Staying informed amid global developments
by Timothy E. McGee
I recently attended the annual conference of the International Institute of Law Association Chief Executives. This conference brings together the CEOs of legal regulatory and representative organizations from over 20 countries around the world, including all the major common law countries and more recently civil law jurisdictions such as Germany. A rough tally revealed that collectively the participants were connected in some way with more than one million lawyers around the world.
The emergence of “alternative business structures” as a law firm business model in England and Australia was the topic on the conference agenda that drew the most interest and discussion. Alternative business structures are business models through which legal services are delivered that differ from the standard sole proprietorship or partnership model.
In England there are more than 400 law firms owned at least 25% by non-lawyers. Starting in 2012, 100% of an English law firm can be owned by non-lawyers. The Australian firm Slater & Gordon went public in 2007, raising capital in the public markets and assuming the disclosure and other myriad responsibilities of a reporting issuer. Today Slater & Gordon has contributed share equity exceeding $100 million.
What is behind these developments?
The emergence of significant non-lawyer ownership in law firms in England was attributed to a general lack of capital for small to mid-sized firms. Of 10,000 law firms in England, well over half derive 45% of their earnings from real estate transactions. Private investment by non-lawyers is a source of capital for these firms, which improves balance sheets and provides greater financial capacity for investment in resources and infrastructure, among other things.
Slater & Gordon’s significant equity play is now funding a broadly based acquisition and expansion strategy for that firm. Business results year on year are impressive, including total income up 46% to $182 million, profits up 41% and an increase in the dividend to shareholders of 10%. For all its business merits, however, this model raises many issues and challenges for legal regulation, including the possibility of conflicting ongoing duties to clients, the courts and shareholders, and conflicts arising upon the acquisition of a firm such as interlocking litigation. Should regulators care that Mr. Gordon left the firm to join a rival but still maintains a significant share holding in his old firm?
These real life examples of how alternative business structures are manifesting themselves in foreign settings may seem far away from the reality of the legal profession in British Columbia and indeed Canada. But they bear watching and inspection to assess both their merits and weaknesses, including how they may affect professional values.
The Law Society’s Independence and Self-Governance Advisory Committee has recently published a report entitled “Alternative Business Structures in the Legal Profession: Preliminary Discussion and Recommendations” (which can be found at www.lawsociety.bc.ca/docs/publications/reports/AlternativeBusinessStructures.pdf). I recommend it to you. We are at the forefront in terms of improving our understanding of developments in this area, which are gaining momentum around the world.