

America’s legal industry

The case against clones

A lawsuit could lead to more competition and more choice

See article

Readers' comments



There is no rational reason for any system of law to be too complicated for the public to understand. Lawyers have made it that way in order to profit from it. This is comparable to the Church in the Middle Ages insisting that bibles may not be published in any language but Latin.

Maybe the only good answer is to nationalise the profession of law.


The UK is the root of common law in the US and it has one of the most respected legal systems in the world. Do you really think lawyers in the UK would have gone along with this if they didn't believe external investment would both work in their interests and be perfectly within the ability of law firms to remain independent.

And re. independence and money - don't banks lend to law firms? Don't those law firms then sometimes act for the banks? Don't law firms have partners with significant investments in clients? The list goes on. We really need to think about all of this more logically.


Whatever would it take to get the legal profession back to the same time-space continuum where the rest of us reside and 26 billable hours by a single person in a single day are not possible. That said, I am guessing others have noticed that the vast majority of legislators are lawyers -- and we wonder why our politics are screwed up?


I don't think that outside investment could corrupt lawyers any further.

Lawyers will be the undoing of America and the entire western civilization. Like a cancerous tumor, the "legal industry" is growing faster, sapping resources more readily than industries essential to our survival, choking and enfeebling our society.


After reading the reactions of JKemp, John4law and others, I think it may not be in the interest of non-corporate clients - your average John Does and Mary Smiths - to turn law firms into joint stock companies.

What little I know of the history of the legal professions in Western countries, I think there are vocational and constitutional - rights, liberties and justice, albeit legal justice - dimensions that rub off on to the legal profession.

Lawyers and legal systems everywhere have departed from their early origins to become unjust and indifferent exploiters of the Public.

Money, sadly, is important but what is it without some idealism and ideals that ought to be well above it? .... and able to control it and its generation.

indica in reply to indica

Alternative dispute resolution - mediation, arbitration and mentoring - could be financed through the equity market, offering a cheaper avenue to many citizens and at the same time offering a modest but satisfying living to many lawyers who are not for working in large law firms.

I am guessing that at the moment these alternatives are either in the form of poorly funded 'Institutes of Arbitration' or some young and idealistic lawyers working out of damp basements in some urban jungle.

J. Kemp

There is one possible benefit to law firms taking on public shareholders, which is this:
Right now, law firms commit most of their misdeeds in private, non-transparent transactions in which they take of advantage clients, in what might be likened to private, back-alley muggings. Thus there is not a lot of aggregate data which the public can see which would unequivocally support the assertion that the legal industry in America is essentially a racketeering operation.
By allowing American law firms to rip off the general public on a very large scale, and in a quasi-transparent fashion via the sorts of stock IPO frauds American law firms facilitated with such glee (remembering that American law firms approved all of the disclosure documents for the great frauds over the years), this would give rise to a new wave of fraud of a scale which would dwarf those of dot-com stocks, junk bond leveraged LBOs and the sub-prime mortgage collapse.
What is the benefit of this? It would finally be proved beyond any shadow of a doubt that the American legal industry is fundamentally a corrupt institution which needs to be disassembled and shut down, cutting the number of lawyers in America down to the 50,000 to 100,000 which are truly needed, as opposed to the 1.1 million lawyers who are currently feeding on the economic flesh of American businesses and American citizens.


Dismantling the old ways in which the legal profession operates could bring more harm than good.

Obviously, the present troubles experienced by people with lawyers could WORSEN if those in the legal profession are further tied up and are made beholden to private interests and not on the rule of law.

J. Kemp in reply to Spellbreaker

Sadly in America the lawyers are beholden to the "rule of fees", not the rule of law. The notion of these people being beholden to anyone else, like investors, seems a bit unlikely. What would happen is they will defraud investors on a massive scale, as well as creating an offensive culture of private and institutional investors betting on lawsuit outcomes (via contingency fee firms), placing these investors in positive alignment with America's already excessive litigation culture. Not a good step for America to take.

