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Law Firm Ownership: An Evidence-Based Approach

Adam Smith, Esq. asks “Is the prohibition against non-lawyers having an ownership interest in a law firm still a good idea?” (See Question of the Month #4: Non-lawyer Ownership?, 1 Sep 2017). Readers can vote on a list of answers or comment. I defer my vote to reframe the question.

Let’s start with some historic perspective. Humans initially believed the earth was the center of the universe. Over time, we realized the sun was the center. Similarly the idea of orbits as perfect circles fell by the wayside.

Why the changes? Evidence and a change of mindset. The Enlightenment de-emphasized theology and drove evidence-based thinking. Observation of the skies and math offer more powerful ways of thinking – and the ability to predict – than mere speculation or religious dogma.

When it comes to who can own US law firms, we seem stuck in the pre-enlightenment age of speculation and dogma. Articles and commentary I read about law firm ownership presume much and present no evidence. This is perplexing for a profession that prides itself on analytic thinking and marshaling evidence.

Bar regulators must enter their own age of enlightenment. First, they must be honest about the goal: protect lawyers or clients (and perhaps acknowledge consumers and corporations need different rules). Then they must act on evidence.

With the goal clear, search for evidence that supports a plan to achieve the goal. And be willing to re-visit the plan over time as new evidence emerges.

On law firm ownership, I offer two observations. First, Australia and the United Kingdom allowed, more than five years ago, ownership by those not lawyers. Their skis have not fallen. I read many articles from both jurisdictions and none reports client harm.

And second, consider who really controls large US law firms. A September 1st American Lawyer article title asks “As Firms Centralize Management, Are Equity Partners Employees?” It suggests control by a small subset of partners on an executive committee. If true, how does control by a handful compare to the checks and balances of an outside Board of Directors and/or shareholders with a vote?

So my answer, not in the list of choices at Adam Smith, Esq. is “What are we trying to protect exactly and what evidence should guide our answer?”

 

  1. Richard Parnham

    I quite like the UK SRA approach to lawyer regulation: the “SRA will take the approach that the continuation of any existing regulatory intervention needs to be justified, rather than one of focusing on justifying its removal.”