Biglaw, Dewey & LeBoeuf, Heller Ehrman, Howrey LLP, Legal Ethics, Money, Partner Issues

Should Non-Lawyers Own Firms? Do They Already?

‘So it’s decided – we’ll be Cravath, Swaine, Moore, & Doritos.’

All those professional responsibility lectures, and bar prep, and boring CLEs that I attended after becoming a lawyer, and all the boring CLEs I dutifully watched on the Internet after I escaped the probationary period, consistently preached the evils of non-lawyer ownership of law firms.

It raises ethical concerns! It dilutes what it means to be a lawyer! This is a profession, not a business! All the usual complaints from a profession convinced that it’s made up of beautiful and unique snowflakes with unimpeachable judgment.

But with the rest of the world embracing new structures to permit non-lawyer ownership — and empirical evidence suggesting that those models raise fewer ethical concerns than the alternative — some argue that the U.S. firm model stifles innovation and cripples international competitiveness.

But the better question is, “Don’t non-lawyers own law firms already?” And to the extent the answer is “of course,” shouldn’t the profession be bending over backwards to approve ownership models that better serve the firms and their clients than the status quo?

Non-lawyer firm ownership is mostly barred in the United States (D.C. allows limited non-lawyer financial stakes in firms). But when considering the question of radically altering the model of law firms, the standard approach is to compare a future dominated by outside corporate management to idyllic “L.A. Law” independence, where partners dictate the course of their firm with no outside interference. To think the latter universally reflects American law firms is just crazy talk. As Casey Sullivan of Reuters Legal reports (sub. req.), more than a few experts recognize that certain non-lawyers already wield immense power over law firm business decisions:

The recent spate of big U.S. law firm bankruptcies should make state bars reconsider an idea they have long resisted, allowing non-lawyer investment in law firms, legal experts said Wednesday.

At present law firms largely rely on financing from banks, but, if they could tap into more flexible sources of capital, they could provide relief to the troubled corporate law industry, according to Duane Morris partner Jonathan Armstrong and New York lawyer James Duffy.

Armstrong and Duffy, who were part of a panel discussion at the New York State Bar Association’s annual conference titled “Non-Lawyer Ownership of Law Firms,” did research on the subject for the association in 2012.

They said that defunct firms like Howrey, Heller Ehrman and Dewey & LeBoeuf went bankrupt partly because of a reliance on hefty bank loans that were quickly pulled after the firms violated the strict terms of their loan agreements.

“Too many firms are controlled by their bank,” said Armstrong, adding that the lenders often dictated how a firm should conduct its business in exchange for financial support.

When law firms have to rely on banks for loans, they’ve already forfeited some measure of firm control. The article notes that Citi Private Bank and Wells Fargo have even taken to dictating the practice areas firms should concentrate in before coughing up capital. These moves may or may not be in the best interest of the firm, but it puts the lie to the notion that in the status quo American law firms are free from non-lawyers dictating management decisions.

Non-lawyer ownership might not have saved Dewey, Howrey, and Heller, but if each had had the opportunity to bring in investment partners committed to the long-term success of the business instead of relying on banks concerned only with getting their loans repaid quickly and efficiently, who knows? Maybe you’d never have had to read a stupid “Dewey Think” or “Howrey Gonna” pun in these pages.

That would’ve been worth it.

Experts in N.Y. argue for non-lawyer funding of law firms [Reuters Legal (sub. req.)]
Is it Time for Non-Lawyer Ownership? [Lawyerist]
Will continuing to ban nonlawyer ownership make US firms and clients less competitive? [ABA Journal]

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