadvantaged by regulation such as Sarbanes-Oxley, which create barriers (both real and perceived) about offering business advice.
With increasing frequency, information about other organisational priorities – risk, talent, technology, innovation and customer – are being given equal attention alongside financial data when boards take business decisions. External advisers need to respond to this appetite for forward-looking metrics and non-financial KPIs. One way to stay ahead of peers and keep ahead of changing client expectations is to embrace Commerciality.
What is Commerciality?
Commerciality is a much used, but ill-defined, term. Yet the nub of Commerciality is simple: it involves focusing on business outcomes when providing financial information and advice. To do this successfully means understanding the context in which decisions based on that advice will be taken. This is an area where many professionals struggle. Pride in being technically correct can lead to inflexibility. Lack of clarity about desired business outcome can lead to results that don’t quite hit the mark.
Take tax planning: this is an area rife with complexity where technical and specialist knowledge is vital and advantageous. To benefit from tax efficiencies it might make good financial sense to advise a company to operate a foreign subsidiary. However, a solution that is technically sound on paper may in reality throw up many operational challenges such as an increased cost of workforce mobility, and have a negative impact on corporate reputation by not being seen to pay a fair share of tax.
A truly commercial professional balances these competing demands to find a solution that helps an organisation achieve the best possible business outcome. This may require problems to be framed in new ways. In the above example, rather than dive straight to a technical tax-planning solution, it may be possible to achieve the desired outcome – freeing up cash for investment – through means that fewer reputational or operational drawbacks.
Commerciality in practice: seven habits
Commerciality is a mind-set. Yet this does not mean it cannot be taught to new graduates or honed further by experienced professionals. To translate Commerciality into practice it is important to focus on behaviours. Identifying behaviours that frustrate clients, consciously eliminating these and replacing them with more commercial ones through practice and repetition is the best way to ensure lasting improvements are realised.
Based on extensive research among thousands of finance professionals and their clients, Meridian West has developed a framework to help professionals identify, communicate and improve Commerciality. The seven habits of Commerciality framework can be applied by finance professionals to any client engagement, regardless of their area of expertise. [More on the 7 habits]
Virtuous habits in practice: three examples
First: understanding the people. Business is mainly about managing people, relationships and politics. Being aware of individuals, their competing interests and motivations is therefore imperative not only for determining the solution to a given problem, but also how the rationale for that solution is communicated.
For example, one firm spends time creating relationship maps for all of its client engagements mapping out all individuals within their own team and the client team. This includes stakeholders such as the CEO and NEDs, not just the direct members of the finance team they liaise with on a daily basis. It is important to pay close attention to the competing interests and preferences of this wider group of individuals who may have power of veto over any decisions made.
Next: agreeing the scope. When deadlines and resources are tight, it is tempting to launch straight into a piece of work to complete it as quickly as possible. This leaves little time to think through the strategy. The most commercial advisers set goals and metrics about what a successful client engagement looks like, communicating information about desired outcomes, tasks, resource and timelines.
Scoping is critical for external advisers grappling with a move away from traditional ‘time and materials’ pricing to fixed or success-related fees. Having a clear scope of works agreed up front helps accurately price an engagement to avoid writing-off large amounts of work when client needs change.
Lastly: communicating with impact. A common complaint we hear a lot from time-poor executives is that financial reporting is long, technocratic and has to be translated for non-financial audiences. They want information which is easy to understand, quick to assimilate and highlights the key points in complex or contentious issues. Simple changes such as prioritising risks, explaining implications clearly for non-financial audiences and communicating visually make a big difference.
The payoff: why bother with Commerciality?
Meridian West’s Mid-Market Monitor, an annual study of buying behaviour in the audit and advisory market, shows that Commerciality can be a significant differentiator when clients choose which external firms they work with. Being able to articulate knowledge of sector trends, provide foresight on relevant issues, and be proactive on scoping and project management can boost pitch win rates and the profitability of engagements.
One firm that has tackled this challenge head on has reengineered its delivery of pension advice to adopt an approach based on Commerciality principles. In doing so they have been able to virtually eliminate an average 20% write-off in fees for subsequent engagements.
So what next for finance professionals?
