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.