With results season in full swing, crude revenue numbers don’t tell us much about a law firm’s performance.
‘Sales are for vanity, profits for sanity.’
So said Asda chief Andy Clarke this week, explaining his willingness to take tough short-term decisions that will help the bottom line later.
No one knows who coined this particular apothegm (which has a third leg – ‘cash is king’), but it has obvious relevance for law firms. As a former business hack, I am bemused by the tendency of some legal titles to hyperventilate when they are fed annual revenue figures by law firms that don’t want to disclose how much money they actually make (the important bit).
Income doesn’t tell you much about how a practice is performing. The firm might have employed dozens more staff since the last accounts, exponentially increasing its costs.
One might reasonably expect a modicum of journalistic rigour amounting to the simple rider: ‘The firm declined to disclose its profits.’ Yet this is rarely seen – in order to keep the firm sweet, one assumes.
Of course, such coyness is far from ubiquitous, particular among top-50 firms. Many see no reputational risk in trumpeting their affluence. The wealthy bankers served by the magic circle are not going to be fazed that their advisers enjoy six-figure pay packets too.
At the local level, it is more problematic. Some senior partners doubtless consider that announcing soaring profits in the news pages of a local paper to the less sophisticated small businesses and individuals they serve is reputational kryptonite. The ‘fat cat lawyers’ trope is depressingly enduring.
One might reasonably expect a modicum of journalistic rigour
And with the provincial press starved of resources and expertise, they can be sure no journalist will have the time or wit to look up the profit numbers at Companies House when the LLP accounts are filed (it’s often old news then, too). The press release will generally be swallowed whole, exemplifying the ‘wallpapering’ that has replaced news reporting in many local papers.
Of course, the figures that do commonly emerge - profit per equity partner for example - don’t tell the whole story. Profit margin/operating profit is arguably more instructive (and don’t even get me started on EBITDA).
Still, the annual disclosure fandango does seem a waste of everyone’s time and energy. Law firms outwith the high-grossing - and high-earning - elite are small and medium-sized businesses and part of the bedrock of their local communities. It is regrettable that they feel constrained from telling the world when they are doing well for themselves as well as for their clients.
For some perhaps, it’s the staff they really don’t want to tell. But that’s another blog for another day.
Paul Rogerson is Gazette editor-in-chief