The seven habits of Commerciality framework focuses on virtuous habits that have both short-term pay off (greater efficiency or profitability) and long-term benefits (improved competitive positioning). Developing a strategy sheet for an engagement, creating a stakeholder map, or focusing on outcomes need not be a tortuous experience.
Any adviser can benefit from spending just a few minutes being more thoughtful about Commerciality and what this means for their interactions with clients. Small changes matter. At the beginning of an engagement have the courage to ask Commerciality-focussed questions: Who are the key stakeholders? What form of communication is preferred? What kind of solution is being sought? What is the desired outcome? The answers might just surprise you.
[By Alastair Beddow, Associate Director and Ben Kent, Managing Director at Meridian West. A version of this article first appeared in the July issue of ACCA’s Accounting and Business magazine. ACCA is the global body for professional accountants.]
The legal landscape has been changing at an unprecedented rate. The most successful in-house legal departments have managed to take charge of their relationship with law firms and achieve a far more prominent role within the business.
Matthew Whalley joined HSBC Group’s Legal and Compliance team in 2006 as the first non-legal knowledge manager and helped to drive this exact shift.
Mathew’s primary goal at HSBC was to improve the efficiency and quality of the outputs from the in-house team.
His aim was to realise a scenario where “A lawyer, on the phone to a client, would have all the relevant information and context they needed to deliver the best possible advice.”
Here is how he did it:
1. Making better use of law firms’ Professional Service Lawyers and advisory hotlines
One of the panel firms offered a research hotline to HSBC as part of their service. This was extremely valuable. “We estimated that the PSL was ten times faster at finding an answer than an average in-house lawyer. And the analysis they provided was top, top quality.
HSBC therefore persuaded other panel firms to offer similar hotlines. This meant that theburden(and the benefit) could be spread out between all firms on the panel, and HSBC’snon-UK offices could benefit from the same level of service.
2. Tracking the value-add services provided by firms
To improve consistency across the panel, Matthew focussed on evaluating law firms’ value-added services. “We created a value add scoring system. All the firms gave me a standardised quarterly report on what they were delivering”. HSBC then compared the volume of value-addedservices to the fees the firms were charging. The goal was to ensure there was alignment between the two.
The result benefitted HSBC.
We got much better consistency of service across our firms. Our in-house lawyers at all levels became used to turning to panel firms at the earliest appropriate point in a matter. Using the value-add services over an extended period of time definitely helped to cement relationships at a deeper level within the global legal function.
3. Making better use of templates
HSBC suffered from each individual lawyer using their own favourite templates. Matthew and his team improved productivity by locatingthe best templates and making them searchable.
HSBC eventually put thousands of templates onto their system, all accessible through a Google type search function. The result was a huge leap forward in productivity and consistency across the global function. “The offices outside of the key legal hubs in probably got the most benefit. The aim was make sure that our small legal teams could access the same quality templates and resources as our larger hubs.”
What is it? Why now? Why do I need to be commercial? Why do so many people struggle with it? And isn’t it really cross-selling with a fancy new name? These are the type of questions we are regularly asked by our clients when the subject of “Commerciality” comes up.
This article by Ben Kent and Andy Smith tries to answers these questions and looks at: what is commerciality, why do advisers need to be more commercial now and how can that be achieved.
Over the last five years, many law firms have reduced costs by slashing overheads and firing underperforming partners. Despite this, profit margins remain under pressure. Several firms have gone into insolvency and more are in financial distress. The move to fixed fee means law firms are now bearing the cost of inefficiency, which they had previously been able to pass on to clients. The results are painful.
In this context, the case for better project management seems overwhelming. A few firms have developed sophisticated approaches. There has been considerable recent press about major firms, such as Dechert, DLA Piper, Eversheds and Latham & Watkins, implementing project management training and software.
But most firms are struggling to get traction. They are debating what to do, or are struggling to introduce change. So why the slow progress?
The barriers mainly come down to advisers’ mindset. Most partners will buy into the importance of project management as a concept, but are slow to change the way they themselves work. Some see project management techniques as bureaucratic and inappropriate to their highly bespoke work. They are uncomfortable using the new techniques and don’t have the confidence to have frank conversations with the clients about scope (the foundation of good project management). If partners don’t set a visible example, fee-earners won’t follow.
