I have posted previously about the UK Clementi reforms that allow outside investment in law firms. Fellow blogger Adam Smith, Esq. reports that several money sources have recently approached large UK firms.
His recent post about potential investments in law firms, It’s Happening Sooner Than You Think, notes that “the idea is for investors to have a fixed income” and investors “can make savvy investments in labor, as well, and in developing a cross-border technology and infrastructure platform that can provide lasting competitive advantage to your professionals and your clients.”
Let’s be clear on the dynamic here. Valuing the steady stream of law firm profits is easy because, compared to many other businesses, future profits are much less variable and prone to risk. Consequently, there is little arbitrage opportunity in differing views of the value and an investor would have to boost revenue or reduce costs to see a return. As Adam Smith, Esq. points out, technology supports both. Consider some examples: Relationship discovery, business intelligence, and proposal generators can grow the top line. Document assembly, work force allocation, and work flow can shrink costs.
Unlike existing law firm management, investor-led management would, to make their investment pay off, have to drive technological change. Perhaps forward thinking CIOs should hope for outside investors. And the would-be investors need to assess the CIOs and be prepared to replace those who cannot drive true change.