Taking the Lead: A Case for Financial Literacy

IN MY HOME jurisdiction in Canada, the Ontario Ministry of Education recently announced its new health and physical education curriculum—by that, read sex education. This new curriculum begins in first grade with the proper names of body parts and, as the student progresses through higher grades, the information gets more complex. It's designed to arm children with information for a healthy sex life rather than being embarrassed or ashamed about the subject. It raises children's awareness of different lifestyles, some of which may make their parents uncomfortable, and arms students with information that might keep them safe from online predators. Further, it explores social media, from sexting to selfies, and discusses what will ultimately influence how they manage their individual reputations later in life. And by now you are likely thinking, This is an unusual way to begin a column on law firm leadership.

Karen MacKay

by Karen MacKay, MBA, CHIC

law practice issue jan 2015In our law firms the need for financial literacy has never been greater; I am regularly shocked at the lack of financial literacy at many levels. Lawyers at all levels often do not clearly understand the proper names of financial metrics and how they translate to profit in the real world. As lawyers progress through their careers, their financial literacy should change with the complexity of practice, but it often doesn't. Lawyers at all levels see financial metrics as measures of what they are not doing—not docketing, not billing and not collecting enough. They interpret them as things to be embarrassed about. Many lawyers are unable to assess different models of profitable legal services, and senior partners oftentimes are uncomfortable with what information to share with lawyers, and when. As a result, lawyers make partner without the skills and knowledge to adjust their thinking and actions in this new, more competitive environment.

Beginning to see parallels with kids and sex ed? I thought you might.

To explore financial literacy in this short column, let's look to the goals of the sex ed curriculum mentioned above. It starts with four basic themes: the living skills needed to develop resilience and a sense of self, the skills and knowledge needed to participate fully throughout their lives, the movement competence to enable students to succeed, and understanding the factors of personal responsibility in lifelong health. Now let's relate these concepts to a healthy career-long financial literacy.

"As your billable time begins to reflect your growth and development, your sense of professional self begins to have traction."

Financial Skills to Develop Resilience and a Sense of Professional Self

Let us begin with three basic issues here.

First, you must capture time from Day 1, understanding that developing lawyering skills necessarily impacts that time. As your skills develop, less time is written off as learning time. As you become more efficient, your realization rate increases. As your billable time begins to reflect your growth and development, your sense of professional self begins to have traction.

Second, as you continue in your career, you will hear terms such as "timekeeper," "billing lawyer," "matter responsible lawyer," "client responsible lawyer" and so on. What do these terms mean within your firm, and how are they important as you progress professionally?

Third, as a profession, we need to equip more senior lawyers with the knowledge, resources and skills to have cogent and informative financial conversations with younger lawyers that will help build resilience and celebrate progress—and will reinforce positive mentoring relationships and trust.

Skills and Knowledge to Practice Law into the Future

As lawyers progress in their practices, two areas of skill and knowledge are critical so they can participate fully.

The first is an understanding of the levers of profitability at the matter, client and firm level so that lawyers can participate fully in the debates and decisions within the firm.

"skill and knowledge are the building blocks of pricing client work..."

Second, skill and knowledge are the building blocks of pricing client work. Lawyers need to be able to participate fully in discussions and negotiations with clients along the spectrum from traditional models based on hourly rates to less traditional fixed fees, retainer arrangements and value pricing. Absent financial literacy, lawyers may fall victim to predatory pricing they don't understand.

Without the skills and knowledge to participate fully, in both internal and external discussions riddled with financial concepts, you risk losing clients, losing profits and losing your firm. With the skills and knowledge to embrace change, make informed decisions and have the courage to say no, you build confidence and resilience today and tomorrow.

Movement Competence

Increased financial literacy enables lawyers to employ concepts and strategies to strengthen their ability to play the game. Life, practice and business are, at the end of the day, a game. Ask any partner what the rules of the partner compensation game are and this theory will be affirmed.

Key performance indicators (KPIs) take financial literacy to a whole new level. Various data inputs are tracked by a firm and combined to respond to the complexity of the business of the firm. KPIs can be used to track firm performance, people performance, practice performance and partner performance. They must be quantifiable, reflect the firm's goals and be a key to success. By understanding the basic inputs, and understanding how to use them to move the needle of progress in your firm, financial literacy gains traction.

Factors of Personal Responsibility

Sexting to selfies in the sex ed context. Personal responsibility for effective practice management in the professional one. If your firm does not teach you the concepts of financial literacy, educate yourself. Understand the factors that contribute to a healthy professional life, robust client relationships and a healthy, profitable firm. Effectively managing a profitable law practice is not embarrassing but rather enjoyable and fulfilling. Recognize the concepts that you can influence, and take personal responsibility for doing just that. Your professional life, your personal life and your reputation over the life cycle of your career will depend on it.

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This article originally appeared in the November/December 2015 edition of Law Practice magazine, a publication of the American Bar Association. Copyright © Phoenix Legal