vantage 2016 london 3e for global firms s jarrett handout

3E FOR GLOBAL FIRMS

Presented by

Simon Jarrett and Kerwin Thomas

© 2016 Thomson Reuters and Simon Jarrett (author)

Business is global, and as a result law firms who want to do cross-border business have to be able to operate globally.

More and more firms have to face the challenges of multiple jurisdictions, different risk and compliance regimes, multiple

currencies and differing tax requirements. Join our experienced consultants to find out how 3E enables global firms to

manage their operations and reporting in ways that satisfy the firm's global needs and its regional requirements.

© 2016 Thomson Reuters. All rights reserved. Proprietary and confidential information of Thomson Reuters.

Disclosure, use, or reproduction without the written authorization of Thomson Reuters is prohibited.

CONTENTS

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THOMSON REUTERS

3E FOR GLOBAL FIRMS ..................................................................................................... 1

INTRODUCTION .................................................................................................................... 1

GOING GLOBAL – GREAT REWARDS, GREAT RISKS ....................................................1

THE ROOTS OF GLOBALISATION FOR LAW FIRMS .......................................................... 1

GLOBALISATION TRENDS ................................................................................................. 3

3E AND GLOBAL FIRMS..................................................................................................... 4

RISKS AND REWARDS ....................................................................................................... 4

THE IMPORTANCE OF FINDING OUT WHAT YOU DON’T KNOW..................................4

THE AFRICAN HONEY GUIDE............................................................................................ 4

RISKY BUSINESS .............................................................................................................. 5

COMPETITION IS FIERCE...........................................................................................................................................5

CAPITAL INVESTMENT ...............................................................................................................................................6

THE WAIT FOR PROFIT ..............................................................................................................................................7

STATUTORY REQUIREMENTS ..................................................................................................................................7

“THE KNOWLEDGE” ....................................................................................................................................................8

OUTDATED SYSTEMS ................................................................................................................................................8

SUCCESSFUL MULTI-NATIONAL 3E IMPLEMENTATIONS .............................................9

KEY ELEMENTS................................................................................................................. 9

3E AND REGIONAL REQUIREMENTS ........................................................................... 11

BE A TRULY GLOBAL FIRM WITH 3E ..............................................................................11

FIRM V. LOCAL ................................................................................................................ 11

GL TYPES AND GL BOOKS ......................................................................................................................................11

SEGMENTATION AND LOCAL CHARTS OF ACCOUNTS........................................................................................12

MASKING......................................................................................................................... 12

CURRENCIES .................................................................................................................. 12

3E IS A TRUE MULTI-CURRENCY SYSTEM ............................................................................................................12

REALISED AND UNREALISED GAINS/LOSSES.......................................................................................................13

TAXATION ....................................................................................................................... 13

TAX AREA MATRIX....................................................................................................................................................14

TAX REPORTING.......................................................................................................................................................14

CONTENTS

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GLOBAL BILLING ............................................................................................................. 14

LANGUAGE...................................................................................................................... 15

LEARNING NEVER STOPS............................................................................................... 15

KEEPING ABREAST OF DEVELOPMENTS .....................................................................16

THE ANSWER COMPANY ................................................................................................ 16

SUMMARY ............................................................................................................................ 16

WHAT ARE THE NEXT STEPS? .......................................................................................16

RELATED KNOWLEDGE BASE ARTICLES AND SOURCES .................................... 17

3E FOR GLOBAL FIRMS

Proprietary and Confidential Information of Thomson Reuters

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INTRODUCTION

In this session, I will discuss the impact of the financial crisis on law firms in the specific context of

globalisation. I will explore the drivers for globalisation and the risks associated with a law firm moving

into a new jurisdiction where it will be conducting multi-unit, multi-currency cross-border business. I will

show how Thomson Reuters Elite can help firms to manage these risks, and run a profitable office in a

new country, with our flagship 3E software.

GOING GLOBAL – GREAT REWARDS, GREAT RISKS

THE ROOTS OF GLOBALISATION FOR LAW FIRMS

The global financial crisis that hit us in August of 2007 changed the ways in which almost all companies

conduct business. The legal industry was no exception, and despite its traditional resistance to change,

the business of law has had to (albeit slowly and unwillingly) adapt itself to meet the economic challenges

and demands of its clients in this new economic framework.

According to a white paper commissioned by Travelex in June of 2010, the global financial crisis hit law

firms a lot harder than most expected, with closures 26 percent higher than usual throughout 2008 and

2009. Even the usually untouchable Magic Circle was affected, with some larger firms having to ask

graduates to voluntarily defer their training contracts.

Research by magazine Legal Business in 2007 found that the leading concern for law firms in the new

economy was risk: four out of five of the top 100 leading UK law firms believed the recession had

increased the number of risks they faced.

In terms of business strategy, 47 percent of the lawyers surveyed were concerned about client liquidity or

risk of bad debt, and 28 percent were worried about credit or other financial problems.

According to Travelex, the recession also flagged an issue that had previously not been a problem for

most law firms – currency volatility. As I have mentioned in previous years at these User Conferences,

many law firms simply don’t know what they don’t know, particularly about foreign currency exchange

issues. Most law firms in the decades prior to the recession were completely unaware of their exposure to

currency volatility and how it could impact on their bottom-line profitability. This is hardly surprising, given

that if the pound did move, it was usually within fairly stable ranges, and law firms had adequate pricing

strategies to protect them against these market movements.

