Here’s a thought experiment: What if law firms could become publicly
traded companies?
In the UK,
it’s not going to be a thought experiment much longer. Under a
proposal approved by The Law Society (more or less their ABA), non-lawyers
will soon be able to invest in, and own, law firms. Suppress
the impulse to repulse this alien notion at our shoreline, and let’s
play out for a moment what it might mean.
In the UK, there are two (articulated) fears. I am not in a position
to say how many unarticulated fears there are.
The worriers say: First,
that it will lead to "Tesco law" (here: "Wal-Mart law");
and second, that external investors will interfere with the practice
of law either directly by closely supervising attorneys, or indirectly
through "inappropriate cross-selling of legal services."
"Wal-Mart law" first. Elaborated, the fear is that through
a sort of Gresham’s Law, deep-pocketed investors will be able to build
massively efficient and productive commodity-service delivery providers,
driving the quaint High Street firms out of business. Ain’t gonna
happen. Wal-Mart coexists with Cartier, and Bank of America coexists
with Goldman Sachs Private Client Group. Tesco may indeed start
doing wills, but Freshfields will continue to do cross-border M&A.
Second, grabby, intrusive, incompetent, and ham-handed investors (mis-)supervising
lawyers? What on earth would be their incentive to do so? Actually,
there are two scenarios here: We have the possibility of individual,
"atomized" shareholders who each hold an infinitesimally small position,
and who are clearly in no position to influence anything or anybody. No
problem here. Alternatively, we have significant, active investors
(a la Warren Buffett, or Kohlberg Kravis), who see an underperforming
firm and acquire a sufficient stake to gain genuine leverage and turn
things around for the better. Now, they may fail at their quest,
but why should they not be permitted to make the attempt? They’re
big sophisticated boys playing with their own money (or that of equally
sophisticated investors).
"Inappropriate cross-selling?" Frankly I’m hard-pressed
to decode what this slur means. "Cross-selling" is at least as
old as the General Store, and the adjective "inappropriate" is
devoid of intrinsic meaning—something may be illegal, like a kickback,
or unethical, like a material undisclosed relationship, but we know
how to deal with those problems already. We indict people for paying
kickbacks and we sue people for fraudulent misrepresentation.
So we are left with the pending reality of public law firms. How
might this play out? By analogy to the financial service industry,
I think it could play out by producing a landscape including some very
large and sophisticated multi-service providers (Skadden the Citibank
of the legal world?), some niche and sophisticated boutiques (Wachtel
the JP Morgan Private Bank), and the overwhelming majority of firms remaining
as private partnerships with nothing to fear from this brave new world. I
for one think it could be the Cambrian Explosion in the legal industry. Many
models may be tried and fail, but the survivors will be far more diverse,
exotic, and competitive. Bring it on.
