The View From Up North: The Joy Of Taking A Law Firm Public

Canadian columnist Steve Dykstra predicts that publicly traded law firms will smoke a lot of their traditional counterparts on the business front.

Here’s how you know practicing law is a license to print money. Many, many lawyers have gotten rich from the practice despite being drooling business idiots. Thank you law societies everywhere for protecting our statutory monopoly and allowing us to make fist-loads of money despite often being terrible business people (who think we’re fantastic business people).

Face it, most lawyers pretend they make a fat salary because they’re brilliant — that’s what they let their mamas believe, anyway. Tell mama the truth: people need lawyers and the government prevents competition. Unlike most other statutory monopolies, the government does not regulate prices. Thus, if you can get a thousand bucks an hour, go for it. Any idiot can make money with a monopoly, especially with no price protection.

Despite all the moaning about “tough times” in the legal profession, there are a vast number of lawyers who earn enough to own a nice house, two cars, and a cottage — or more. We’ve got it pretty good compared to the majority of Canadians.

You want to talk about tough times? What do you think would happen to your practice if the government allowed all lawyers qualified in India to openly, and legally, compete for Canadian clients? Two things:

1. Canadian clients would very likely get fantastic, responsive legal service at a fraction of the cost; and

2. Bye bye cottage.

Unless you adapt. Unless you dump the traditional business model and start offering real value to your clients (what does that mean, anyway?). Unless you really compete for business. Unless you try to differentiate yourself from your peers in Canada and, more importantly, India.

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In other words, unless you start running a real business.

All that is, of course, a long lead-up to the raison d’etre of today’s column. Birmingham-based law firm Gateley has been approved in the U.K. to go public. This is a game changer, something to watch closely. The Canadian Bar Association made sweeping recommendations last year that included advocating that non-lawyers should be allowed to invest in law firms, which, if implemented, could open the door to publicly traded Canadian law firms.

Again, game changer. Why? Because a publicly traded law firm will act like a business. Shareholders will demand it. They will be competing against the traditional law firm model. I predict publicly traded law firms would smoke a lot of their traditional counterparts on the business front.

In 2007, Australia’s Slater & Gordon became the first firm in the world to go public. It currently has an eight-person board of directors. Only three lawyers. The rest are ultra-successful businesspersons or accountants. Find me a firm in North America that answers to a group of a non-lawyers. Don’t waste your time — there aren’t any I know of.

Not to pick on our American brethren and sistren, but here’s how American law firm mergers happen:

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Tony: “Hey, we should merge with XYZ firm.”

Bill: “Great idea. We’d be great together.”

Tony: “They’ve got an amazing IP practice. We could really take advantage of it.”

Bill: “I know the managing partner, Horace. I’ll give him a call.”

Ring, ring, ring.

Horace: “Hello.”

Bill: “Hey, Horace, it’s Bill.

Horace: “Bill, what’s shaking?”

Bill: “We should merge.”

Horace: “I was thinking the same thing! We’d have great synergies. You’re so amazing in real estate.”

Bill: “Insurance defense, actually.”

Horace: “Oh. I must be thinking of another firm.”

Bill: “No problem. We love your IP practice. It would be a great fit for us.”

Horace: “They split from us. You didn’t hear about that?”

Bill: “No, I missed that. Ahh… forget the IP, we’d be a great fit, anyway.”

Horace: “We’d rule the legal world. Let’s do this!”

Bill: “Yeah, let do this!”

Slater is in the midst of purchasing the legal arm of troubled U.K. insurance outsourcers, Quindell. The purchase price is AUS $1.3 billion. Slater is raising a significant portion of that purchase price through an equity offering. How cool is that? I saw its offering materials. It actually had to develop a business case to present to potential shareholders. A business case…

Alright, I was a little hard on American law firm mergers — I’m sure Dewey & LeBoeuf used professional advisors and ran financial projections to gauge the probability of its merger success. But, at the end of the day, they didn’t need to convince anyone other than themselves they were making a smart decision. Since lawyers are naturally — without the need for an MBA — gifted business people, they really don’t need oversight.

Contrast that with poor Slater. Now that it has given up its autonomy, it has to convince the public that buying Quindell is a smart business move. It has to convince the institutional investors. That introduces a level of business discipline North American firms can ignore as long as they remain private. The market isn’t always right, but it won’t put up with Bill, Tony, and Horace.

I’m waiting for the day we let Canadian law firms go public. I’m eager to watch a firm act like a true business. I’m eager to watch business people run a firm, not lawyers. I’m eager to watch traditional firms scramble to keep up.

FYI, Slater has a AUS $2.15 billion market cap. It has the heft to ask the public to fund a AUS $1.3 billion acquisition. In the early days it traded around AUS $1.50 per share. Eight years later, it sits around AUS $6.10. By my math, that’s an 18.5% compounded annual return.

How have your investments done since 2007?

That’s the View From Up North. Have a great week.


Steve Dykstra is a Canadian-trained lawyer and legal recruiter. He is the President of Keybridge Legal Recruiting, a boutique recruitment firm that places lawyers in law firms and in-house roles throughout North America. You can contact Steve at steve@keybridgerecruiting.com. You can also read his blog at stevendykstra.wordpress.com, follow him on Twitter (@IMRecruitR), or connect on LinkedIn (ca.linkedin.com/in/stevedykstra/).