During the recession however, the pound’s value plummeted. In 6 months in 2009, it plunged 26%

against the dollar. Nobody could predict where it would settle as it rose and fell dramatically over the

course of the year.

Law firms operating overseas offices were particularly affected. If a UK law firm is commissioned by a

client to do some work in a foreign country, they will usually engage with an overseas associate or use

one of their international offices to conduct the work. In the case of overseas associates, they bill the UK

law firm and these costs are charged on to the client. The invoice may have some foreign currency

exposure if the foreign associate invoices in their home currency. The UK firm then has to apply a

notional exchange rate to this invoice, so they can create a bill for their UK client in GBP. Dependent on

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their business practices, some UK firms even send the payment back to the overseas associate before

being paid by their client.

According to the Travelex paper, before the recession “a firm’s visibility in to their exposure to market

movements was often masked by their pricing approaches. But with the pound fluctuating so violently

throughout the recession, bottom line profitability was seriously impacted and the issue came to the

forefront.” Often, there was an adverse currency movement in the time since the client paid the bill and

the UK law firm sent the payment back to the overseas associate. This left the UK firm with a deficit as

their pricing strategies failed to protect them against market volatility.

The firm then had a tough choice – to either re-bill the client (thereby putting the relationship at risk), or

cover the shortfall themselves (thereby eroding profit margins). Even if the firm did not pay the supplier

until their bill to their client was paid, realised FX losses were often masked by the inability of older

systems to deal with currency exchange rates properly. Firms often made the mistake of entering the

supplier invoice into their system not in its source currency, but in the firm’s preferred currency, having

calculated a notional exchange value for it manually.

Strategies such as currency buffers have been typically employed to protect against volatility, but the

global financial crisis of 2008/9, and more recently the Brexit vote, has seen currency fluctuations in some

business sectors, including legal, that have made currency buffers largely ineffective.

It’s not just the recession that has had an impact on the financial health and habits of the legal

community. New regulations, such as the Legal Services Act of 2007, have forced law firms to focus more

on the consumer. Serving to open up the legal sector, the Act has sought to liberalise and regulate the

market in order to encourage more competition.

A more competitive environment has really forced firms to place client experience at the top of their

priorities. With so much competition, bad feedback about a firm could jeopardise its survival at such a

critical time. To really be able to compete in the new economy, the firm’s approach needs to be holistic

and all-encompassing.

Global expansion of business into new growth areas and regions (think China and India), and the

increased use of technology to drive efficiency means that law firms have been forced to adapt to a

rapidly evolving and increasingly commercialised environment. This is an environment where legal

services are simply another commodity, and where clients are happy to shop around, and farm out their

legal work to more than one law firm (in some cases even to non-traditional legal services providers).

The differentiators that really matter to buyers of legal services – the people who make the business of

law possible – are focused on service delivery: how legal services are delivered, in what form, for how

much and how much added value there is in those services. This is the area where that precious

competitive advantage can be found. The focus is on the consumer, and no longer on the firm: how big

the firm is, where its offices are, or even its reputation.

It cannot just be the “front-office” client-facing teams that implement consumer-centric strategies – it must

also filter down to the “back-office” financial teams, including those handling the collections processes.

Implementing a more lean and efficient set of processes throughout the firm can only enhance existing

client relationships. The combination of our industry-leading 3E software and our highly experienced

consultants can help your firm achieve this lean approach.

Indeed, more and more firms are looking to methodologies like LEAN and Six Sigma to drive efficiencies

and ultimately deliver the best service to their clients. But without the technology to track and measure the

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firm’s performance these methodologies, and the certifications that often accompany them, are no more

than an exercise in futility and a few cool logos on the company’s web site. This is where 3E comes into

its own, giving firms the very tools needed to help them utilize the Big Data that is often languishing in

their databases, doing little more than taking up disk space.

Ever since the global recession, law firms (amongst many other services industries) have struggled to

recover. The fact is that demand for legal services is flat, and has been so for nearly a decade. According

to the Center for the Study of the Legal Profession at the Georgetown University Law Center’s 2016

Report on the State of the Legal Market (in conjunction with Thomson Reuters Peer Monitor) “In what is

rapidly becoming the “new normal,” it appears that 2015 will go down as another overall lack luster year in

terms of law firm financial performance. While the picture obviously differs from firm to firm…law firms

continued to experience very sluggish growth in demand, coupled with negative growth in productivity,

and continuing downward pressure on rates and realization… Demand for law firm services, as tracked by

Thomson Reuters Peer Monitor, was essentially flat in 2015.”

One of the few marginal growth areas for law firms is cross-border business. Clients are now driving firms harder towards globalisation, as business expands across the globe and technology enables that

expansion. In their Business of Law Seminar report published in 2013, entitled Going Global: Opportunity, Necessity

or Threat? Allen & Overy identify three major trends that have impacted the legal industry in recent years. The first two identified are consolidation and commoditisation, and both are a direct reflection of the economic pressures on law firms. The third major force driving change to the legal industry that is identified by Allen & Overy in this paper is globalisation: “Globalisation has been compelling businesses, governments and their legal counsel to increase their interactions with new world economies for over a century.”

