Law Firm Economics on a Global Scale with William M. Washington III, Global CFO of Baker McKenzie

In this episode of On Record PR, Gina Rubel goes on record with William M. Washington III, Global CFO of Baker McKenzie, to discuss navigating the complex finances of an international law firm. William is responsible for Baker McKenzie’s financial operations, which total more than $3 billion in revenue across 76 offices in 45 countries.

Gina Rubel: William, welcome to the show. Before I start, I want to give a special shout-out to your Global Chair Milton Chang, who I had dinner with last week in California. I’m sure he’s happy to have you on the team and I’m sure you have a lot of great information to share with our listeners. At this conference last week, one of the things we talked a lot about was what managing partners, CFOs, and CEOs wished law schools would teach lawyers, as it relates to law firm finance.

What do you wish lawyers knew before they started the practice of law?

We often talk about lawyers and understanding finance. Often, many professionals could do a better job at understanding finance because everything they do is contributing to the revenue, the expenses, and the profitability of a business.

However, I do believe we want our lawyers focusing on practicing law and serving their clients. My biggest thing is let’s give them the basics, let them understand what they do on a day-to-day basis and how it contributes to the firm’s overall profitability, and even more importantly, let’s help them to understand why profitability in a law firm is important.

Often when I’m speaking to partners, I do a lot of profitability and finance sessions. I start with a simple story. I tell them about my two parents, who started their own law practice in Washington, DC, worked for 10 years, and eventually went out of business as a law firm. I tell that story almost as a funny anecdote. In the legal industry, because we are a cash business, we have to generate revenue and profits on a yearly basis and then do it all again the next year.

It’s really important what we do in order to drive towards those profitable results. It’s important they understand the basics of rates, times, and hours equals their revenue and that their costs are generated by our people costs, which is our primary resource.

In a factory, your cost may be the cost of manufacturing, but in the legal industry, the cost of our people is our most valuable resource, and we have to figure out the difference between investments that we make in our people and just the day-to-day running of the business.

Simple revenue minus expenses equals our net income, and our net income pays our partners. That is the foundational concept that most lawyers need to learn.

Gina Rubel: I appreciate that as someone who practiced law. I had a corporate communications degree before that, which is why I do what I do today. But we didn’t learn about profitability. We didn’t learn about law firm business structure, and it’s such an important thing to understand, especially for associates who want to be on the path to partnership but don’t understand what that really means. I know that at Baker McKenzie you are doing that, and you are training your people, which makes them so much more valuable. I don’t mean from the billable perspective, by the way.

William M. Washington III: I learned that concept during my early career at Accenture, which was Andersen Consulting at the time. They used to do something very unique on their projects. Before someone would get promoted from manager to partner, they would put that senior manager in the position of leading the finance team for a full year prior to making partner.

By the time they became a partner or owner of the company, they had spent a year looking at the financials on a monthly basis and understanding the drivers of profitability. That slow methodical built-in education system helped make them better partners, and they went into day one of partnership understanding the basics of the financials.

When I do my profitability training, I start at the associate level, in particular the senior associate level, and I try to bring them along that gradual learning curve of understanding the basics of the business. Then I give it to the partners and the senior partners as well. I think you want to catch them earlier in their career, so they know why they even want to be a partner in a law firm and what it means to be an owner of the business.

Gina Rubel: You just gave me a great idea. It’s a crazy idea, but I think everyone who wants to do that should have to chair a committee in a firm with a budget and have to learn how to do budget entries and budget analysis. Could you imagine?

What has been the most rewarding aspect of your career as CFO?

I have a dream job. This is a beautiful firm to work for, being the CFO of Baker McKenzie and being responsible for 1300 finance professionals at a law firm with over 13,000 employees working in 45 different countries. It gives me the right balance of utilizing everything that I’ve learned to date, as well as being able to make an impact across a wide array of varying challenges that we face.

I just enjoy the ability to face different challenges every day. One day I may be thinking about the political landscape in North America that everyone thinks dominates the world. Then tomorrow I may be working with our office in Bangkok on a challenge with a client where we’re trying to make sure that we find the right arrangement to serve that client better. Then the next day, I may be dealing with something in Lima, Peru or Buenos Aires, Argentina, where the currency is fluctuating on a monthly or daily basis sometimes, and how that impacts our business and our operations and how we best serve our clients in a high inflationary environment.

All those challenges which I couldn’t have dreamed of even having the answers to when I was early in my career. I have taken progressive steps to be comfortable making the uncomfortable decisions. I find it to be a dream job. It’s like pulling together a lot of different puzzle pieces all at one time and getting to the end of the year and seeing how things turned out.

