How Investors May Impact the Future of Law Practice
Debra L. Bruce, JD, PCC.
Jordan Furlong recently wrote another insightful post relating to the future of law practice in light of the upcoming ability of UK law firms to accept non-lawyer investors in 2011. Furlong summed up the likely impact of non-lawyer investors in law firms this way:
“Equity investment in or outside ownership of law firms will be neither a panacea nor an unalloyed good — mistakes will be made, lines will be crossed, abuses might well take place. No innovation arrives perfectly safe and sound. But what such investment does offer is something the legal services marketplace has needed for too long: law firm management singularly driven to improve efficiency, effectiveness, and above all, client satisfaction, because it makes business sense to do so.”
I also discussed some of the likely impacts shortly after the first Australian law firm public offering in 2007. While non-lawyer investment may result in the decline in professionalism that many lawyers fear, the decline has already been so significant in the last couple of decades that I’m not sure it would be that noticeable. I acknowledged some other detriments, but pointed to these additional benefits:
“As true business managers and marketing experts have the opportunity to share in the profits they generate in a law firm, the great class chasm between lawyers and non-lawyers within the firm may diminish. Firms may develop more balanced methods of valuing the contributions of its employees, as training and mentoring become recognized as being essential to the stability and productivity of the firm. Perhaps even teamwork could become popular. As Prof. Regan puts it, ‘investor preference for stability thus could temper what some see as excessively individualistic tendencies in modern law practice.’”
The dam has already been breached by the changes in UK and Australian law permitting outside investment. In an international market, US and Canadian lawyers already find themselves in competition with UK and Australian firms. That competition will only increase as investors with business acumen drag law firms into the 21st century to eliminate what Furlong calls “wasteful processes, poor client communication, and amateurish management.” It may not be immediate, smooth or painless, but as those firms become more efficient and cost effective, they will easily steal away North American-based, but internationally functioning, clients.
I can’t say how long it will take, but I believe one day we will have publicly held law firms in the U.S. for many reasons, some of which I described in the 2007 post. That day may be hastened by the current unprecedented economic decline in the legal industry, combined with heightened pressures from multi-national clients to make changes that lower legal costs. Previously disinterested UK firms may now be imagining what they could do with those capital infusions. They may be a little more flexible about letting go of archaic and wasteful practices.
U.S. and Canadian firms that want to compete in the future should start innovating now by really listening to experts in process improvement, management and marketing. Actually, that would be the smart thing to do even without the threat of future well-funded business-savvy competitors. I won’t hold my breath, however.