GLOBALISATION TRENDS

Business is global, and never has that been more of a truism than now. In the same report, Allen & Overy

quote research showing that, of the top 500 law firms in the world in 2001, 215 were based in the United States, whereas by 2012 that number had dropped by 40% to 132 firms. Of these same top 500 firms, 116 were from Asia back in 2001, while today they number 188, an increase of 70%.

As the report says “…These numbers reveal another aspect of recent globalisation: the rebalancing of the world’s economies. China and India, two of the most powerful economic players prior to the industrial

revolution are increasingly regaining the economic influence that their relative size and populations would dictate.”

If businesses go global then so must their legal services providers. The leading U.S. and U.K. firms have a long history of expanding into growth markets and opening offices in many countries and jurisdictions, the better to serve their clients’ needs, and the pace here is also accelerating. In 2012, U.S. law firms

opened 56 offices outside of the United States, more than any previous year in history, and there were 96 cross-border law firm mergers.

Allen & Overy identify several factors behind this acceleration. First is client demand. Second, as more and more financing work is done outside of the traditional financial centers of New York and London, firms are following the money. Thirdly, increased competition at home is pushing firms to seek access to

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growth markets abroad. Finally, cross-border work is profitable, often more profitable than a firm’s domestic work.

So is globalisation an opportunity, a necessity or a risk? I would agree wholeheartedly with Allen & Overy’s conclusion that it is combination of all three, as the introductory remarks above hopefully make clear.

3E AND GLOBAL FIRMS

3E is designed to work with your firm to help manage the risks, identify the opportunities and meet the

necessary requirements of working on a global scale.

As mentioned above in the introduction, I intend to show how 3E can help your firm go global - comply

with local statutory requirements, keep tabs on profitability and MI as you grow, and leverage data to

track trends, manage risks, and even produce bills in multiple languages.

Before we do so, however, we must address the risk factors attached to law firm globalisation, and how

3E can help mitigate these.

RISKS AND REWARDS

THE IMPORTANCE OF FINDING OUT WHAT YOU DON’T KNOW

THE AFRICAN HONEY GUIDE

The African Honey Guide is a bird that has evolved the unique behavior of guiding humans to beehives in

the wild. Cooperation between the African Honey Guide bird and hunters was first written about by a

Portuguese missionary who came to Southern Africa in 1588, but it was widely dismissed as a fantastical

tale at the time. In recent years, however, researchers have found ever more evidence of the bond.

The birds lead hunters to trees with beehives, relying on the humans to subdue the insects with wood-

smoke, chop open the trunk, get the honey and then leave behind particularly the beeswax that is a key

energy source and sought-after delicacy for the birds.

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In the 1980s, scientists documented that honey guide birds will seek human help by making distinctive

calls and flitting from tree to tree to attract attention. In South Africa and Mozambique, hunters in search

of wild beehives are far more successful in finding honey when they use a traditional call to attract these

birds, researchers report in the journal Science.

Lead author Claire Spottiswoode, an evolutionary biologist who works at Cambridge University and the

University of Cape Town, told Reuters that the communication is indeed two-way, and that when humans

communicate back to honey guides in this way, it reinforces the bond, with obvious benefits for both.

The humans run all the risks of getting stung, but the reward is so great that we will accept the risks – and

pass on some of the rewards. What does this mean for law firms?

RISKY BUSINESS

A law firm’s clients are its honey guides - nearly all the top performing law firms over the last ten years

have a significant global presence due in large part to client demand for globalised legal services . Clients

will guide their legal services providers in new directions, and law firms respond because (a) they want to

keep their client base happy and (b) they see the opportunity for growing new business.

There are, however, many risks involved in meeting that client demand and following the lure of profitable

cross-border work.

Globalisation has in the past ten years or more proved to be a massive profit-generator to many law firms,

as their clients increasingly did more cross-border business, and they moved into new markets to support

them. But many a firm has been stung in the process.

As pointed out by White & Case in their 2015 Insight report, globalisation has been expensive: large firms

can rarely charge the same rates in new markets as they do in their home jurisdictions. It can also be

difficult to identify and develop high-quality talent in distant locations, and initial capital investment can be

prohibitive. Maintaining consistent high standards across an international network, and standing out from

the crowd, comes at a cost.

Another form of globalisation has been the emerging trend for large law firms to set up offshore

operations in low-cost locations to run their back-office functions and carry out routine work.

“This will become more common as firms strive to reduce their costs,” says Hugh Verrier (chairman of

White & Case LLP) “but firms will have to balance concerns about cost and quality to ensure that they do

not dilute the value they provide.”

COMPETITION IS FIERCE

When any firm considers establishing or expanding a global presence, it must consider the very basic

truth that the bigger firms (like White & Case and Allen & Overy) are usually already there, and that the

market pressures on law firms in their home country are no less intense in a different one.

In the same Insight report White & Case make the observation that “a key determinant of success for the

large law firms of tomorrow will be the ability to stand out from a growing crowd, often by telling a story

not only about efficiency and client service, but also about the law firm’s culture and its commitment to

social engagement. Successful firms will network with decision makers in government, business and

social institutions around the globe.”

