I was asking this question just the other day with a prominent lawyer from New York, and he said that there are no public law firms that he knew of, at least in the US, because there is a law that bars law firms from going public. I responded, “Since law firms do not need to raise a lot of capital after all, and it is profitable for law firms to remain private, why would they go public anyway?” However, after reading this piece on the Freakonomics blog, I realized that I was wrong.
I was looking at the issue just from the side of the big law firms, and yes, they would not like to go public when they are making so much money already. But when you consider small or mid-size law firms which do not have the clout as the big ones do, it might be advantageous for some of them to compete against the big law firms to establish themselves.
An article titled “Jacoby & Meyers’ Newest Fight: Helping Nonlawyers Own Law Firms” from the WSJ brought this issue in light.
Jacoby & Meyers Law Offices LLP, a pioneer of television legal advertising, filed lawsuits Wednesday challenging state laws in New York, New Jersey and Connecticut that prohibit nonattorneys from owning stakes in law firms. The ban on law firms accepting non-lawyer investors is nationwide, with the exception of Washington, D.C., under ethics rules established largely by state supreme courts. Violations of the rules can lead to disbarment. The present system of ownership restrictions “perpetuates economic inequity,” Jacoby & Meyers said in Wednesday’s court filings. “The small [legal] practice does not have access to the capital markets that the Wall Street [law] firms have,” it added.
The previous paragraph sums the main reason why law firms might want to go public. When a small law firm stumbles against a big case, they realize they do not have enough resources to handle the case whereas big law firms have enough resources at their disposal, which keeps the playing field unfair and is a significant barrier for small and mid-sized law firms from getting big and being able to compete with established practices. Now I see there is a valid reasoning behind why law firms should be allowed to go public, as the current system also protects big law firms from potential competition. Another advantage that I see is public law firms would more likely be doing things legally than private firms would. This would lead to a better condition than the status quo as it would promote efficiency by enabling competition and were such public law firms to trump private ones, there would be less irregularities associated with law firms too. But whether this happens or not remains to be seen.
(Repost from my old blog published May 20, 2011)