Tuesday, August 26, 2008

British Law Firms May Go Public

The Economist magazine has an interesting story about a recent change in British law that may enable UK law firms to adopt a business structure other than a private partnership. Scheduled to take effect by 2011 once a new "Legal Services Board" is in place for regulation purposes, British firms will be able to attract external investments and file initial public offerings (IPOs).

This represents a potentially dramatic change in the competitive landscape on an international basis:

1. UK law firms will be able to raise more money for acquisitions, open additional offices worldwide, and attract more talent.

2. As a public entity, the law firm financials will be open for scrutiny by competitors, clients, and other interested parties. In the event that the law firm is much more profitable than the client, price pressures are likely to emerge.

3. What will happen to partner compensation? Partners at the time of a funding event are likely to profit handsomely, while future partners may see downward pressure on compensation packages.

How will U.S. firms with extensive operations in the UK react? Will some try to change their domicile to take advantage of better funding opportunities? There are many interesting questions that arise. All the more reason for managing partners to take a strategic business approach in planning for the future. Hard questions will need to be asked: how will we compete? what will our competitors do? are our attorneys likely to be poached? how will this change professional liability risks?

Entitled "Should You Buy Shares in a Law Firm?," the full story is online here:
http://www.economist.com/business/displaystory.cfm?story_id=11967043

Here is a related article published by the ABA Journal:
http://www.abajournal.com/news/its_official_uk_law_firms_soon_for_sale/