Law firms

Legal advice

Should you buy shares in a law firm?

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Readers' comments



In addition, even if law firms do not currently have the ability to manage and contain "costs" compared to publicly traded companies, the firms can readily adapt to the need when presented with the challenge. There are plenty of JD/MBAs to go around who have the business savvy and the legal expertise to run a publicly traded law firm.


I too expected better from the economist than dubious stereotypes. Law firms would not exceed double digit growth in a downturn if they were not properly managed. "Il n'est pas pire aveugle que celui qui ne veut pas voir".

There also seems some confusion between "cost control" and "fees". Fees are the principal source of income, and businesses will maximise income. Costs is what all law firms strive to diminish, and this is how some achieve profit margins exceeding 50%.

In any event, this reform is unlikely to result in firms going public. Doing so would reduce the Profit per Equity Partner (PEP) figure (ie how much each partner earns on average), which is the principal benchmark lawyers use to compare the attractiveness of law firms. If a 20% shareholding is sold, PEP will go down by 20%. All Associates (and probably most partners) would walk away as fast as they can from a firm that reduced the attractiveness of partnership.


I'm afraid that whoever whote this article doesn't have much of an idea of how large law firms operate. Cost controls in large law firms are as strict as with any other type of business. Nor are they lacking in business sense. Nor are they sentimental. Nor are they a "gentlemen's club." I expect better from The Economist than this dribble.


Just imagine the shareholders bringing a class action suit against the law firm that they own for not controlling costs. They would have to use another law firm, as likely to be as inefficient at managing costs. Just think of all the money they could p*ss away. Come to think of it the firms would probably find a way to trade off suits against each other just for the revenue streams.

pablo five

The only "asset" of value in a law firm has two legs. Experienced lawyers will walk away and start their own law firms or join a competitor, unless they are given extra cash to compensate for lost future earning opportunities. Higher costs for clients with no increase in benefits.

Lassegurra Aktersnurra

other types of investment in this sort of field to consider is shares in a theatre company, e.g. the national theatre or the royal shakespeare company, and shares in a company of modern sculptours and painters. good luck!


I would not want to be in the position of a minority shareholder in a law firm, having a conflict of interest with the management, and I don't see by which process this could be prevented.


One of the most important factors against law firms becoming successfull listed companies is given in the article: insufficient cost control. From my experience with Magic Circle firms as well as some big american partnerships, not one had proper cost control procedures in place. And it's not about reducing costs (although you sometimes wonder what is being charged by associates and partners to the firm) but controlling and allocating of costs properly where law firms have their weaknesses. Before any of the big law firms considered turning public, they should first set up cost controlling procedures equivalent to that of your typical FTSE/Dow/DAX/etc. company. That being in place, an even further increase in operating margins could very well be possible.

Tuscan Boy

A big company in need of advice for, say, an acquisition has basically three options: 1.hiring an 'independent' law firm (i.e. one owned only by its lawyers);2. setting up an internal legal affairs department that works only for the company; 3. (after the liberalization) buying a stake in a public company/law firm that serves other clients too.
Internal legal divisions are a common reality, but big companies still need advice from outside counsels. It is hard to see how company X could profit from buying a 5% stake in the law firm Y: apart from the intrinsic value as an investment, if X thinks they can run a law firm better than lawyers, they can set up their own, or direct all their legal work to the internal legal division (save for specific country-related limits).
Even harder is seeing how all this could be appealing for big firm lawyers: they would lose the main reason to burn the midnight oil, i.e. the run for the partnership; they would become prone to all kind of accusations of conflict of interests; worst of all (for such a self-absorbed bunch of which I am proud to be a member) they would loose their 'mystique'.
Of course, lawyers are greedy: many partners will sell their law firms to the highest bidder. In the end, however, I think that, even in the most liberalizing countries, the smartest independent law firms will learn how to calculate their profits per billable hour and thrive, either because their work is too specialised to be appealing to somebody else or because they know better how to do it than MBAs.
It's the nature of the job: Big, classy investment banks are free to structure and market themselves like every other public company, but they just aren't like any other company.
However, a little more competition will only benefit everyone - and maybe awaken some legal sleeping beauty.

Santiago NYC

Incorporating is totally banned in US by Model Rule of Professional Conduct 5.4. The idea is put a limitation on the ability of "a third party to direct or regulate the lawyer's professional judgment in rendering legal services to another." The ABA doesn't want lawyers to put the interests of the client behind the interests of shareholders, who might not understand the duties that lawyers have.

It'll be interesting to see how the US firms deal with UK-based firms that raise tons of money.


The Legal Services Act will herald a "Big Bang" for law firms just like that of the 1980s for financial services. Are law firms and barristers' chambers ready for this? No, most are not. It is striking that such substantial changes have aroused little outcry compared to earlier changes in the legal profession. Fundamentally, most of those in the legal profession either think it is not going to affect them (especially the Magic Circle firms and most barristers) or they can ignore it. It will affect them all. The numbers of barristers' chambers will decline as barristers move into law firms and eventually MDPs. Similarly many law firms will consolidate or be taken over by other kinds of business, eg. insurance companies, technology companies, consulting firms.The big global law firms will have to face obstruction from foreign bar associations who will punish law firms that take external investment. The US and Germany in particular will follow this route. Will it mean Clifford Chance becoming a franchise?Perhaps the biggest shock will come when law firms start accepting and inviting external investment. The organization of law firms doesn't lend itself to easy or swift decisionmaking. Investors will want to change that early on in order to preserve their future profits. It will be interesting to see how these players convert law firms from being collections of individual lawyers with stables of clients to highly rationalized units with firm-specific capital. If this occurs the traditional mode of partnership will evaporate. Global competition for resources will heat up as countries such as India and New Zealand attempt to pull in more and more sophisticated legal work (not just back office stuff).Legal careers will be shorn of their traditional rewards, ie. partnership. But a raft of senior partners who follow the external investment route will be able to cash out their equity in one last rush before a new normality descends on the legal profession.


I'd like to read more comments by attorneys on whether going public ia a good idea. I hope they write to inform and not something only other barristers will understand. I can only hope since they won't be paid for their verbosity.

Andrý Maruch

Brazilian law does not allow Brazilian law firms to issue shares in the public market. Brazilian law firms can't adopt corporate shape of business legal entities because it would create problems regarding ethics and technical quality of the work.

Charlie Rosen

it could be good newsmaybe lawyers will have to stop billing the same hour to several clients. time for lawyers to come clean.and maybe companies will get to see how many projects each of their lawyers are juggling (10-20 lawsuits at the same time) thus enabling companies to judge the quality (and time) being put onto their project/lawsuit, etc..companies will be shocked to hear the truth.


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