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“Ten years ago, firms were able to differentiate themselves just by establishing a presence in key markets

around the world,” says Verrier. “That’s no longer the case. Global firms must articulate how their

offerings set them apart from others with a similar footprint.”

Global expansion and the increased use of technology to drive efficiency means that law firms have been

forced to adapt to a rapidly evolving and increasingly commercialised environment, where legal services

are now commoditised and where clients are happy to farm out their legal work to more than one law firm,

in some cases even to non-traditional legal services providers.

The differentiators that really matter to buyers of legal services – the people who make the business of

law possible – are focused on service delivery: how legal services are delivered, in what form, for how

much and how much added value there is in those services. This is the area where that precious

competitive advantage can be found.

This “similar footprint” phrase used by Verrier refers as much to the presence and reach of these firms on

a global basis as it refers to the size and turnover of the firm as a whole. One of the key differentiators

between firms is often the software they use (and the IT infrastructure and talent they possess) to

manage their offering to their clients, and provide the leaner systems and processes that may well be the

crucial difference between profit and loss.

With our Thomson Reuters Peer Monitor offering, information is readily available to firms who want to

study what the competition is up to and how they are performing in a given jurisdiction and in specific

types of legal work.

And in our flagship 3E software, firms have the ideal foundations upon which to build their global

business, whether by using the 3E Profitability module to manage their margins, using the 3E Matter

Budget tools to monitor and report on the budgets they set for specific types of work that utilise lawyers of

varying degrees of profitability, or leveraging the multi-currency and multi-unit capabilities of 3E (along

with its ‘point-in-time’ reporting) to get accurate and timely MI and deal with currency exposure.

CAPITAL INVESTMENT

As mentioned above, moving into a new territory can be expensive - large firms can rarely charge the

same rates in new markets as they do in their home jurisdictions. 3E can help your firm establish a global

charge-out Rate structure that can be set up to determine the right charge-out rate in the right currency,

by way of dimensions attached to the lawyer doing the work, the matter they are working on, the Client

the matter belongs to, and a host of other criteria such as PQE (Post-Qualification Experience).

A typical example would be to set up a dimensional Rate structure that incorporates the Office of the fee

earner (they work, say, in the Paris office), the Title of the fee earner (they are an Associate), the

Currency (Euros, say) and the Rate Class of the fee earner (they have 5 years PQE). All three of these

dimensions are required fields in 3E when setting up any new fee earner in the system, which means that

it is impossible for a new fee earner to “slip through the cracks” and either have no rate at all, or the

wrong rate (perhaps even in the wrong currency). It also means that creating Rate Exceptions or

changing base Rates is much easier than in other systems.

More significantly, however, establishing new offices in far-flung locations, or expanding an already

existing presence internationally, often requires significant capital investment, whether due to the costs

of acquiring a local firm and bringing them into the fold, or the costs of opening a brand new office and

staffing it with the right talent.

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Many firms with ambitions to “go global” or grow their cross -border business are faced with having to

source capital while at the same time dealing with the increasing financial pressures faced by the legal

sector as a whole.

In the Georgetown University Law Center’s 2016 Report on the State of the Legal Market (in conjunction

with Thomson Reuters Peer Monitor) the authors tell us that recently law firms have lost market share of overall legal spend to in-house corporate legal departments and to alternative service providers (the “alternative service provider” category spans a wide array of non-traditional law firm service providers,

including legal process outsourcing firms, legal staffing firms, accounting firms, technology c onsulting firms, and many others). Meanwhile, in some countries accounting firms have actually acquired and now control law firms, while in other places “they have formed collaborations or offer legal-related services that do not constitute the formal practice of law. Their strategy has not been to offer a full range of legal services, but rather to focus on specialized services that complement the services their organizations already offer – e.g. immigration, labour and employment, compliance, commercial contracts, and due diligence activities.” Peter Roch, a law firm management consultant, has estimated that measured as a proportion of the combined revenues of the ten largest law firms in each country, the aggregate market penetration of the Big Four accounting firms into the legal market currently ranges from 4 per cent in China and 6 per cent in Britain, to 20 per cent in Germany and 30 per cent in Spain.

These pressures and others make it difficult for law firms to finance their global ambitions. However, those firms that have already made the investment in 3E are in a better position than most to take the risk

of capital investment in new markets, because they already have the technology in place that will help them to minimise their financial exposure and manage their new offices efficiently and cost-effectively.

THE WAIT FOR PROFIT

When opening any new offices, but especially offices outside the home country, there tends to be

significant “lead time” before profit is realised, creating the law firm equivalent of “fiscal drag.”

This is due in large part to the capital investment mentioned above – the startup costs of new premises

and staff can often start such a new venture off “in the red.”

In such a competitive market, firms simply cannot afford to wait a year or more for a new office to start

paying for itself, yet I have worked with several firms who have had to do exactly that, effectively running

the offices at a loss (and having to finance their operating expenses from the firm’s main office bank

account) for 18 months or more.

