Law Prof: Outside Ownership Could Help BigLaw
Cutting costs and discounting legal rates aren’t a cure for what ails big law firms, a law professor asserts.
University of Illinois law professor Larry Ribstein told the Philadelphia Inquirer that big law firms need a more creative approach to their current woes—one that might include selling shares to outside owners.
“My theory is that big law firms don’t have a coherent business model,” Ribstein told the newspaper. “From a client standpoint, why would you pay so much per hour for a lawyer who works for a big firm versus [a lower rate] for a lawyer who works for a smaller firm? What value does the big firm add?”
Ribstein says big-firm clients often have in-house legal staffs that can pick up more work or dole it out to smaller law firms with lower billing rates. He says changes in legal ethics rules to allow outsiders to own shares in law firms would give firms access to lower-cost financing and the freedom to expand in ways that can serve lower-paying clients.
Ribstein elaborates in a draft paper (PDF) posted on Ideoblog. Law firms are business entities, he argues, but ethics regulations regard them “as the worker cooperatives they once were.”
An important limitation on law firm structure, he writes, is that all of the financing is provided by law partners or from money borrowed from banks. The result, in hard times, is a liquidity crunch. And in good times, law firms are inhibited from expanding into risky but potential lucrative businesses.
“This is a rather primitive, preindustrial model of financing the firm,” he writes.
Under this new structure, law firms could offer one-stop shopping to sophisticated clients, or they could open franchises serving individuals or small businesses. Law might even be practiced outside the law firm structure. “Low‐end, routine legal services might be provided by chains like Wal‐Mart or Tesco, which would sell wills and other legal advice along with tax services and eyeglasses,” he writes.
Also see:
ABA Journal: “Off the Mat: After a beat-down nine years ago, multidisciplinary practice may get another look from the ABA”
ABA Journal: “Selling Law on an Open Market: The world’s first publicly traded law firm ignites debate”
