Alternative Business Structures

Is the legal profession in the United States about to step down from its lofty heights into the nitty gritty of big business? Is the acquisition of new clients and maintenance of existing ones about to become further tied to the bottom line?

It's still a bit early to tell. But that time ' fearful, repugnant, hopeful or exhilarating as it's perceived ' might not be that far off, and it's worth examining what the opportunity to market Alternative Business Structures (ABS) looks like.

The Backstory

Private investment, public trading and non-lawyer ownership in law firms has been in the air for some time. In Australia, Slater & Gordon became the first law firm in the world listed on a national stock exchange in 2007, when it floated an IPO that raised roughly U.S. $36 million. That same year, the Legal Services Act in Great Britain permitted outside investment in law firms. Since the provision took effect this fall, roughly a third of the UK's top 100 firms are reportedly considering accepting outside investment.

While ABS models are prohibited in the U.S. (except in the District of Columbia), the waters over here have been roiling.

• Earlier this year, the North Carolina general assembly entertained a resolution “to allow non-attorney ownership of professional corporation law firms, subject to certain requirements.”
• The law firm Jacoby & Meyers has filed suits in New York, New Jersey and Connecticut to change rules that bar investment from non-lawyers.
• Even the American Bar Association, which a decade ago described non-lawyer involvement in law firm ownership and control as “inconsistent with the core values of the legal profession,” has this year established a Commission on Ethics 20/20 to determine what ABS framework might work best in the U.S.

Among the models being studied by the ABA is one that would cap the level of non-lawyer ownership. The ABA is also looking at a non-cap model (such as the one that currently operates in D.C.) as well as multi-disciplinary practices (MDPs) that offer both legal and non-legal services.

Changes to Marketing?

So, what could ABSs mean for marketing the law firm? Consider these possibilities:

For starters, ABSs would likely change the intake and conflict processes, perhaps drastically. Imagine, for example, that a hedge fund or a publicly traded company invests in a law firm. Think about the due diligence required to determine every officer or investor and their relation to other firm clients, adverse parties and the like. Untangling that Gordian knot could become an endless, full-time job, with the important matter of who becomes a client and who doesn't hanging in the balance.

Or, consider the effect of ABSs on the increasing globalization of firms. On the one hand, an infusion of capital would allow firms ' especially the smaller ones ' to be more competitive and to make the establishment of offshore offices a more viable option sooner. On the minus side, ABSs pose one more integration issue for global or merging firms to resolve.

Investment capital would provide important operating funds for expanding, merger-hungry and marketing-minded firms. What law firm wouldn't benefit from an infusion of this kind of business management thinking, or expertise in technology, management systems and marketing?

Traditionally, conservative and frugal law firms could increase their marketing and communications spend. Without the financial constraints of private ownership, it is likely firms would increase their marketing budgets.

ABSs would also give even more attention to long-term strategic planning. Firms would put the visioning process into the hands of business professionals ' and marketers.

You could expect more and targeted marketing advertising and PR of all types. Measurement of everything ' from Web traffic to message penetration ' would dramatically increase to improve its efficiency and effectiveness and to align marketing activities and strategies with business goals.

In fact, in an ABS-model law firm, there would be an even greater drive to measure. New and improved performance metrics would be developed for all aspects of law firm management and operation, including marketing and business development.

What about changes on the people side? Firms flush with ABS cash would probably beef up their marketing staffs to match additional responsibilities. Commissioned, professional sales people could become the norm, with the best sales people rising to the top of these new organizations.

Additionally, organizations would probably be a lot less “siloed.” ABS firms would encourage (maybe even require?) meaningful, cross-selling industry teams and the involvement of non-lawyer professionals in all kinds of matters.

Branding an ABS law firm would present some new challenges, too. Marketers and image-makers would not only have legal values and perceptions to manage. They would also have to factor in consumer attitude toward big business, particularly regulated big business ' which, in case you haven't noticed, is not so hot right now.

Then there's the whole notion of partner profitability and the value of client relationships. Since the current shareholder arrangements heavily reward origination, what will happen if the pie is divided into smaller and smaller pieces ' or, into none at all? And, what might happen to the incentive to sustain the relationships you have, if client connections matter less?

The Bottom Line

Fostering greater competitiveness seems to be one of the main drivers behind ABSs. In a recent statement, the ABA commission studying the issue said that “[c]ore principles and public protection [can] be satisfied while simultaneously permitting U.S. lawyers and law firms to participate on a level playing field in a global legal services marketplace that includes the increased use of one or more forms of [ABS].”

Conclusion

Nothing is happening anytime soon. Even if the ABA supports the ABS model, it's ultimately up to each individual state to decide whether and what to adopt. Change, however, is coming. And, as any good lawyer will tell you, the future belongs to the prepared.

Nicholas Gaffney, a member of this newsletter's Board of Editors, is a lawyer and former journalist. Nick manages Infinite Public Relations' San Francisco office and can be reached at [email protected] or 415-732-7801. Jamie Diaferia, an attorney and former journalist, is a partner with Infinite Public Relations, LLC. He is based in New York and can be reached at 212-687-0935 or [email protected].