Gina Rubel: I love that you share that global perspective. At that conference that I attended last week, they had four economists. We tend to be very U.S.-centric here as U.S. citizens, but they were talking about the economy in Japan, for example, and what’s happening with the yen and what will happen if China invades Taiwan. What happened as a result of Russia invading Ukraine and how that affected finances globally and so many other issues. We lawyers practice in a certain area or industry, and we tend to have a very myopic view, but there’s so much more to understand. I think that’s one of the things I took away from talking to all these global managing partners, CEOs, and heads of firms is that there’s so much more than just running a business. There’s so much to it, and it’s pretty complex. I can imagine we could talk for hours about all those challenges, but it’s nice to know that you enjoy them. That’s what I love about what I do as well.

William M. Washington III: You brought up all the challenges that are sitting on my plate today. It’s important that a business professional is looking at those challenges so that the lawyers can focus on serving the clients and the practice of law. A litigator can’t be in a courtroom arguing a case or a transactional lawyer can’t be helping their clients deal with difficult transactional issues if they also have to worry about the status of the yen or China invading Taiwan or Russia and Ukraine. Those are the business challenges that business professionals can help to mitigate.

I have someone on my team working with me every day on the currency fluctuations in the 45 countries in which we operate. We have someone working with us on the business operational risk for us to be able to respond quickly if something happened to our office in Taiwan which would also impact our offices in China.

When Russia invaded Ukraine, we had business in Russia and business in Ukraine and we were one of the longest-serving law firms in those regions. We had to figure out how to disassociate ourselves while still continuing to serve our clients and our people. These are our people, our partners in Russia. These are our partners in Ukraine. They aren’t on the war front.

We had to deal with all those challenges, and there’s a cost to it. Getting our people out of Ukraine to safety cost us money that we weren’t expecting to spend while we are also losing business from those clients that we’re no longer able to serve because they’ve been sanctioned. Revenues decline, and those expenses are increasing. Don’t worry, the CFO’s on the job. We’re going to figure out a way to get us to the end of the year and continue to be able to do what we do.

Gina Rubel: Your perspective is so interesting. When I spoke at the conference last week, it was about how managing partners and executive committees make decisions on some of these global political and social crises and whether or not they should speak out about it. Those were exactly the topics we talked about. They’re so complex. One of the things we do here at Furia Rubel is crisis work with global companies. It was very interesting to hear about the decision-making from my perspective and the attendees’ perspective, and now your perspective in terms of how you have to look at it financially and what the cost is.

There are so many people who rush to judgment, especially now what we’re seeing with Israel and Gaza. They’re saying, “Well, you have to do this,” but they don’t understand all of the aspects that go into a global firm – the need for it to remain neutral and to care about the safety and well-being of its people in those various countries and regions, then also the financial impact and how much a firm has to invest to keep its people safe. As you said, it’s our people.

William M. Washington III: Law firms are very unique. We’re a cash business, and we have to be able to compensate our partners who are on the books and on record today in 2024. It’s hard for us to make long-term investments or spend long-term money or pool money because we distribute it all at the end of the year. If something happens suddenly, we don’t have millions of dollars on reserve to deal with every humanitarian or geopolitical issue that may come up, because it may impact the partners in 2024. Then we have partners in 2025 or 2026 down the road who are benefiting from something that someone else was burdened with today.

These are big problems or small problems in the major scheme of things, but they’re big problems when you have to be a going concern. You have to make sure we have money to pay our rent and to pay our people, so that they can take care of their families and we can serve our clients and continue to be Baker McKenzie.

I keep it very simple here. I always tell partners this is the only time I’ll ever be the CFO of Baker McKenzie. This is the only time Milton will ever be the CEO. This is the only time collectively we’ll be the people guiding this organization and a firm like Baker McKenzie that has been rising up ever since two lawyers got in a taxicab and said they wanted to be the first global firm. They’ve been rising up for 75 years. I don’t necessarily want to be the CFO during the five or 10 years when everything went down. We want to continue the great legacy of the work that was started by those two partners in that taxicab 75 years ago. As a matter of fact, this is our 75th anniversary. We want it to be a year that we can celebrate and continue to build and do great things.

One thing I like about Baker McKenzie is we are not neutral. We do take a position on the things that fit with our culture and our values. We’re very careful because we do have people who sit sometimes in competing regions, but we are not neutral and we live that out in everything we do and say.