Learning from the accountants – But there is no need to despair. The good news is that the large accountancy firms have already blazed this trail. Law firms would do well to emulate them. Fifteen years ago they started programmes to improve project management, driven by declining margins in audit and tax work, and the switch from hourly rate to fixed fees. Meridian West interviewed the former managing partner of a law firm who acknowledged that “the accountants have got smarter, much smarter than lawyers [at project management]”. Many of the strategies devised by the large accountancy firms can be directly applied to law firms.
What are these strategies?
Develop simple protocols, don’t invest in complex “project management” software / protocols – Be sensitive to the uniqueness of professional services. Prince 2 and various other methodologies and software programmes developed in the corporate world do not apply well. They are too prescriptive, and too complex. There are horror stories of law firms spending a million pounds on advanced project management software which are hardly used. It is better to work with fee-earners to develop a series of straightforward protocols and templates, adapted to their particular practice area eg dispute resolution, commercial contracts, M&A. In effect, rather than teaching lawyers about theoretical ‘project management’, turn the subject around and capture instead best practice ‘matter management’, which is a subject more likely to grab the practitioner’s attention.
Position the strategy as “profitability management” rather than “project management”. Project management is seen as mundane, whereas all partners understand the importance of profit management.
Help partners become financially literate. Partners need to full understand the economics of the law firm and each project. Partners often have a sketchy understanding of the impact of different pricing mechanisms, charge out rates, leverage, and write offs on profit margin.
Provide real-time financial information. In a recent seminar Meridian West ran on project management, two thirds of attendees acknowledged that they were not able to track project profitability in real time. Indeed the issue is often even worse, with practitioners failing to support the preparation of a budget for fixed fee work, and therefore not having a means of accurately appraising performance on a week-by-week basis. This is a serious shortcoming. Unless fee-earners know if a project is becoming unprofitable, they cannot take actions to put it back on track.
Map how your matters are really managed. Process mapping helps you understand how time is really wasted rather than rely on self-evaluation. This involves reviewing the files of a small number of similar matters (eg litigation, acquisition). In short it is a technique to find out how the business operates to deliver a service: what people do, how they do it, how long they take and in what order.
The exercise enables management to understand.
a. How different is the work that is actually done from that which is laid out in internal guidelines?
b. How different is the work that is actually done from what may be considered industry best practice? Both are critical to then following up with an appropriate and effective process improvement programme.
Training and workshops in isolation are usually ineffective, because few fee-earners really know how much time they spend on each task, or indeed are able to accurately describe what actually happens in practice. Attempts have been made to apply wider industry techniques to process mapping (eg Six Sigma), with mixed results. It is important the review is conducted by people with a strong working knowledge of the legal business, and critically the high value activities.
Use process improvement exercises as an opportunity to enhance “added value” as well as cutting cost. Process mapping is an opportunity to enhance the quality and consistency of the client experience. Over the last 2 years Meridian West has surveyed the views of over a thousand clients of law firms. They want lower prices but they also want better consistency of service and more commercial advice. They are telling us that they want better scoping out of the work, more intelligent delegation, better communication, more transparency on process and more commercial advice. The GC of a FTSE 100 company put it bluntly, “If you guys are charging us £500 an hour, it better be perfect.”
So: good project management is an essential survival tool. But more than that, it is also a significant driver for enhancing the client experience. Without it, you have, inadequate scoping (with possible pricing implications) and major risk of not meeting client expectations. Leading firms are developing methodologies and techniques that enable them to deliver a high quality and consistent quality of service. But even good project management will only get you so far.
The final delivery is judged as much on ‘Commerciality’ – a concept which Meridian in West has refined, having undertaken substantial research on the subject. In essence, Commerciality consists of ‘7 Habits‘, driven by a steady focus on the client’s business goals – ie not just delivering a technically brilliant solution. Combining ‘Commerciality’ with good project management can move you into the sweet spot where you are pricing right and delivering well. As the diagram above shows, the alternative positions are uncomfortable and unsustainable for most firms.
by Ben Kent, John Rowley and Andy Smith
As a Commercial Director, I remember with sharp focus, a board strategy development workshop. When looking at the challenges that faced us, one of my colleagues, quite vocally threw on the table that we lacked ‘commercial innovation’. Being the only person in the room with the word commercial in my title all eyes looked to me. The challenge was of course, no one really understood what this mythical thing called ‘commercial innovation’ actually was!