Is the legal profession in the United States about to step down from its lofty heights into the nitty gritty of big business? Is the acquisition of new clients and maintenance of existing ones about to become further tied to the bottom line?

It's still a bit early to tell. But that time ' fearful, repugnant, hopeful or exhilarating as it's perceived ' might not be that far off, and it's worth examining what the opportunity to market Alternative Business Structures (ABS) looks like.

The Backstory

Private investment, public trading and non-lawyer ownership in law firms has been in the air for some time. In Australia, Slater & Gordon became the first law firm in the world listed on a national stock exchange in 2007, when it floated an IPO that raised roughly U.S. $36 million. That same year, the Legal Services Act in Great Britain permitted outside investment in law firms. Since the provision took effect this fall, roughly a third of the UK's top 100 firms are reportedly considering accepting outside investment.

While ABS models are prohibited in the U.S. (except in the District of Columbia), the waters over here have been roiling.

• Earlier this year, the North Carolina general assembly entertained a resolution “to allow non-attorney ownership of professional corporation law firms, subject to certain requirements.”
• The law firm Jacoby & Meyers has filed suits in New York, New Jersey and Connecticut to change rules that bar investment from non-lawyers.
• Even the American Bar Association, which a decade ago described non-lawyer involvement in law firm ownership and control as “inconsistent with the core values of the legal profession,” has this year established a Commission on Ethics 20/20 to determine what ABS framework might work best in the U.S.

Among the models being studied by the ABA is one that would cap the level of non-lawyer ownership. The ABA is also looking at a non-cap model (such as the one that currently operates in D.C.) as well as multi-disciplinary practices (MDPs) that offer both legal and non-legal services.

Changes to Marketing?

So, what could ABSs mean for marketing the law firm? Consider these possibilities:

For starters, ABSs would likely change the intake and conflict processes, perhaps drastically. Imagine, for example, that a hedge fund or a publicly traded company invests in a law firm. Think about the due diligence required to determine every officer or investor and their relation to other firm clients, adverse parties and the like. Untangling that Gordian knot could become an endless, full-time job, with the important matter of who becomes a client and who doesn't hanging in the balance.

Or, consider the effect of ABSs on the increasing globalization of firms. On the one hand, an infusion of capital would allow firms ' especially the smaller ones ' to be more competitive and to make the establishment of offshore offices a more viable option sooner. On the minus side, ABSs pose one more integration issue for global or merging firms to resolve.

Investment capital would provide important operating funds for expanding, merger-hungry and marketing-minded firms. What law firm wouldn't benefit from an infusion of this kind of business management thinking, or expertise in technology, management systems and marketing?

Traditionally, conservative and frugal law firms could increase their marketing and communications spend. Without the financial constraints of private ownership, it is likely firms would increase their marketing budgets.

ABSs would also give even more attention to long-term strategic planning. Firms would put the visioning process into the hands of business professionals ' and marketers.

You could expect more and targeted marketing advertising and PR of all types. Measurement of everything ' from Web traffic to message penetration ' would dramatically increase to improve its efficiency and effectiveness and to align marketing activities and strategies with business goals.

In fact, in an ABS-model law firm, there would be an even greater drive to measure. New and improved performance metrics would be developed for all aspects of law firm management and operation, including marketing and business development.

What about changes on the people side? Firms flush with ABS cash would probably beef up their marketing staffs to match additional responsibilities. Commissioned, professional sales people could become the norm, with the best sales people rising to the top of these new organizations.

Additionally, organizations would probably be a lot less “siloed.” ABS firms would encourage (maybe even require?) meaningful, cross-selling industry teams and the involvement of non-lawyer professionals in all kinds of matters.

Branding an ABS law firm would present some new challenges, too. Marketers and image-makers would not only have legal values and perceptions to manage. They would also have to factor in consumer attitude toward big business, particularly regulated big business ' which, in case you haven't noticed, is not so hot right now.

Then there's the whole notion of partner profitability and the value of client relationships. Since the current shareholder arrangements heavily reward origination, what will happen if the pie is divided into smaller and smaller pieces ' or, into none at all? And, what might happen to the incentive to sustain the relationships you have, if client connections matter less?

The Bottom Line

Fostering greater competitiveness seems to be one of the main drivers behind ABSs. In a recent statement, the ABA commission studying the issue said that “[c]ore principles and public protection [can] be satisfied while simultaneously permitting U.S. lawyers and law firms to participate on a level playing field in a global legal services marketplace that includes the increased use of one or more forms of [ABS].”

Conclusion

Nothing is happening anytime soon. Even if the ABA supports the ABS model, it's ultimately up to each individual state to decide whether and what to adopt. Change, however, is coming. And, as any good lawyer will tell you, the future belongs to the prepared.

Nicholas Gaffney, a member of this newsletter's Board of Editors, is a lawyer and former journalist. Nick manages Infinite Public Relations' San Francisco office and can be reached at [email protected] or 415-732-7801. Jamie Diaferia, an attorney and former journalist, is a partner with Infinite Public Relations, LLC. He is based in New York and can be reached at 212-687-0935 or [email protected].