This lead time is also caused, and sometimes even lengthened, by some of the risk factors discussed

below, including lack of local knowledge, local “red tape” and the use of outdated financial sy stems. With

3E, your firm not only has a cutting-edge financial management system that is specifically designed for

law firms and financial services companies, but also has the tools needed to minimise the wait before you

see profit from your new office across the border.

STATUTORY REQUIREMENTS

There can be onerous local statutory requirements (often referred to as “red tape”) that have to be met

when a law firm expands into a new territory where it has not conducted business before.

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This is often cited as one of the reasons why there is significant initial capital investment required and

also why there can be such long lead times before any profit becomes evident from a new territory.

Our consultants have worked on many large law firm global implementations, and are therefore well

placed to help your firm ensure that any local statutory requirements are effectively met. And the 3E

software, and ancillary offerings from Thomson Reuters such as eBillingHub, ContactNet and Proposal

Generator, are all constantly under development. This is not only to offer enhancements (and fix the

inevitable bug or two to which all new software releases seem to be prone), but also to keep abreast of

statutory requirements in the jurisdictions across the world where our products are used.

With 3E, we offer an industry-leading financial management platform for your firm that, amongst its many

advantages, is geared towards making the red tape easier to cut through.

“THE KNOWLEDGE”

Lack of knowledge about your target location is an often underestimated problem. Like a good London

cab driver who carries around “The Knowledge” in their head and can get you anywhere in the city or its

environs without satellite navigation, law firms expanding into new jurisdictions would do well to leverage

whatever local knowledge they may have or are able to find.

I have worked on 3E implementation projects with major law firms who already had a presence in many

countries, but where the local offices in those countries had their own local accounting systems and

hoarded their local knowledge, and where the firm did not make the necessary efforts to bridge the divide

and involve these offices, thereby making it very difficult to ascertain what was required to bring all offices

worldwide onto a single system such as 3E.

Our consultants are experienced in dealing with offices in many countries, with different cultural values

and expectations than those which the firm may be used to, and with different ways of working. We know

how to engage with people in these situations, and help your firm to ask the right questions at the right

time so that you aren’t faced with any nasty surprises after your Go Live date.

OUTDATED SYSTEMS

Outdated or inadequate financial and case management systems can easily be the down fall of a firm’s

efforts at globalisation.

Even if their expansion into new markets is simply a matter of buying out a local firm in an acquisition, law

firms should always beware of making one or the other of two fundamental errors:

1. Let the local office continue to operate on whatever local IT systems, particularly financial

management systems, they already have in place, which runs the risk of operating in “silos”

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where the local office hoards knowledge, and where there is no firm-wide visibility of the overall

performance of its overseas offices;

OR

2. Move the local office onto the firm’s legacy system, which is preferred by the partners (but is now

rather outdated). The risk here is not only that the outdated system may have no way of coping

with the local requirements, but also that the outdated system may not have the ability to provide

accurate and timely Management Information incorporating multiple business units operating in

multiple currencies.

SUCCESSFUL MULTI-NATIONAL 3E IMPLEMENTATIONS

KEY ELEMENTS

Element 1: “Manage the change” Early buy-in from your firm management, but equally from your target

expansion regions, and led vocally and enthusiastically by the firm sponsor(s), is vital. If the firm is

expanding internationally by way of acquisition or merger, there can be resistance locally to the new

regime, and fears of job losses. More basic, but no less pernicious, is the fear of change. Our consultants

can use their experience of changing from local systems to 3E to help your firm with change

management, easing the transition in local regional offices from old systems to new.

Element 2: “Listen , learn and adapt” The quality of any project, particularly a project that involves as

much change as a 3E implementation can bring, is determined by many factors, but the willingness to

listen, learn and adapt is essential to a successful 3E implementation. This is where our Project Quality

Model (PQM) comes into its own. The PQM is a project outline with many overlapping detail aspects, all

of which are targeted at “gates” where the firm signs off one stage of their 3E project before moving on to

the next. Each element of the model has specific outputs and specific expectations that must be

achieved, and is readily adaptable to the inevitability of change. We listen to your requirements, we learn

as much about your firm as we can, we adapt the project plan if required, and we respond to changing

needs in a manner that controls “scope creep” and makes use of our vast experience and Best Practice

tips. This can only be successful, however, if the firm management and the key stakeholders are also

willing to listen to those Best Practice tips, learn new ways of working, and adapt to the benefits of new

technology that 3E brings.

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Element 3: “Question everything” Questioning long-held assumptions about how something should be

done is not the easiest thing to do – especially not for people who are traditionally trained to argue their

case! But as much as we encourage our customers to question their assumptions and keep their minds

open top new ways of working, we question our own assumptions, too. Good research into your firm and

the willingness to “ask a stupid question” is something our consultants keep central to their approach

when partnering with you to strategise a software and processes solution that meets the firm’s needs.

Good knowledge of local statutory requirements is, as mentioned before, a prerequisite for a successful

move into a new jurisdiction. Our consultants already know most of these statutory requirements, but

“every day is a school day” as we say at Thomson Reuters. So we learn, we adapt, and we question the

status quo – because sometimes you find that what is described by the local offices as a “statutory

requirement” is actually just a long-established, preferred way of doing things that can, and often should,

be subject to change.

