This column is by Janet Stanton, Partner, Adam Smith, Esq.
The second Question of the Month was: “Does the partnership form remain the optimal structure for law firms?”
This resulted from our musing a couple of years ago, “Would any corporation reorganize as a partnership?” The answer, of course is “no” (probably more like, “not on your life”). Which then led us to ponder why Law Land has hewn so consistently to the partnership model. Is it that the other 98.5% of the economy is wrong? – or are law firms inherently special; requiring a distinctive (and arguably more cumbersome) organizational structure?
The choices we gave you, our dear readers were:
- No. It’s only a matter of time until law firms switch over as well; the corporate form is intrinsically more flexible, and
- Yes. Law firms have special duties to their clients which a corporate model could jeopardize.
And, the numbers are in. As of July 26, 98 of you piped up (a very healthy 37% increase over last month’s response rate). Thank you.
79% of respondents (77 votes) believe that over time, law firms will evolve into more of a corporate structure. The remaining 21% (21 votes) believe the partnership form is the optimal organizational model; perhaps for the reason we listed (or other reasons.)
We were a little surprised by this considering how tenacious the hold of partnership has been in Law Land. We’ve often marveled at the high degree of homogeneity in the business model evinced by traditional law firms. For perspective, look at any other industry – airlines, automobiles, retail. Each has tremendous variety and variation in how key players go to market. This consistency in our industry is especially notable because there are so many law firms. Law Land is an astonishingly fragmented category; no firm has even a 1% market share. One would expect more variety.
If the industry has been so static for so long, why do so many of you think this will begin to change?
In fairness, it could be that those participating in our little survey are more forward-thinking folks. The other possibility, that we think actually has some teeth, is that all (100%) of the new entrants in Law Land (we’re referring to these as “alt law,” until we come up with something better) are organized as corporations, which allow them to be more nimble and aggressive in going after an ever-increasing share of the legal-services pie. A few years ago, they were barely measurable as a factor in the market. Though still a relatively modest share of the market, they are growing at an amazing pace. Perhaps more who are ensconced in traditional law firms are beginning to notice.
We also received many thoughtful comments. Ron Friedmann offered this succinct assessment, “It’s only a matter of time… but the timing depends on re-regulation so, given the history of this topic in the US, we may be waiting a very long time.”
“Skeptic” (correctly, in our view) recognized different segments in the industry, “I think the partnership model can (and maybe should?) endure for the truly, super-elite firms in New York and London. Those brand names are so strong and the partnerships themselves so cohesive that organizational form just isn’t as crucially important as it may be for the rest of the pack, who remain largely undifferentiated from everyone else and really need the internal management advantages that the corporate form offers over the partnership model, in theory anyway. Once a few try it, the rest will follow just like that group did with going two-tier.”
We’ll close with a superb Peter Drucker quote (because we like it) provided by “JC,” one of our more frequent commentators, ““Rank does not confer privilege or give power. It imposes responsibility.”
If you have questions you’d like to suggest, we are (as always) all ears!