J. Kemp

There was a time when investment banks were well and carefully managed. That time was when they were still partnerships. After investment banks started floating shares to the public, they became great transgressors against the public interest. Investors -- meaning individuals, pension funds and the like -- got the downside while investment bank partner/shareholders took the upside.

Lawyers in aggregate, are already great transgressors against the public interest in America. Allowing them to take in shareholder capital, shower their partners with shareholder money as "compensation", and then stick the public with the consequences, is an absurd idea.

What will happen if American law firms are permitted to take outside investors is this:
1. law firms will raise boatloads of speculative investor money;
2. they will dramatically increase their manipulation of the legislative processes in America to change laws to create even more need for legal services;
3. contingency fee litigation will go through the roof, and effective share-ownership in large contingency fee cases will produce irrational share-investing exuberance creating a speculative price bubble in such "stocks";
4. the historically most productive partners will sell loads of shares, and either partially or fully check-out and go to the beach, leaving the firm that much less productive;
5. remaining senior partners' compensation levels will go through the roof -- using investor money to drive up their paychecks to retain them;
6. partners who are productive, but not large shareholders at IPO time, will demand large pay packages or exit, or demand large protective parachute packages AND exit; and finally
7. shareholders will be left holding worthless shares in many, many cases.

Public ownership of law firm shares will further desensitize America to the already mind-numbing amount of litigation and legal expense which America suffers with, helping Americans to rationalize it further on the basis that one can get a piece of the action, when in fact, America should be steering its legal system in the opposite direction.
In short, this will be a disaster for investors, and an even bigger disaster for the public who will see the American "litigation and legal system tax" grow vastly larger.

guest-lalmioa in reply to J. Kemp

Its nice that you have presented the worst case scenerio, but seldom do such things actually manifest. Australia's legal industry is doing quite well and they have been allowing investment for almost a decade. We don't need to wait until the UK has their results, Australia is similar enough.

Doomsday did not result in 2012 and the legal industry going public will not spell the end of society nor the investment community. Having worked with attorneys I can honestly say bringing in outside partners and investors who actaully know how businesses are run would be a fantastic improvement.

DW Marks in reply to J. Kemp

I agree with Lalmioa. The world did not end in Australia when a couple of firms listed, and other firms were able (without listing) to introduce family members and family trusts as shareholders. I found it slightly distasteful, but whatever rocks your boat frankly. If you buy equity on the strength of a particular group of partners staying, more fool you.

J. Kemp in reply to guest-lalmioa

The American legal system is vastly different on a structural and rules level from those in Australia and the UK. America does not have "the English rule", otherwise known as "loser pays" (with the exception of rare implementations such as in Texas). America also has a long history of felons working as prominent attorneys. Consider the four Milberg Weiss partners indicted and imprisoned. The culture of law in America is one of shallow greed, not one of duty to society and duty to the rule of law. Many of the judges in America at the state court level, which is where much of the carnage occurs, are a dangerous and out of control, working in cooperation with the law firms to promote this "industry". Such judges get their positions by "playing ball" with local law firms. Not surprisingly, an article in the Yale Law Journal estimates over 1 million bribery transactions per year in the American judicial branch of government. There are few segments of the American legal profession which have not been plagued by scandals. A more accurate description is that bulk of the "profession" in America is one big scandal.


What about competition?? Efficiency is not measurable nor advantageous without it. Advertizing was promoted as a competition enhancing measure. It has worked to some extent but only in limited areas like personal injury. For Corporate and business practices "reputation" means everything. Big names call the shots and own client relationships. How will "outside" money change that? The practice of law is really a LOW INVESTMENT business. Firms do not fail because they lack capital, they lack rainmakers and money showers. This is the wrong remedy for a profession that is OVERGROWN and needs a BIG shakeout!


