Are Law Firms a Good Investment?
Although it isn’t yet legal for American attorneys to sell shares in their law firms to nonlawyers, the law has been changed to allow this in the United Kingdom, and the world’s first law firm initial public offering was held in Australia last year.
This raises the question: are public law firms likely to be a good investment for U.S. and U.K. shareholders? The answer is a qualified yes, according to the Economist.
“Law firms have high profit margins (typically 20 to 40 percent), grow rapidly when the economy is buoyant and are resilient in downturns,” the magazine points out. But, on the downside, lawyers have a reputation of not being the best business managers.
Focused on the fine print, lawyers can miss the big picture. “Few managing partners know their firm’s profit per billable hour, even though that is the main product law firms sell,” the article says. “Cost control is often an afterthought, trailing far behind revenue generation.”
Related coverage:
Deal Book (New York Times): “Can Lawyers Successfully Run Public Law Firms?”
Wall Street Journal Law Blog: “Lawyers: Too Focused on Fine Print for Public Company Management?”
ABAJournal.com: “Revenue Up 27% at World’s First Publicly Owned Law Firm”