Whilst on that occasion I was the person in the spotlight, it’s a spotlight that can and often does fall on leaders of any function or in house advisors, be that finance, legal, or procurement. And often the focus is around how well aligned are you with the business outcomes and how in tune are you with the clients’ needs.
Whilst from my experience functional teams and in house advisors, in general, are populated with skilled professionals, they often are perceived as support functions rather than key strategic enablers. To change the dial on this what is needed, and often lacking, is evidence of how they understand and deliver in alignment with the business and client desired outcomes.
In my experience a small amount of investment in this area can pay disproportionate returns. The best place to start is probably the simplest, to ask for feedback. What you will often find is this action, whether performed by your team or an independent party, will firstly provide you with a wealth of insights, and secondly often turn the most ardent adversary into a strong advocate. From experience and research, often one of the biggest complaints about in house advisors is that they ‘lack commerciality’. Using the ‘7 habits of a commercial adviser‘ is as relevant to in house advisers as it is to your external advisers and as a framework can help you to understand your internal clients views and aspirations. It can help you develop focused plans and actions which can make your time in the spotlight a more pleasant experience!
In Chinese philosophy the concept of yin-yang is used to describe how seemingly opposite forces in the natural world are interconnected and interdependent.
Commerciality can also be looked at from two perspectives, which whilst not strictly opposing, are equally important and interdependent in order to achieve success. These perspectives are: context; and delivery.
As laid out in our ‘7 habits’, context is about understanding: the client’s desired outcomes; the business; the economics; and the people. It’s about: the why; the where; the who. In an ever increasingly complex and interconnected world there are many options and solutions to even a simple challenge. Understanding as much as possible about the context is critical to being able to filter, and make trade-offs between options.
Delivery, it could be said is what professional advisers have been traditionally about. After all advisers are only as good as the last piece of advice they gave. Delivery is fundamental to success, however, this is where a ‘commercial adviser’ differentiates themselves in the eyes of the client.
Increasingly, clients are looking not just for advice, but ‘actionable advice’ and the way that this is achieved is by providing advice that fits the client’s context.
The art of ‘actionable advice’
‘Commerciality’ is about creating balance between the context and the delivery such that you better understand the context and you adjust the delivery approach to ensure that the advice and the context converge.
Balance, in the context of commerciality, is multi-dimensional, being different for each client, each opportunity, and varying over time during an engagement. Only when professional advisers achieve it in a dynamically stable way are they seen as ‘commercial’.
The ‘7 habits’ provide a framework that helps identify and articulate the context, and then deliver against it in an adaptable way with the balance between the two tailored to your client’s desired profile.
If I asked you and a group of your peers to create a definition of commerciality then it’s likely that after much head scratching the responses would be more questions rather than answers. Like ‘innovation’, or ‘creative’, ‘commerciality’ as a term is fairly amorphous and means different thing to different people and often depends on the context of the moment.
As terms, they’re all aspirational and have positive connotations. It’s therefore not surprising that people and organisations like to proclaim proudly that they are ‘innovative’ or ‘commercial’. In reality though, the real success stories in these areas are acknowledged as such by others rather than themselves.
However, without clarity around what it looks like and feels like to achieve success, it’s difficult to get there and be recognised for it.
In creating the ‘7 habits of a commercial advisor‘ we have used insights from both clients and advisors to create a layered framework that at the top level identifies seven areas that can lead towards success. In order to then link the ‘7 habits‘ to actionable improvements we have identified competencies for each habit, and defined what it means to attain differing levels of maturity in each.
In short we have created a robust, consistent framework that can be applied throughout the life-cycle in order to, for example:
- understand what you client means when they identify ‘commerciality’ in client feedback
- provide a consistent language for conversations with clients and demonstrate that action is taken based on client feedback
- turn client feedback into actionable feedback and measurable improvement plans
- focus, tailor, and measure investment in L&D
- provide a mechanism to help align your firm with your clients such that you’re seen as ‘easy to do business with’
The ‘7 habits‘ framework is simple enough to be memorable, yet deep enough to provide robustness and consistency.