We need more of these lawyers to write those outrageous software EULAs that deprive the buyer of any thinkable and un-thinkable right over the purchased piece of software.



The legal industry self appointed spokes group says that Lawyers are not business people with a duty to the bottom line? What a laugh. The Legal industry is a growth industry now up to 261,000,000,000 not counting pay outs to clients (millions for a little paint over a chip) and not counting the salaries of the legal industry lawyers who work for the city, county, state, and federal governments, consultants - paid by the legal industry, Judges who make the rules for the legal industry and interpret the regulations for the legal industry etc the list never ends)
The ABA seems to think the legal industry is not concerned about the bottom line (BS) Imagine the outrage from this industry should anyone suggest a single payer system for the legal industry hmmmmmmm (after all in America we are are supposed to have justice).


Yes the country with the largest prison population in the World - the US with its 2.5 MILLION inmates while COMMUNIST China is distant second with 1.6 million, definetely will need even more layers to put more people in jail.

The US jurisdiction and law enforcement are indeed already an industry to trained to keep the US jails full.


Da Scarecrow in reply to kpxoxol

the US jurisdiction? what do you mean by that? I know what US jurisdiction means generally, but I cannot decipher its meaning in relation to your comment. Anyway, we have a massive problem in the US regarding our out-of-control prison population. But lawyers are not high on the "list of people to blame" for this. Perhaps it can be argued that lawyers have some indirect role in the grand scheme of things. But the largest and most direct reason we have an incredibly high prison population is almost exclusviely a result of our absolutely insane drug policy ("the war on drugs"). For example, in 2005 there were over 785k people arrested for marijuana related offenses. In 2006 the number increased to 830k, and in 2007, there was a further increse to 875k. Obivously, not all of these people went to jail. However, hundreds of thousands of those arrested were incarcerated at some point. Keep in mind, this is just for marijuana. Even if you are archaic enough to believe that marijuana is bad, then fine, but it should be obvious to those type of people that our current policy is not working at all, not even the slightest. If we cut this insane policy out of the judicial system it would free up billions of dollars in resources (which is something that should make conservatives nut themselves).

Getting back on point, for all those who blame lawyers for all that is wrong with the judicial system, it is important to understand that lawyers are not just trial attorneys and prosecutors. In fact, I am willing to bet that most lawyers either serve the defendants (meaning they are trying to keep your ass out of jail instead of putting them in jail), or other forms of transactional attorneys (such as those dealing with contracts, and other business related activities). Ultimately, lawyers generally react to...well...the law. The law is generally set by the legislature. So if the legislature creates more laws that effect more people, well, then more people are going to need lawyers. This will lead to an increase in lawyers. So its hard to say the reason why there are so many people in jail is because of lawyers.


Sure, lawyers are notorious, but they're still shining examples of ethics compared to shareholders.

john4law in reply to Melissia

Non-lawyer controlled, for profit legal services firms are EVERYWHERE and employ a large percentage of total attorneys: they are called Insurance, Banking, Title and Financial firms. The Article is Supine to an amazing degree on this crucial reality!

Bill Price

The real argument here shouldn't be about "professionalism". Instead, the forms of legal entity in law, and the permitted owners of such enterprises, need to be viewed in the light of the efficient deplopment of capital to improve a law business's valuation. Allowing in outsiders hasn't helped in a fair number of other professions.

Management consultants, for instance, have been able to take in outside capital since their profession started after World War II, but this hasn't made much difference to their valuations. These are about one times EBITDA (earnings before income taxation, depreciation, and amortization), and this is true for the sale or recapitalization of most professional services firms. Where your biggest asset (the individuals providing professional or other business services)walks out the door every night, and/or your firm is smaller than $2-3 million in EBITDA, higher multiples are hard to obtain. Some professions (e.g. medicine) have obtained a bit more in recent years from hospitals that can benefit from drug referrals and from other related services specification prohibited under the "Stark" regulations for individual doctors, but this is a result of those regulations, not of capital structures that make it easier to invest in physician practices. Investment adds value only where it produces assets that continue to retain the capacity to improve earnings over time.