Element 4: “Firm First” 3E allows firms to set up their new system to post in parallel into multiple sets of

books, usually with the principle “Firm First” very much at the core, but with local books and requirements

on tap. This means that local offices can use the global 3E system to produce a Trial Balance, a P&L and

a Balance Sheet that is focused entirely on their local needs, in their local currency and even in a different

Fiscal Year from that of the firm (including mapping to a local Chart of Accounts, as mandated in

countries like France). At the same time, the firm’s central management can produce “firm books” that

report on the firm’s Chart of Accounts, in the firm’s preferred currency, on the firm’s Fiscal Year.

Element 5: “The Knowledge” Get the right people working on the expansion project at the right time.

Our experienced consultants will work with your core team members to produce the right results for your

firm. Involve the regional offices – do not sideline them. Given that they have “The Knowledge” this one

seems fairly obvious, but I have seen too many 3E implementations drag on and even suffer a delayed

go-live as a result of ignoring the regional offices, or underestimating their needs and requirements.

Element 6: “Testing, testing…U-A-T…” is a little mantra that should be at the heart of every 3E project.

Without good testing of the stock and custom configurations, dashboard designs, templates, interfaces

and workflows, and thorough testing of 3E’s built-in security, the project is at significant risk. The firm has

to be willing and able to take staff away from their “day jobs” and dedicate them to User Acceptance

Testing, often for hours of each day leading up to the project’s go-live date. But what is even more

important to recognise is that each firm implementing 3E will find that new positions are created where

people become responsible for the “care and feeding” of 3E, which may include training in-house staff on

using 3E’s Integrated Development Environment (IDE) to develop your own custom screens, process es,

workflows, templates, etc. There is as much UAT required for that type of effort as for the initial

implementation.

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3E AND REGIONAL REQUIREMENTS

BE A TRULY GLOBAL FIRM WITH 3E

FIRM V. LOCAL

GL TYPES AND GL BOOKS

As I mentioned above, 3E has the built-in capability to allow firms to keep “Firm books” and one or more

“Local books.” In 3E, postings to the GL can be made into one or more GL Types at once, and the 3E

masking engine allows these parallel postings to happen automatically into multiple GL Types at certain

stages in the life of a sub-ledger transaction, based on characteristics of the sub-ledger posting.

For example, revenue recognition can follow the location (office) of the Fee Earner whose time is being

billed (known colloquially as the “bums-on-seats” revenue recognition method), but it can alternatively

follow the office of the Matter being billed.

Certain GL Types may well be used for masking only. Many other options exist in 3E – discuss them with

your consultant.

For purposes of reporting on these postings, the 3E Trial Balance and GL Detail reports (and also Elite

Financial Reporting) all use GL Books, not GL Types, to report on financial data.

A given GL Book may contain more than one GL Type , e.g. in 3E you could easily create a GL Book

called “Firm Management Books” which may possibly contain the following three GL Types (as a very

simplistic example):

Accrual

Cash

Period 13 Adjustments

Your firm could also choose to have a different GL Book that contains only the Accrual GL Type, and

perhaps call it the “Accrual Book.”

This means that the firm can, for example, run a year end TB that includes so-called “Period 13” (Year

End) adjustments, by running it on the GL Book called “Firm Management Books,” but can also run

monthly operational TB’s that do not contain Period 13 adjustments , by using the “Accrual Book.”

In each case, it is the GL Book that the user selects in the GL Trial Balance report’s parameter screen

that determines which GL postings are included / excluded from the TB results.

More importantly, it means that international offices can have their own local GL Books that allow them

to make postings and run reports using accounting treatments that are different from the firm’s global

accounting treatment. This means that each region can, in effect, manage its own finances in its own

way, while at the same time giving the firm its required financials (the “Firm First” approach).

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SEGMENTATION AND LOCAL CHARTS OF ACCOUNTS

3E incorporates a segmented GL structure that is mirrored by setups that reflect the overall company

structure of the firm – especially useful for global firms.

In 3E, each “company” within the firm can be run as an entirely separate business unit, and in Unit Setup

firms can set up their business units to have their own currency, Fiscal Year, registered names,

addresses, numbering sequences (for invoices, for example), etc.

Each Unit has an Office or many Offices attached to it , and the Unit in 3E is therefore a key required

segment in the GL Account structure. When we check to ensure that the system is in balance and

healthy, our primary way of balancing the 3E system is by Unit.

The Chart of Accounts (C.o.A.) in 3E is numbered by way of a GL segment called the “Natural” segment.

3E fully supports Local Charts of Accounts for each of your business units that operates in a country or

jurisdiction where a different C.o.A. is required. It does so by mapping the Naturals to the Local chart

numbers, so that all postings that happen at the firm level but involve a local element get posted in

parallel to firm and to local books, with local GL accounts.

Example: The Plan comptable général in France requires that firms with offices in France generate all

local books using French GAAP (Generally Accepted Accounting Practice) and the French state-

mandated C.o.A.

MASKING

It is the powerful masking engine in 3E that allows firms to set it up to automatically post any given

transaction to multiple GL Types at once (parallel posting) – and thereby allows reporting of GL postings

in multiple sets of books (firm books and local books).

