In eight years David Liddle has seen the fee income of law firm Dibb Lupton Broomhead, now Dibb Lupton Alsop, grow from #22m to an expected #120m-plus this year. Managing that growth, including two mergers, hasn’t always been easy. Having joined what he imagined to be a kind of “gentleman’s club”, Liddle now acknowledges that life in a legal firm is as rough and tough as anywhere else.
The decision to take the post of director of finance and administration in Dibb Lupton Broomhead in 1990 was a bold one for a cost and management accountant who had never before worked in a professional firm. The former British Rail management trainee knew about managing Glasgow Central Station and the coffee roasting house under St Pancras. He was experienced in the financial mechanics that come with heavy and electrical engineering, as well as printing and book-binding, after many years in industry holding a range of posts from cost accountant to group finance director. But a professional partnership?
“For the first six months I really thought I had made a horrible mistake,” Liddle confesses. “I just wasn’t prepared for the culture change. It was quite different from working in a company environment. From the outside I had thought of a partnership as being like a gentleman’s club, but it’s quite different from the inside. A partnership is comprised of a lot of highly intelligent people, and some big egos as well, so there is a lot of internal politics and sometimes it can give rise to a certain amount of internal strife. It’s the nature of the culture.”
Liddle’s move into that partnership culture was in part a response to circumstances beyond his control. When a plc purchased the privately owned book-binding and printing company Dunn & Wilson in 1990 there was no place for Liddle, its FD, in the new group. He took a little time out to look around and spotted the law firm’s advert. He was intrigued. “If you go back 10 years, the role of professional accountants, marketing and personnel people in large partnerships was only just being identified,” Liddle explains.
“It struck me as an interesting opportunity. It was something different.” The law firm was also looking for something different – someone with a business background who understood management as well as finance. The post was a new one, created after Dibb Lupton Broomhead brought in consultants to review its management structure which needed a boost after a period of rapid growth in the partnership. In the two years before Liddle arrived the firm had completed two mergers – the joining of Dibb Lupton & Co, a Leeds-Bradford firm, with Broomheads, a Sheffield firm in 1988, forming Dibb Lupton Broomhead; and in 1989-90 the absorption of Manchester and London-based William Prior & Co. After so much change the firm had outgrown its systems and needed someone to sort them out. Liddle’s brief was a wide one. As director of finance and administration his responsibilities not only covered finance and IT, but also “anything, basically, that wasn’t lawyering” – personnel, marketing and library services included.
The dynamism of the environment didn’t slow down. “It’s been eight years of continual growth and change,” says Liddle. In 1993 the firm merged with the Birmingham and London offices of Needham & James, followed in 1996 by the merger with Alsop Wilkinson, a Liverpool-Manchester-London partnership. The Dibb Lupton Broomhead partners saw the merger as a means to strengthen their claim to be a national law firm, a status the smaller Alsop Wilkinson partnership also sought. The boards of the two firms first met to discuss the merger in June 1996 and the event was publicly announced on 1 October. The merged firm now sits comfortably at number nine in the legal firm rankings, contemplating its strategy for European expansion.
It already has an office in Brussels, as well as a presence in Hong Kong and New York.
Liddle believes the post-merger organisation has settled down pretty well, even though, as he explains, the two conjoining firms did have different cultures and management styles. “In the market, Dibb Lupton Broomhead had a reputation for having a tough regime and an aggressive management style. Alsop Wilkinson’s style was softer and more collegiate, though (the partners) perhaps recognised they needed a bit more of the rougher, tougher style that Dibb Lupton Broomhead had. Of course, it’s a different matter when you are faced with it. Dibb Lupton Broomhead I think realised it needed a slightly softer touch culturally, and again that’s not always easy to implement. The merger has been characterised by the blending of these two types of culture. There is no doubt there has been a change of attitude over the last couple of years. I think both sides recognise that we are moving forwards.”
Liddle then corrects his use of the phrase “both sides”. He stresses: “There really is very little ‘us and them’ in the organisation now.” The resulting national practice consists of nine business groups, including corporate law, property, human resources issues, corporate recovery and insolvency and banking.