If outside cash actually improved legal profits enough to improve valuation multiples, investors would use ways already allowed under current rules to capture a share of the improved legal earnings that result from such capital investments or working cash injections, such as real estate investment trusts for buildings where law firms operate, or sale-leaseback deals for equipment that they use, or fees to pay for joint marketing organizations and other support services.

Support organizations don't have any limits on receipt of capital, and they can (like Thompson/West publishers) become very large indeed. The form and ownership of the legal services entity, by contrast, does not appear to make that much of a difference to value. Reorganization for efficiency and effective deployment of people and machines to compete with other multi-profession practices that serve company clients around the world with computer-improved business process and data (for lawyers, read "agreements" processing or claims and reports management) methods can make a difference in value. Some reorganization may require capital. Capital investment in a profession that hasn't changed methods much since when Sir Thomas More wrote briefs with a quill pen is a nice idea, but not a world beater.

William A. Price
Attorney at Law
Warrenville, Illinois, USA

Melissia in reply to Bill Price

"The real argument here shouldn't be about "professionalism""
Easy for you to say. But lawyers are bad enough as it is, lawyers with a profit motive? Ethics gets shat on and flushed down the toilet.

MySetDancer in reply to Bill Price

The differrenct between legal and non-legal professions is that for the most part you can ignore them if you wish or engage them if you must. My local doctor may overcharge me but he can't use the system to force me into doing business with him.
A lawyer, from my experience, can use his special knowledge to intimidate and extort great sums of money from those of us without that knowledge. If you are targeted by a lawyer/claimant you have little alternative but to hire a lawyer to represent you. If you are lucky you will spend only a few thousand dollars to make the other lawyer go-away. The courts will not protect you from this.
The idea that a "modern" law-machine can extort money from people with factory precision and scale is horrific.

john4law in reply to Bill Price

What law practice NEEDS Capital? For advertizing? For Fancy Offices? For lavish trial presentations? Law is a specialized and credentialed Labor not Capital intensive business. It is also way OVERGROWN and in need of a BIG SHAKEOUT! How does 'outside" investment speed or rationalize or optimize that obvious reality??

john4law in reply to Bill Price



Considering that ethical complaints can take years (if not longer) to surface I wouldn't be so complacent about just waiting to see if Britain has problems.


The American legal system has a lot of problems, namely access and cost, that really need to be addressed. However, licensed attorneys are not typical commercial actors. They have very important legal duties to their clients and the legal system as a whole. Creating a conflict of interest for those lawyers will not magically make access to the legal remedies of the courts easier or (much) cheaper.


Given how broken the US legal system is, I'm inclined to try it. It certainly cannot get much worse.


The legal field has already changed drastically. Large clients send work out to bid - so while the law firm charges by the hour, they can only charge up to X point. Efficiency is being forced into the system and clients become more informed and negotiate better prices. Further, clients are flat out refusing to pay for 1st year associates "work" which is really just training at client expense - that's in the contracts. If the law firms gain the ability to have non-lawyer owners, then the mergers with Final 4 Accounting will begin. And those companies are some of the largest law firms in the world, outside of the U.S. That's what the ABA and many of the large firms are afraid of...

HarveyBirdman in reply to Sarcaustic


Some clients are. But this is rather foolish; if it actually catches on widespread, there will be a significant shortage of lawyers with 3+ years experience, which will drive those hourlies up and up and up. Whatever the clients are saving by refusing to pay for 1st year associate billables will be made up for by the significantly higher hourly rate the partner charges to do the same work (and if it's tedious work, it will take a similar amount of time. you don't want to spend $1100/hour for a partner to review a form contract; that's like paying the President of a company a few million a year to work in the warehouse.) and the higher rates for 3rd year associates in a few years when the shortage of new trainees catches up to them.

