Legal News

Lawyers: Too Focused on Fine Print for Public Company Management?

By Dan Slater

For some, a future of law firm IPOs is a titillating concept. Double-digit growth, low-overhead, and businesses (litigation, restructuring) that can keep revenues afloat during poor deal markets. For others, a Brave New World of publicly-owned law firms would create a comic nightmare of conflict: Would the duty of loyalty be owed to the client or the shareholder?

A story in this week’s Economist suggest another problem: lawyers as business leaders.

The magazine writes:

Clients frustrated with private-practice lawyers often accuse them of lacking commercial nous. Because most lawyers spend much of their time peering at small print, big-picture concerns can go unnoticed. Few managing partners know their firm’s profit per billable hour, even though that is the main product law firms sell. Cost control is often an afterthought, trailing far behind revenue generation.

Furthermore, lawyers have never had to endure the same pressures as the managers of listed companies, where the shareholders call the shots. In law firms, equity is held by a small number of partners. Outside investors are sure to be less sentimental and more critical when analysing a firm’s performance. For law firms that do decide to go public, success will depend on their managers’ ability to run them as public companies, rather than members-only gentlemen’s clubs.

Countries are splitting over the issue. Last year, the Australian firm of Slater & Gordon (no relation) became the world’s first publicly-traded law firm, and has done gangbusters ever since, enjoying a 50% share increase and acquiring six smaller firms. A recent change in British law will, by 2011, enable law firms to use business structures other than private partnerships, and allow for external investment and IPOs. Back home, the concept hasn’t caught on. ABA Model Rule 5.4 prohibits firms from selling equity shares in law firms to non-lawyers. Specifically, it says that a lawyer shall not share legal fees with a non-lawyer.

Law Blog Word of the Day: Nous: (chiefly British); common sense, alertness.

Full post as published by Law Blog - WSJ.com on August 25, 2008 (boomark / email).