Why the US Should Allow Outside Investment in Law Firms (disagreeing with the GC of IBM)

Disagreeing with the general counsel of IBM may be risky, but here goes. And normally I do not write about policy or legal regulation. But when it comes to creating an environment that can foster legal innovation, I do speak out.

In a Business Week ViewPoint, Law Firms Should Spurn Outside Investments IBM GC Robert C. Weber takes a strong stand against outside investment in law firms. He urges US bar regulators not to go down the path of the UK and other jurisdictions that have allowed investments in law firms. He is concerned about conflicts.

My view is “let the market decide.” Mr. Weber’s assertions about the risks are just that – assertions. As long as law firms disclose their ownership – and any other potential conflicts – I don’t see why educated clients like IBM cannot make a fully informed decision. IBM can decide to avoid such firms. In contrast, Siemens might be happy to retain these firms if it sees they offer better value.

It concerns me when lawyers take seemingly monolithic stands. Investment in law firms does not rise to the level of morality or “goodness”. Businesses (and yes, law firms are businesses) organize in different ways and have different motivations. So what? The business-to-business legal market (read BigLaw and BigCorp) has smart providers and customers who can evaluate risks and potential trade-offs. Law firms disclose. Clients decide. Why do we want regulators calling the shots?

I care because I see outside investment in law firms as potential route to spur innovation. Innovation in the use of technology, innovation in client service, innovation in thinking, and innovation in operating models. I don’t need footnotes to prove that the legal market has not embraced innovation.

So I ask Mr. Weber, why does he need to impose his perspective on the entire market. If IBM and other big legal spenders announce they will not do business with firms that take outside investment, that is their right. And that stance will likely influence many law firms. But why not let those whose preferences lie elsewhere at least have the choice?