The blended firm is the result of a concerted integration plan. On 2 October 1996, the day after the merger was announced, systems experts were brought in to begin integrating the combining firms’ accounting systems, completing the task on 1 December. “That allowed the full integration of the teams in the offices,” explains Liddle. “It would be a nightmare to have people sat side by side using different systems.” Lawyers from the two firms were thoroughly mixed, grouped by specialism in each region’s offices.
Looking back, Liddle considers that of all the legal and support staff in the two combining firms it was the finance departments that had the toughest time. “Alsop Wilkinson had a finance department in Liverpool that mirrored the Dibb Lupton Broomhead headquarters in Sheffield so there had to be some rationalisation. Finance is probably the one department which had some casualties as a result of the merger.” Alsop Wilkinson’s finance director left a few months after the deal was completed. “We had agreed as part of the merger that the management structure and the systems of Dibb Lupton Broomhead would prevail,” explains Liddle. The dominance of Dibb Lupton Broomhead came from the fact that it was the larger firm, by a factor of almost 2:1 in terms of fees (#66m compared to Alsop Wilkinson’s #34m). “We gradually took on the functions of the former Alsop Wilkinson headquarters. We had a couple of their staff commuting for a period, but they decided to move on as well,” Liddle notes. None of Alsop Wilkinson’s 20 or so finance personnel now remains in the firm.
Even so, Liddle now has a significant team behind him. The 75-strong staff includes around 50 members of client service teams distributed throughout the firm’s offices, handling client transactions such as billing and cash receipts. Another 25 staff work in the Sheffield finance HQ, handling pay and benefits, accounts payable, management information and partner accounting. Although Sheffield is the firm’s financial centre, it isn’t the overall head office. There isn’t one. The senior partner is based in Manchester, the managing partner in London and the operations partner in Bradford. The directors of IT, marketing and human resources, who have been recruited to take on the burden Liddle once shouldered alone, are located in Bradford, London and Birmingham respectively. Not surprisingly, there is a fair amount of travelling for monthly board and management meetings.
If the waters have largely settled after the merger turmoil, the Finance Act has brought new challenges on the accounting front – a new basis for calculating taxable profits. “The last Budget brought in the true and fair accounting principle for professional partnerships,” explains Liddle.
“Probably most legal partnerships are run on a bill-as-we-deliver basis of accounting, that is, we take no work-in-progress into account.” Dibb Lupton Alsop is no exception. “At the end of this financial year we will be required to compute the value of our work in progress on an SSAP 9-basis and include it in our balance sheet. There are a couple of things that fall out of that. One of them is the tax charge that will arise.” Any amounts that might otherwise escape tax as a result of the change to a true and fair basis will be subject to a one-off “catching-up” charge, payable over 10 years and limited to 10% of the annual taxable profit.
However, in the 10th year, the balance of the tax due must be paid, with no limit. “So there is a cap on it in the early years, but not overall,” explains Liddle.
“The other issue that arises (from the true and fair change) is, what to do with the profit,” he adds. “Whose profit is it anyway? Does it belong to the partners in the current year or partners in the previous year or partners in future years? We have yet to resolve that. The board will bring forward some proposals that will need to be agreed by the partners.”
The Budget change has also had practical implications for the finance department. “It’s meant we have needed to improve our systems for, first of all, identifying valid work in progress and secondly, for evaluating it. We went through the exercise at the end of April this year doing a sort of dummy run on evaluating work in progress. We have agreed a process with the auditors on how to do it on an SSAP 9-basis.” The system is now in place to enable the valuation to be completed at the year end, but Liddle is probably going to conduct a half-yearly valuation too, producing management accounts that include work in progress on a pro forma basis.
“That way we can start to get our minds round the differences – because it does mean we will be measuring profit on a slightly different basis from before,” says Liddle.
