Will We Soon See an American Law Firm Go Public?

And which firm would be the likeliest first mover?

The notion of a publicly traded law firm has traditionally been an oxymoron in the United States. Ethical constraints and deep cultural roots have kept the partnership model firmly entrenched. But with some law firms in other common law jurisdictions going public in recent years, an intriguing question arises: will the United States soon see its first publicly traded law practice?

The Situation Overseas

In 2007, Slater & Gordon made history as the first law firm in Australia to list publicly. The firm used the funds raised through its IPO to enable a strategy of acquiring other law firms: in the years following its listing, Slater & Gordon acquired scores of smaller firms in both the Australian and UK markets. That growth trajectory was somewhat rocky, with the firm suffering over AU$1 billion in losses on its failed 2016 acquisition of British legal services business Quindell. But even if its execution was uneven, Slater & Gordon’s acquisition strategy demonstrates one potential rationale for a law firm to enter the capital markets.

Several other firms followed Slater & Gordon into the public markets in the 2010s, first in Australia, and then also in the UK, where in 2015 Gateley became the first British law firm to go public. Although the most prestigious firms in Australia and the UK remain private, there are now enough publicly traded firms to indicate that the listed law firm model is here to stay.

Rule 5.4 Barrier

Ethical constraints have long made it impractical for an American law firm to consider going public. Specifically, Rule 5.4 of the Model Rules of Professional Conduct regulates fee-sharing with non-lawyers. Rule 5.4(d) provides:

A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:

(1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;

(2) a nonlawyer is a corporate director or officer thereof or occupies the position of similar responsibility in any form of association other than a corporation; or

(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.

On its face, this prohibition would seem to foreclose the possibility of a publicly traded American firm. But it would not be surprising to see the ethical constraints begin to loosen in the coming years. As a parallel, we might look to the history of the litigation finance industry. The business model of funding claims in exchange for a portion of the ultimate recovery operated on uncertain regulatory ground when it initially arose in Australia in the 1990s. But after first establishing itself in the Australian market, funding spread to the UK in the 2000s, and then to the United States, where it has steadily become an increasingly typical feature of commercial litigation. It is conceivable that liberalization of restrictions on non-lawyer ownership is on a similar path, following about a decade behind the litigation finance wave.

The Likeliest First Mover

If and when we see a legal business go public in the United States, it will almost certainly be an alternative legal services provider, rather than a traditional law firm. Legal talent provider Axiom announced its submission of a draft registration statement to the SEC in 2019, but it later decided to accept private equity investment in lieu of an IPO. Also in 2019, Bloomberg Law reported that legal services business Elevate aimed to go public in 2021. Last year, however, Elevate pushed back its target to 2022, citing flat growth in 2020 due to the pandemic.

Even if Elevate eventually proceeds with an IPO, more typical law firms may not rush to the markets. The main appeal of becoming a public company is the opportunity to raise equity capital. But law firms generally are not structured to take advantage of a large capital infusion. As we illustrated last week, the industry remains highly fragmented, and no American law firm has indicated an intention to pursue acquisitions on the scale of Slater & Gordon.

Law firms in need of a more modest infusion of capital have ready access to obtain it through other channels. For example, a firm could enter into a portfolio funding agreement with a litigation finance provider. In such a deal, the funder provides upfront capital to the firm in exchange for a portion of the future contingent fees that the firm ultimately recoups from a portfolio of cases. The firm can use the capital to bridge the gap until it receives fee income, and in the unhappy event that the funder’s investment exceeds the fees the firm ultimately collects from the portfolio, the firm does not have to reimburse the difference.

Goldman as Cautionary Tale

More broadly, a look at how the transition from partnership to public company has unfolded in other industries may give firms reason for caution. Consider the case of the 1999 Goldman Sachs IPO. Going public was great for the bankers who happened to be Goldman partners in 1999, but it constrained the compensation trajectory for subsequent generations and made it more difficult for Goldman to compete with the buy side for top talent. For the past two decades, Goldman has sought to navigate an awkward balance, straining to preserve elements of its traditional partnership culture despite external shareholder ownership. Recent reporting indicates that CEO David Solomon is abandoning the balancing act and embracing a more typical public company management structure, precipitating a wave of senior executive departures.

If a top American law firm were to go public, it would, like Goldman, confront shareholder pressure to keep a lid on compensation growth. Meanwhile, its private competitors would be less constrained, similar to the buy side employers that have recruited many former Goldman stars. The problem would be even more acute in the law firm context than in finance, given that junior law firm partners are highly mobile on the lateral market. As we discussed last week, professional ethics rules prevent law firms from locking in clients or using noncompete agreements to hinder rainmakers from making lateral moves.

When top American firms weigh the risks of a public listing against the benefits of access to equity capital, they are likely to decide to stick with a more traditional partnership structure. Even if a modified Rule 5.4 removed the ethical hurdle, basic business considerations would inhibit public listings by the Am Law royalty.


Ed. note: This is the latest installment in a series of posts from Lateral Link’s team of expert contributors. Michael Allen is the CEO of Lateral Link. He is based in the Los Angeles office and focuses exclusively on Partner and General Counsel placements for top firms and companies. Prior to founding Lateral Link in 2006, he worked as an attorney at both Gibson, Dunn & Crutcher LLP and Irell & Manella LLP. Michael graduated summa cum laude from the University of California, San Diego before earning his JD, cum laude, from Harvard Law School.


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