Corporatisation of law firms

Jim Belshaw has written a great counterpoint post to the post I wrote about Slater & Gordon’s move to list on the stock exchange.

Put shortly, Jim’s contentions are that the move to corporatise law firms comes about to remedy fundamental inefficiencies in the way in which partnerships operate:

  • Senior partners are also senior managers. As Jim points out, partners are not necessarily good managers, and one does not become a partner because of one’s management prowess.
  • Partners have a jumble of roles: managers, owners and professional advisers. Jim proposes that it is necessary to separate equity returns from payment for work. Then the definition of roles and the remuneration to be attached to those roles could then be dealt with using conventional job analysis and remuneration principles
  • Abolition of goodwill. Firms no longer treat the brand name, intellectual property and staff of a firm as something valuable. They focus on short-term cash-maximisation rather than long-term growth.
  • Acquisitions. Listed firms can offer shares in a company without the problems that can be involved in slotting new partners into a partnership structure. Staff shareholding schemes can be used to reward staff for growth (as is occurring at Slater & Gordon).
  • Risk management. Corporate structures can quarantine risk (whereas a failure of one part of a partnership can threaten the whole). If firms can quarantine risk, they will be able to expand into new areas and different disciplines more easily.

I found this very interesting, as I had not looked at the issue in this way. Being a litigator, my first thoughts were of course about how everything could go wrong…

Do have a read of Jim’s post and his more recent post on the topic.

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4 Comments

Filed under business, law firms, management, solicitors, stock exchange

4 responses to “Corporatisation of law firms

  1. marcellous

    Being a litigator myself, I did like:

    “Being a litigator, my first thoughts were of course about how everything could go wrong.”

    Soooooo true! I laughed.

  2. 😀 My friend Cherryripe was afraid that becoming a lawyer had turned her into a pessimist. Her friends had a plan to hold a dance party, and all she could think of was the legal problems which would arise if someone injured themselves on the premises etc, etc. She felt like a party pooper by raising these things…but my view (of course) was that she was very prudent and sensible. Perhaps it’s because I’ve had to sit through hundreds of court cases where I’ve thought, “Why didn’t someone sensible stand up and shout STOP before everything spiraled into disaster?”

    We’re trained from the start to check for snails in our ginger beer bottles… Maybe that’s why lawyers suffer from depression?

  3. Thank you for this, Legal Eagle. I thought that you captured my arguments extremely well.

    I too laughed at the litigation comment. But in combination with society’s obsession with risk avoidance it does create a problem.

    My daughter’s school has recently installed increased security measures plus guards at considerable capital and on-going costs, costs that parents have to pay. This is but one of a series of measures over the last five years all designed to avoid risk.

    As I walked around the school in the late afternoon last week looking for youngest daughter, I felt that it had become a much darker, more shadowed, unwelcoming place, effectively closing down much earlier in the day than it used to.

    All these precautions don’t make me feel more secure. Instead, they make me worry about the risks that the school obviously feels are there. I also feel sorry for the girls, because it gives the school much greater powers of surveillance and control over them.

  4. marcellous

    Risk aversion is a whole new topic. It is the flip side to the ever extending scrutiny of causation and consequences. This has driven the 20th century expansion of the law of negligence (which has focussed attention on failure to prevent harm as itself a causative factor), as well as contractual and Trade Practices and other statutory liability.

    My own homely analogy to that is how, people’s lives, they accrue a host of lessons from things which have gone wrong. By an accumulation of all these little lessons is, older people generally become more cautious. This may also relate in some areas to their reduced capacity to make good any damage they suffer because of the deterioration of their bodies and their reduced capacity to work.

    It’s not just people: it’s a practical way of learning which you can see, for example, in your pets. Not all of these lessons last, which is why we often repeat the same mistakes (eg: hangovers; indigestion; repeated relationship disasters). Another practical example is the loss of confidence if you have had a mishap driving a car. A certain degree of confidence is still necessary, so usually over time we steel ourselves to regain this confidence. (One person’s confidence is also another person’s foolhardiness!)

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