Will law firms be able to attract third party investors in the brave new world or will existing financial services business develop their own businesses by providing legal services or provide law services from scratch under their brands?
Well… to be perfectly honest, if I knew the full answer to that now, I would probably be sitting in a lavishly appointed hotel (I would not waste money on my own lavish offices, of course) revealing my thoughts on the matter to eager and greedy lawyers for a ‘fee’ rather than sitting here on a Saturday afternoon, a glass of Rioja to my right, and nipping off every so often to do 100 press ups or 30 curls with weights while I smoke on my balcony.
The difficulty with the present model of partner owned law firm is that Professor Stephen Mayson has a point (infra). Neil Rose argues in The Law Society Gazette that ‘Law firm partners are paid too much and their business will struggle to attract external investment because they are not worth as much as partners believe. Stephen Mayson, director of The College of Law’s think tank says that partners have to re-think how much they pay themselves.
Cutting to the chase – in the partnership model the profit goes to the partners, so there isn’t anything left for external investors. To attract external investors there will have to be an attractive return on capital invested. This means that the model will have to change. Partners will have to convert drawings to a much smaller salary and share, as shareholders, along with external investors. Have they the appetite for this? Of course, it is quite possible for law firms to come up with wonderful fudges by packaging off parts of their ‘business’ to external investors… but that, I shall leave for another time…and, who knows, possibly for that meeting at a lavishly appointed hotel with greedy lawyers?
The law firms will also have to build up a real brand, recognised not only in this country but worldwide. Law firms are not very good at marketing themselves to the wider market, it would seem. Rachel Rothwell, writing in the The Law Society Gazette states that ‘More than 60 of the public cannot name a single law firm’.
While the top City firms are obviously well known to their specialist clientele – and they are not all interested in the wider market – this lack of brand recognition of law firm providers of legal services does not augur well for the future.
I would hazard a guess that most people would be able to name an Insurance company – Norwich Union, Churchill… come to mind immediately, for example. Most people would be able to name a leading supermarket…. of course… Tesco et al comes to mind. There are many other large corporations out there with well known and trusted brands who are quite capable of providing high quality legal services.
The question is – will they invest in law firms with their antiquated business model structures and complex and possibly inefficient management and delivery infra-structures, or will they start from scratch, paying good money to attract expertise? I suspect it may be the latter model – for in business, the brand and scaleability and liquidity of investment on a stock market is the real key.
When a solicitor or barrister, for that matter, decides to retire. That’s it. No further earnings or drawings and NO EQUITY… for there is nothing to sell.
I have a feeling if a law firm went into the Dragons in Dragon’s Den seeking investment… there would be five people saying “I’m OUT”.
It is wonderfully ironic that while law firms can’t build a brand within an investable model (yet)…. providers of legal education can and did. BPP Law School, as part of BPP Holdings PLC, was sold to the yanks for a very large sum of money…..
PS – this may interest you – a tweet from a fellow tweeter…