LAC Group uses cookies to improve functionality and performance of this site. More information can be found in our Privacy policy. By continuing to browse this site, you consent to the use of cookies.

Law firm capital investment options

The good, the bad and the ugly

April 27, 2016

Home Blog Law firm capital investment options

Boosting law firm cash reserves has become something of a challenge since 2008-2009. Competitive markets require capital for talent acquisition, technology investments, expansion into new markets and other business development initiatives. Yet those same competitive pressures and other forces are keeping fees flat, leaving some firms to rely on partners to chip in more.

State of the law firm IPO

New law firm ownership models, particularly the IPO, were supposed to herald a new era of law as a business. The inevitable march of law firm modernization may have reached its apogee with the call for law firms to consider a corporate shareholder system.

Jon Molot, professor at Georgetown Law and co-founder of leading litigation finance company Burford Capital, argued that the partnership system was not only archaic, but discouraging of long-term growth, and that a shareholder system would encourage greater firm stability. While ABA Rule 5.4 prohibits law firms in the US from being owned by non-lawyers (except in DC, due to a long history of law firm lobbying), the UK has been more advanced in allowing non-lawyer ownership, permitting law firms to test the corporate structure model.

Unfortunately, the poster child for Professor Molot’s argument was Slater & Gordon, an Australian consumer law firm that expanded into the UK. Slater’s initial IPO in 2007 was hailed as the future of legal services; share prices rocketed 40% in the first day of trading alone. Unfortunately, the firm has nearly collapsed, the result of a series of bad decisions and aggressive expansion. As with all entities at the brink of bankruptcy, it faces serious problems as it tries to survive and avoid individual members jumping ship. Yet those members who are lawyers must retain an ethical duty to protect their clients, even as they naturally want to seek their own self-preservation.

This view runs counterpoint to Molot view while aligning with the ABA and other traditional views that frown on outside investors in law firms because of conflicts of interest and fears that the profit motive undermines attorney-client obligations and relationships.

Recent news coverage indicates that Slater & Gordon may have been granted a reprieve, with Financial Review reporting that the firm is undergoing a restructuring proposal and debt reduction plan. None-the-less, the light at the end of the tunnel remains dim and the situation serves as a cautionary tale.

Law firms need to continue improving their business accountability to remain competitive, and the long-term growth of firms will require long-term thinking and investments that might have a negative impact on short-term profitability. 

Adoption of the IPO model for law firms remains far away, especially given what the market has shown. Law firms will have to allow non-lawyer leadership in order to maintain business competency; but the public ownership model will be a future consideration after the bad taste of Slater is gone. In the interim, the litigation finance model continues to gain traction to provide law firms and corporate clients the cash needed to maintain costly litigation, with Buford Capital and Gerchen Keller Capital both having more than $1 billion in assets.

Additional Reads on Law Firm Capital Infusion Options

Washington Post article, including more about Jon Molot: “Law Firm IPO? Not so fast.”

The American Lawyer (requires sign-in) discusses litigation funding: Litigation Funding Race Escalates.


Related posts

Office supply savings for large law firm

The Client: One of the world’s largest and most prestigious law firms, headquartered in the United States and with over 35…

Read more
The American Lawyer discusses law firm outsourcing

The American Lawyer, a publication of information company ALM, recently posted an article about the growing trend of law library outsourcing to…

Read more

Subscribe to our blog

Get notified when new articles are published.