For the last 14 years Price-waterhouseCoopers has produced an annual survey on financial management in law firms.
This year's report makes particularly interesting reading. Among the findings, it reveals the stampede by large firms in the last 12 months to improve their risk management procedures.
According to the survey, 82 per cent of the UK's top 25 firms now have formalised risk management procedures.
So what is driving this trend? Certainly tougher industry regulation and the growing awareness of reputational risk are among the key factors.
2006 will see increased regulation of the legal industry. Firms will need to put increasing emphasis on regulatory matters as the Law Society's previous responsibilities in this area are taken over by a consumer watchdog - with teeth. Small law firms will be as accountable, and vulnerable, as large ones.
Insurance costs are also driving the change. Insurance is now the third biggest cost for law firms, after staff and premises. And while we are seeking to cap our premiums, the insurance companies are equally looking to contain their own exposure. As a result, we are now routinely asked to provide data on risk management.
Where the large firms sometimes lead, the small-medium ones will surely follow. So, what is it we need to do to get our houses in order?
Drafting policies which pay lip service to risk management is not enough: these have little impact on what happens at the coalface. A risk management strategy needs to be engrained within the system, so that its practice becomes habitual to fee earners.
Nine months ago Mills & Reeve appointed a former litigation and insurance partner from a national firm to take charge of risk management within the firm. His job is to focus on operational matters that may affect the firm's reputation, such as claims, complaints and money laundering.
His experience as a fee earner has helped in devising a risk management strategy that fits in with the everyday lives of lawyers, but at the same time allows the strategy to remain client focussed.
For smaller firms, appointing an individual dedicated to this role may not be an option. However, giving one partner the responsibility and remit to do it is vital.
The move to focus on risk management is starting to have an impact. The PwC survey reports that professional indemnity insurance premiums for 2005 increased at much lower rates than in previous years.
Looking further ahead, however, it is likely that law firms will seek to cap their liability wherever they can. Forty-one per cent of the top 25 firms in the survey said they routinely limit their liability on assignments, while 40 per cent of smaller firms do the same.
The march towards LLP (limited liability partnership) conversion is there-fore likely to continue: indeed, 75 per cent of the top firms in the PwC survey had either registered as an LLP, or intended to do so.
* Guy Hinchley is managing partner at the Birmingham office of Mills & Reeve