The Balanced scorecard on YOU may be coming soon

post # 333 — March 19, 2007 — a Managing post

Bruce MacEwan (blogging as Adam Smith, Esq.) reports on and discusses a article by Guy Beringer, a senior partner at Allen & Overy, the major UK law firm, on the inadequacies (and unfortunate consequences) of using PROFIT PER EQUITY PARTNER (PEP) as a measure (or, perhaps more significantly) THE measure of firm performance.

This is not a new debate, in the law or in industry generally. The weaknesses of PEP are largely the same as the weaknesses of return on shareholders’ equity measures. As Messrs Beringer and MacEwan point out, many games can be played with both the numerator and denominator of PEP, but it’s not exactly news that companies can and do play games with both reported profits and invested equity, in order to bolster earnings per share numbers.

Welcome, leaders of professional firms, to the wonderful world and revered tradition of managed earnings and media games!

The problem with PEP is not that it’s a bad financial measure. ALL measures, especially financial ones, can be gamed. As a lot of people have pointed out over the last two decades, the problem arises when financial measures are not used as part of a “balanced scorecard.” It’s always been true that a firm needs to serve three constituencies to flourish: clients, people and owners.

Industry makes the same mistake that Mr. Beringer cautions us against: focusing on financials to please Wall Street, hoping that no-one will notice that (initially) degrees of client satisfaction and employee morale are allowed to slip. He’s absolutely right to propose the broader use of client and employee satisfaction measures.

One of the things that may cause this to actually happen would be if someone REALLY developed and put up on the web a “JD Powers-like” evaluation system which basically said: “evaluate your law firm and your lawyer here,” allowing ready access for furue clients and people to check out prospective firms (and individual practices) they might consider working with.

There are beginnings of this out there: Vault.com tries to rate the employee experience, and Chambers (in the UK) has print and on-line versions reporting firm’s and people’s reputations. But it could get a LOT more explicit, and high profile. I suspect there’s a great business available for anyone who wanted to develop that “Rate your law firm” web site.

Of course, I’d be nervous about a “rate your consultant” website, but that’s coming too, of course! Someday soon, we’re ALL going to be held accountable to a balanced scorecard, whether we like it or not.