What trends are you seeing in the industry and how do they impact your business and your huge audience?

We’re facing elections in over 70% of the regions in which we operate. The geopolitical challenges are not limited to North America. Elections are happening in every country that impacts our clients and our business. We have to be prepared to serve our clients and to respond to those geopolitical risks, while at the same time the demand for legal services, which has ebbed and flowed in different ways during the COVID crisis, continues to be strong. People are still looking for the best lawyers to serve them on their most important matters. I tell everyone that Baker McKenzie is not just a big law firm. We do almost 10 million hours of service for our clients every year. That’s 10 million times people pick up the phone and say we need your expertise to help us solve our problems. That’s been consistent over our 75-year history.

The other biggest thing in the industry is the introduction of AI and the changes that may bring to the types of services clients seek out their lawyers for. I think there will be some shifts in the way that we go to market. Clients will be able to self-serve for some things, and our young associates will have to be ahead of the curve on the more complicated issues and matters more quickly than they’ve had to do in the past.

What is your leadership approach and style?

I told you earlier that I spent the early part of my career at Accenture, and one of the things I learned there was they were good at empowering young leaders very early in their careers. I rose quickly from being an analyst to a specialist to a manager to leading teams to leading the finance function in the DC area. What I learned through that is you really do need teams. You need teams to understand the strategy and the vision for the group so that everyone can row in the same direction, and if even one person on the team isn’t rowing with the team, it just makes the job and the work that much harder.

I’m really big on empowering teams and leaders to help get the work done and pushing that down not just to my direct reports, but having my direct reports push that down to their direct reports. When you get 1300 finance people rowing together in the same direction, many hands make for light work. I’m big on having a team-based approach and an open-door policy.

It’s unique to be the Global CFO of such a large organization. What’s even more special is when I’m able to touch not just the senior leaders in our firm, but also that person who just started their first day working anywhere and letting them know that they can reach out to me for career advice, for advice on the industry, and for advice as it relates to finance. I’m not that great at spreadsheets anymore. It’s been a while since I’ve done that day-to-day, but I still have a couple of tricks up my sleeve and can help out the young person.

Gina Rubel: Well, you don’t need to be great at spreadsheets anymore. You just ask gen AI to give you the algorithms and the formulas and you’re all set.

What advice would you give to finance professionals aspiring to become a global CFO?

There are a few things that I would say. People often talk about authenticity and being able to bring your whole self to work, and I find that to be extremely important. When I go to speak to young students, which I do all the time, and I look across a room of 300 and 400 students at those auditorium-style universities, what I see is a room full of potential. Each of the people in those rooms will one day land somewhere. I tell them, “We need all of you. We need all of your talents, all of your skills, all of your background, whether you come from the poorest area of town to the most exclusive area of town. You each bring something unique to the table, and that’s what makes us a well-functioning team.” I encourage people to be authentic and to be true to themselves. I try to lead with authenticity so that I set the example for them.

The other thing I generally say is, continue to sharpen the saw. Steve Covey wrote the book The Seven Habits of Highly Effective People. There are a couple concepts in there. Begin with the end in mind. If you see yourself one day being a CFO, then you need to continue to sharpen the saw, which is a term he uses for continuing to educate yourself. For me, I have multiple degrees. I have an undergrad degree. I have an MBA. I have a master’s in law firm management. I have certificates and Lean Six Sigma.

For someone else, it might not be multiple degrees. It may be educating themselves on AI or other technologies. It may be educating themselves on the legal industry or whatever industry they may be performing in. For me, I can always tell when someone on my team is continuing to sharpen the saw and seeking out professional development. It’s those people who learn today and have the tools that they need tomorrow. That’s a very foundational concept.

The last thing is learning how best to collaborate and work across teams. When you start off early in your career and you’re fortunate to be in an organization that has other junior people at your level, you can build relationships, identify each other’s strengths and weaknesses, and figure out how to work together to help the organization solve problems instead of being the disruptive person who tries to work in an isolated environment and not on a team-based approach.

I’m an introvert by nature. I prefer to be alone and do my own thing, and that’s how I recharge. After I get recharged, I am the first one to get in with the team and to work together to help solve problems. I think that not enough people learn that skillset of working together, which is why people tend to hire former athletes or former military people who have learned that skill.

I think understanding those concepts, being patient, and taking each step as a learning opportunity would help someone rise up and hopefully one day be the CFO or whatever you aspire to be for your career trajectory.

William M. Washington III

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LinkedIn: https://www.linkedin.com/in/williamwashingtoniii/

Gina Rubel

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