Unit Posting Drivers allow firms to choose when and how to post to multiple GL Types. For example,

where the Fee Earner Unit <> Matter Unit, standard postings are done to firm books, PLUS postings to

local books via GL Types, using different masking variables that are available, based on Cash or Accrual

accounting regimes in those Units.

CURRENCIES

3E IS A TRUE MULTI-CURRENCY SYSTEM

Global firms have to deal with transactions in multiple currencies. 3E’s multicurrency capabilities are built

in, and can help you limit your firm’s exposure to currency fluctuations. Both realised and unrealised FX

gains and losses can be calculated and tracked automatically .

Natural Unit Office Dept Section

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Compliance is a key element of international business, and Elite is constantly striving to keep 3E in step

with local requirements, such as reporting in a state-mandated currency, or dealing with state-mandated

exchange rates.

3E allows you to set up multi-currency charge-out rates, so that a global matter that has lawyers from

different countries working on it will charge the right rate for each.

3E allows you to pay foreign currency supplier invoices (“vouchers”) out of any of your Office Banks, e.g.

pay Euro vouchers from a GBP Office Bank.

3E allows you to record vouchers in any currency as disbursements on a Matter that is in a different

currency.

Firms can set up any number of Exchange Rates to use, including automatically updated daily rates ,

usually updated via a daily Microsoft BizTalk interfaced upload from a site like Oanda.com. These

exchange rates can be used in any of the 3E reports and metrics to enable the firm to accurately report

on values in any supported currency.

Every posting that enters the 3E General Ledger gets three currency values:

Firm currency (which may be GBP, for example)

Unit currency (which may be Euros if the Unit involved in the posting is, say, France)

Transaction currency (which may be Saudi Riyals if, for example, the Paris office is billing a

Saudi client)

Optionally, every transaction can also be “stamped” with up to three additional Reporting currencies,

where for example the firm operates in the Russian Federation and transactions must be reported in

Euros as well as Rubles, irrespective of the fact that the transaction took place in US Dollar and the firm

currency is GBP. This in no way limits the firm from reporting the same transaction(s) in any supported

currency it may require.

REALISED AND UNREALISED GAINS/LOSSES

3E will automatically calculate realised FX gains/losses and provides the flexibility to direct the gain/loss

postings to separate expense or balance sheet GL accounts:

By individual GL account

By rollups of GL accounts (AP controls, AR controls, etc.)

3E provides additional detail to determine which types of transactions have the most significant impact ,

thereby allowing the firm to determine if it could change business practices to minimise FX losses.

Unrealised gains/losses can be calculated and posted at any time the firm desires .

TAXATION

3E accommodates the usual Input and Output taxes, automatically calculating tax based on effective-

dated percentages on the Taxes setup. We can also set up special rounding for required tax calculations

like Japanese Consumption Tax, and in 3E we also have the capability to calculate “tax on tax” (Canadian

GST and PST).

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3E also accommodates both Billing and AP Withholding Taxes, as well as EU Reverse Charges taxes

and VAT reclamation for Counsel Fees.

TAX AREA MATRIX

Global firms also have the option of using the Tax Area Matrix in 3E, which automatically selects the

appropriate tax codes based on a matrix of “From” and “To” Tax Area rules.

The Tax Area Matrix in 3E allows firms to create a matrix of default tax codes to use with different

combinations of from/to Tax Areas (countries), with exceptions by Cost Type or Time Type.

The "from" tax area is set in Office for each billing office, and the "to" tax area is set at the Payor or Matter

level. The matrix will auto-calculate and apply taxes in Proforma Edit when the proformas are generated,

based on validation of the Tax Area of the billing office (the “From” area) against the country in the

Payor’s primary site (the “To” area), taking into account any exceptions (e.g. services in regard to

property in the EU).

It can be used in conjunction with Billing Rules in 3E to manage exceptions (e.g. UK timekeepers

incorporated on a German office bill).

TAX REPORTING

3E has both summary and detail Tax Journal reports, plus AP Withholding Tax reports and the EU Sales

and EU Acquisitions List reports.

3E incorporates “Tax Clearing” which allows firms to clear their Input and Output GL Accounts at the end

of every tax reporting period, and pass these values into a Tax Clearing GL Account .

Tax returns are paid over to the authorities from this Tax Clearing Account .

GLOBAL BILLING

3E allows Fiscal Invoicing, where the Payor is sent a proforma invoice with a provisional invoice number,

but the invoice is then given a Fiscal invoice number when the Payor agrees to the amount payable (this

is a requirement in Turkey, Indonesia and Italy, for example).

3E incorporates electronic billing via our eBillingHub product, using UTBMS codes and a regularly

updated set of e-billing templates that meets all e-billing requirements, no matter how simple or complex,

no matter where in the world it is used.

Both group billing and split billing are fully supported in 3E, allowing firms to send multi-matter bills to

international clients who may have hundreds of matters running at any given point in time.

3E fully supports tax-compliant multi-Payor billing, where a single invoice is payable by multiple entities,

many of which are not clients of the firm. 3E can split the elements of the bill by percentage between the

Payors, where for example an insurer pays all the VAT and four injured parties pay 25% each for the

professional disbursements and legal fees.

