Private Equity Investments in Law Firms?

While more a big firm than a solo/small issues, private equity investments in law firms could radically alter the way law is practice and ultimately affect the life of small law firms too.  Impossible?  A violation of the rules of ethics?  It looks like the move is on in England and big law firms in the US could be forced to compete.

This is one of the scenarios that Ward Bower of Altman Weil believes is the future of the legal profession by 2020:  consolidation and globalization of law firms into a few mega-firms not unlike the accounting industry.

England changed it's ethical rules in 2007 to allow private ownership (non-lawyer ownership) of law firms starting in 2011.  The Wall Street Journal is reporting  that private equity firms in England making plans to take advantage of the rule in 2011.  Such an influx of private equity would give a firm a distinct advantage in resources over other firms and likely force the other firms to look for similar private capital so they could compete.  In a globalized legal market, American big firms would be at a disadvantage and likely push to be allowed to take private equity so they could compete.

What would this mean for the solo and small firm?  Think of the accounting industry.  The huge, global firms have swallowed most of the lucrative corporate work leaving only small and far less lucrative local work for accountants not in the big firms.  It is certainly not a sure thing that the legal market would react the same way - if nothing else, conflict of interest concerns may well make it untenable for a firm to get too large.

There will be change however, and the wise lawyer will take head of where the wind is blowing and trim sails accordingly.  The news out of England is a sobering reminder that the changes may start coming quickly and we should all be on the watch.

Peter H. Berge

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