Sarcaustic in reply to HarveyBirdman

This has been a problem in accounting. They shipped all the low level work off to India, but now tax return reviewers are in short supply. Everybody said the same thing about accounting, but they've gradually worked it out. Legal will do the same.

Some of these changes are rolling backward to the law schools. Traditionally law school has been a money maker for schools, so they tried to get as many students in as possible. But supply has exceeded demand (and how!) and enrollments are down and dropping further. EXCEPT at schools which have a practical, in-school training approach. Students come out with the equivalence of having worked a year, which lowers the training costs for law firms. And those school's students get hired. Top tier schools may never have to go this practical route and may stick to academia only; they've got their name to provide jobs. But the rest of the world has to provide some bang for the buck - law school's too expensive to not be able to get a job after. And it gives law firms a better prepared work force, which allows them to bill for those associate's work.

HarveyBirdman in reply to Sarcaustic

Eh. I am a student at a top tier school, and I recently went through the hiring process for the name brand firms. I had an offer (among others) from the firm mentioned in this article.
Your school and GPA are proxies for whether you are intelligent enough to handle the high level work (and, as anyone who has ever clerked for a federal judge--doubly true for state judges--can tell you, many, many lawyers are not), and driven enough to slog through the menial work. There is a (severe) shortage of talent in that regard.
Right now, the market splits between lawyers who service high end, elite clients like Apple, Intel, Samsung, GE, Pfizer, etc., and lawyers who handle work for the common people and small business. The job outcomes of the lawyers in group A are determined mostly by academic pedigree, while the job outcomes of the lawyers in group B are more dependent on practical skills training. But no matter how much practical skills training the group B lawyers get at Local Rec Center Law School, they will never have the same opportunities as the Harvard Law grad in terms of landing the coveted $160k/year associate position at any Vault ranked firm, or even any firm for that matter.
And, as absurd as that figure sounds for someone's first job, a sizable portion of those associates could have easily made more money in finance. Talent is expensive, and the companies that refuse to pay for that talent won't get it.
Anyway, law school applications are at a 30 year low this year, thanks in part to the wide condemnation of misleading practices of law schools by sites like abovethelaw and lawschooltransparency. The law schools which advertise the job outcomes of group A while training the lawyers of group B are going to start closing shop (finally) or cutting costs. As much as the legal industry is going to change and restructure in the next few decades, the demand for the individuals who spearhead the restructuring, ie the HLS grad with the undergrad degree in Mathematics and an MBA, or me, isn't going anywhere. And that talent pool isn't going to suddenly start coming from the schools that give practical skills training. In one sense, those schools are training yesterday's attorneys.

Free Market Underdog

I am as aggressive a proponent of free market capitalism as anyone I know. I think it is important, however, to view the legal “industry” not just as a business but as an institution of justice that is necessary to carry out the ideals espoused by America throughout its history. Despite that there is a guild mentality in the legal industry and legal assistance, by most opinions, is more expensive than it should be, I disagree that the solution is allowing non-lawyer owners to maximize shareholder value. Instead, decision makers at the top of law firms should be lawyers who know the law and related ethics inside and out.


Explore trending topics

Comments and tweets on popular topics

Latest blog posts - All times are GMT
Dispatch from Tunisia: Trouble amid transition
Pomegranate 1 hrs 33 mins ago
Writing worth reading: Dark matter
Babbage December 20th, 19:19
The battle for euro-zone reforms: Angela all alone
Charlemagne December 20th, 17:36
Three years after the uprisings: A gloomy picture
Pomegranate December 20th, 17:26
The BRICs: The backlash against the BRICs backlash
Free exchange December 20th, 17:07
Stand-up comedy in a boomtown: Fracking hilarious
Democracy in America December 20th, 16:44


Products & events