What skills do you suppose law firms most desire from their associates?
Knowledge of constitutional law? Negotiating ability? Organization?
The answer is none of the above. In a study conducted by Harvard Law School, 124 attorneys were asked to rate the importance of certain courses offered by Harvard Law.
The results indicate that the most important skill an aspiring lawyer can acquire is the ability to analyze financial statements.
Other skills ranking near the top were understanding financial markets, business strategy, and industry analysis. These skills can be collectively described as “business acumen” or “financial acumen.”
Why financial acumen over the dozens of other skills essential to a career in law? Because financial acumen training in law schools is lagging behind.
Firms are not concerned that law students will miss out on foundational law education. Instead, they recognized that business acumen is perhaps the most important subject not widely taught in law school.
A pragmatic law student must remember that many law firms work intimately with large corporations and enterprises, therefore a robust knowledge of how a business operates will serve them admirably in their careers.
Certainly, privately practicing lawyers are not employees in their clients’ businesses, so they don’t need to understand every working cog in place. They should, however, have a high degree of financial and business literacy so they will be able to effectively assist corporate clients with complex financial transactions.
So how much business acumen does a lawyer actually need?
Enough to See that Legal Issues Have Financial Ramifications
It’s easy for attorneys who practice corporate law to stay strictly on the legal side of things.
Most often, lawyers are content to keep their clients compliant. As long as they can steer a client around legal “landmines,” they consider their job accomplished.
The problem is that the business does not approach legal issues this way. Any legal issue that crops up can affect the company’s financial statements. When a corporation is involved in litigation, finances can suffer because of public perception, attorney fees, or the obstruction of financial efficiency.
A business-minded lawyer understands that his or her service generally does nothing but drain the business’ funds.
Lawyers with good financial acumen gain client satisfaction by handling corporate legal issues with the company’s best interest in mind. To do this they must understand how legalities affect a company’s financial position within their industry.
Enough to Think Like a Business Owner
In an interview with Forbes, Leslie Firtell declared, “I don’t think like a lawyer, I think like an entrepreneur.” Firtell, a former lawyer, founded Tower Legal Solutions, a legal staffing and consulting agency. She credits her entrepreneurial success to her willingness to take risks rather than being “tied to rules and deadlines.”
While it’s certainly a good idea for lawyers to acquire financial acumen in case they, like Firtell, start their own businesses, business knowledge is vital even in firms.
75% of lawyers are in private practice; about half of those are solo practitioners.
This means that a great percentage of lawyers carry the brunt of business decisions on their own shoulders; they’re in charge of handling (or at least delegating) responsibilities like accounting and marketing, among other things.
Indeed, any lawyers starting their own practices must be ready for a long investment, with extensive capital to get off the runway. They must also be prepared to manage a budget, find clients, and keep tabs on their competition—concepts that every business must grapple with
If any lawyer entertains the thought of starting a private practice at some point (which is very likely), he or she must not neglect business acumen.
Enough to Outpace the Competition
Savvy business owners can usually look at financial data and understand what a legal service should cost. If a lawyer is not financially efficient enough to meet the expectations, the business relationship will be severed in favor of a more effective competitor.
Recall the Harvard study we discussed earlier: law firms are desperate for better business acumen from their associates. This is because the corporate law landscape is shifting; if lawyers can’t help businesses navigate complex financial legal matters, they will quickly fall behind the competition.
Jesse M. Fried, professor at Harvard Law School, says that “law firms are under increasing pressure from clients to be more efficient, and so the bars for hiring and promoting associates have been raised.”
While lawyers may not need quite the level of business acumen as an entrepreneur or corporate executive, it is clear that they must possess more than a cursory understanding of the business perspective.
Law schools are beginning to offer more business courses, recognizing this evolving need. But for firms who want to improve the acumen of their current associates, there are also options.
Financial acumen workshops and business simulations such as Income|Outcome teach participants to see business from a holistic perspective and grasp the financial ramifications of business decisions.
In other words, established firms don’t have to scramble to hire freshly minted business-minded law graduates in order to keep up with the competition. It’s not too late for experienced associates to develop their financial acumen.
To learn more about participating in a simulation workshop that will improve business acumen in your firm, click here to contact us.