Apart from seeking its auditors’ advice with SSAP 9, the law firm has also just come through its first proper audit. Under the Solicitors’ Accounts Rules, auditors have always been needed to certify lawyers’ client accounting procedures, but there is no requirement to audit the firm’s accounts themselves.
“We took a decision on merging, being the size of organisation that we are, that we ought to have an audit done,” Liddle explains. The firm held a beauty parade and appointed Coopers & Lybrand, now PricewaterhouseCoopers.
“They now do our Solicitors’ Accounts audit and a true and fair audit of our financial statements. They have just competed the first one, which we have come through unscathed, I am pleased to say. This year our accounts will say ‘true and fair’.” The audit also puts the firm in a state of readiness should draft legislation on limited liability partnerships become enacted. If Dibb Lupton Alsop chose this route, its accounts would be in good order for filing with the equivalent of the company registrar, the quid pro quo for limited liability protection.
One area currently driving Liddle’s attention is the development of management information systems. “As soon as you produce some information, people want more of it. There is growing demand for us to be quicker, sharper, slicker and more comprehensive in the information we produce. We are currently looking at quite a detailed profitability analysis so that we can go down to a low level in the organisation and calculate things like break-even, cost base, charge rates and so on.” No mean task in a firm with over 900 fee-earners.
Dibb Lupton Alsop is also refining its planning processes. “We are involved in an initiative which we are rolling out to every group to get them to think on a three-year basis, to think strategically, and in the end improve the firm’s market performance. Obviously the financial aspects of that are important – financial performance is one of the key performance indicators identified, so we are actively involved in working with the groups to identify financial targets for them.”
The firm has always been very strong on budgeting. As Liddle quips: “Liverpool manager Bill Shankly once said, ‘Football is not a matter of life and death, it’s more important than that.’ That’s almost what budgets are like in Dibb Lupton Alsop. Budgets are not there for people to pay lip service to.” Budgets are prepared twice a year and, along with the accompanying business plan, are presented by the board to the partners at conferences in November and April, the firm’s year end. “The partners vote on (the budget and the plan) and so far we haven’t had any mishaps,” says Liddle cheerfully.
Despite his initial misgivings, this particular accountant appears to have settled comfortably into his legal environment. So, after eight years, what differences does Liddle see between his own profession and his legal colleagues? “Lawyers tend to like words, whereas accountants tend to like numbers. It is interesting at board level where we have six lawyers and two non-lawyers. Conceivably, something that could provoke a lot of discussion just gets glossed over but if there is a small legal point that comes to the table, the lawyers tend to seize on it and tear it apart and spend ages discussing it. A normal board would say, ‘We’ll take legal advice on that. End of story. Next item.'”
Mind you, Liddle speculates, accountants on the board of an accountancy firm probably spend a lot of time discussing SSAPs and Financial Reporting Standards. Are the lawyers interested in them? “Not at all,” says Liddle.
Which, given lawyers’ general propensity to argue their case, is probably very good news for anyone heading up the finance department in a law firm.
Name: David Liddle
Qualification: CIMA – 1970
1966-69 British Rail management trainee
1969-70 John Brown Engineering management accountant
1970-73 Reyrolle Electrical Engineering Cost accountant; company accountant
1973-90 Dunn & Wilson Group finance director
1990-96 Dibb Lupton Broomhead director of finance and administration
1996- Dibb Lupton Alsop director of finance
“It’s a bit like a workers’ co-operative. We have 230 partners who think they ought to be running the business. But you can’t have 230 people running a business, so we have a management board.”
“It’s useful to have someone coming in from the outside from quite a different background and passing comment on how you do things. We are a very commercially motivated organisation. You have to be these days.”
“Dibb Lupton Alsop hasn’t debated it yet, but in my view, for a firm like us, it’s a no-brainer.”
“It’s a very exciting time – no one knows what will happen. Will the Big Five gobble up law firms? No one knows. Is it desirable? Is it in the interests of the consumer?”
1997 1998 Gross fees #100.6m #111.5m Profits per partner #271,000 #238,000 Fees per fee-earner #132,000 #147,000 Size ranking 9th 9th Source: Legal Business.