We also have the built-in capability to bill in layers by Payor, where a major shipping client, for example,

may require that the insurance work done by the firm is billed to them and to each additional Payor along

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split percentages for each layer of risk. Often this is the case where let’s say Insurance Company A

carries 50% of the risk for the ship’s cargo (Layer 1), whereas Insurance Company B carries the other

50% of that Layer 1 risk, plus 25% of the risk for the crew (Layer 2), and Insurance Company C carries

the other 75% of the Layer 2 risk for the crew, plus 100% of the risk for the ship’s engines (Layer 3).

These entities want to be billed for legal work along those same percentages and layers, each with a

unique reference number and Billing Contact, and 3E accommodates that.

Lastly, inter-company billing (ICB) is a module of 3E that allows firms to generate and settle bills between

their business units, especially for cross-border work and transfer pricing. Elite 3E provides a

sophisticated package of features that support transactions between units while accommodating modern

and global corporate structures. 3E Intercompany is comprised of a series of general ledger processes

and billing setups and fields within 3E that handle the posting of transactions between the firm's units. Set

up correctly, the general ledger will create and manage postings between the units when transactions

between units occur.

Once postings are made, the firm can clear each unit's cash accounts via general journal postings or use

the automated Intercompany Billing (ICB) processes. The ICB processes allow for the billing work

performed by one unit to be recognised by another unit while keeping the firm's general ledger in balance.

Firms with a large volume of intercompany transactions, or firms whose corporate structure require that

intercompany transactions are handled independently between units, benefit from using the ICB module

of 3E.

LANGUAGE

3E is fully language-enabled, meaning that it can be set up to produce printed output in the language of

your choice in each international office (particularly bills to clients), but can also be set up to show the

entire UI in French, for example. 3E is Unicode compliant, and can therefore support non-Latin alphabets

and non-Western numbering.

And our consultants have experienced implementation across cultures and languages, so we are

proficient at asking good questions and re-stating our understanding of the answers to ensure that

language does not have to be a barrier to effective communication.

We also understand and accommodate the cultural nuances and sensitivities that prevail in regions where

the culture differs from our home culture.

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LEARNING NEVER STOPS

KEEPING ABREAST OF DEVELOPMENTS

THE ANSWER COMPANY

Keeping abreast of regional requirements is not easy, but Thomson Reuters is ideally placed to get the

answers you need when you need them.

Thomson Reuters Peer Monitor is an invaluable tool for researching the state of play of your firm’s peers,

by jurisdiction and work type.

Our flagship 3E software is constantly being updated and developed to meet the needs of our customers

and keep abreast of new statutory requirements across jurisdictions. Our market penetration with law

firms is second-to-none because of the power that 3E gives firms to not only manage their finances and

risks, but also to give firms a competitive edge in an increasingly competitive environment.

SUMMARY

Business is global, and increasingly law firms are going global too. This is driven by client demand,

market segmentation and the loss of market share to non-traditional legal service providers. As such,

firms will have to consider what their “unique selling point” will be in the future, to differentiate themselves

from their competitors. 3E can be one such differentiator, even between firms who are all using it.

Firms can no longer simply rely on growth by acquisition and merger, and expansion into foreign markets,

for survival – yet globalisation is a reality, and the pace of it amongst law firms is accelerating.

3E can help your firm to best manage its global presence, reduce risk, calculate profitability, and leverage

financial data to get “the Big Picture” – but it can also help your firm manage each international office on

its own merits and with its own sets of books, meeting local requirements while providing the firm with the

MI needed to overcome the risks of moving into a new market.

WHAT ARE THE NEXT STEPS?

Depending on your current position, you could:

Contact a Thomson Reuters Elite Sales / Relationship Manager

Contact the Thomson Reuters Elite Consulting team for help

Test the features discussed today on your own test 3E system

Incorporate the features presented today into your live 3E system

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RELATED KNOWLEDGE BASE ARTICLES AND SOURCES

Related articles:

Article 127383: 3E Standard Features and Navigation User Guide Article 127264: Billing Transactions User Guide - 3E 2.7 Article 127353: Accounts Payable User Guide - 3E 2.7

Article 128266: EBilling User Guide - 3E 2.7 Article 127419: Intercompany Billing User Guide - 3E 2.7 Article 127401: General Ledger User Guide - 3E 2.7

Article 127422: Language User Guide - 3E 2.7 Article 131183: 3E 2.7 Fiscal and Tax Invoice Auto-numbering Article 133819: 3E 2.7.3 Inter-company Inter-currency (IC-IX) White Paper - What ALL Firms Need To

Know Sources:

Business of Law Seminar 2013: Going Global: Opportunity, Necessity or Threat? (Allen & Overy)

http://www.allenovery.com/SiteCollectionDocuments/Going%20global.pdf Global law firms: Time for change? by Carolyn Lamm and Hugh Verrier, June 2015 (White & Case)

http://www.whitecase.com/publications/insight/global-law-firms-time-change 2016 Report on the State of the Legal Market (The Center for the Study of the Legal Profession at the

Georgetown University Law Center and Thomson Reuters Peer Monitor) https://peermonitor.thomsonreuters.com/wp-content/uploads/2016/01/2016_PM_GT_Final-Report.pdf

http://www.whitecase.com/publications/insight/global-law-firms-time-change