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As law firms float, careers prospects sink

Why there has never been a better time to move in house

On October 11 2011 Alternative Business Structures (ABS), commonly known as ‘Tesco Law’ for its ease of purchase, came into effect. This relaxation of the ownership restrictions on law firms has meant that non-lawyers can invest in legal businesses and law firms themselves, for the first time have been able to consider floating on the stock market. The move gave rise to the opportunity to inject some much needed innovation and competition into the market while giving firms access to a new lucrative income stream.

True to form, things have moved slowly but we’re now seeing increasing interest in Initial Public Offerings (IPOs) which could signify the start of significant change in the market and will have a huge impact on law firm employees.

A slow start

The opening up of ownership to outsiders didn’t open up the floodgates as some anticipated. While significant in the history of law, at the end of last year only three firms had opted to float. Many concluded that an IPO would only serve to encourage partners to pocket the money and leave or be relevant for firms with plans for growth so big they demanded funds beyond their existing reach.

Law firms felt there was enough work and money for attractive salaries and investment to not have to seek change – change that brought shareholders who would take a share of the profits and indeed decision making power. Meanwhile, investors were wary of the risks of investing in companies whose key assets are people and relied heavily on the retention of key individuals.

We could be about to see more and more firms become public

In the seven years that ABS have been available we’re seeing a gain in momentum. From just one firm in 2015 with Gately, to two in 2017 with Gordon Dadds and Keystone to two already in 2018 with Knights and Rosenblatt Solicitors. There is widespread speculation that this number will rise with DWF and Fieldfisher already known to be openly meeting investors in the City.

This coincides with a recent survey that found that 20 percent of the top 100 law firms would consider an IPO, up from a meagre four percent four years ago.

Firms who have been cautiously watching how the early adopters have performed before making the leap themselves will have seen Gateley’s share price rise from 95p to a high of 195p in June last year. They may also be tempted by the £800m that Fieldfisher is said to have been valued at. This would indeed allow them to realise their ‘strategic objectives and stay ahead of the competition in (their) dynamic and ever-changing market’ as quoted by their spokesperson.

There are over 10,000 law firms and 134,000 lawyers in the UK and only the top 200 earn over £5m. With strain on chargeable fees and arguably volumes of work at a time costs are rising, the temptation to raise capital for growth and new technology from new sources is very real. Couple this with the draw of investors to a sector that generates £30bn in revenue a year and the potential for more firms to take the route of an IPO becomes very plausible. As more and more firms take the plunge, investors get more choice and their interest will only grow.

Short-term impact on employees

Moving onto the stock market can be very positive for the business but it would be naive to think this automatically translates through to the employees.

Firms looking to attract investors will be working hard on their P&L and in a business model based on services provided by people, the slimming down of staff is an obvious casualty of driving down costs.

Long-term impact on employees

The capital injection will largely be invested in the growth of the firm. Many employees who are currently motivated by becoming partner will find themselves further removed from ever being able to reach that goal.

In-house has always offered many appealing benefits; feeling part of the bigger picture and working with a wider range of people, escaping the pressure of billable hours and business development, job stability, having a wider scope for career progression, a better work-life balance and a greater variety of work. For those hanging on out of loyalty to the partners or in the hope of becoming partner themselves will see this slip away if their firm moves onto the stock market.

The good news is that with ABS allowing non-lawyers to invest, the options for client-side moves are only going to rise. The Co-op is making substantial moves into legal services and companies such as Saga, Halifax and even the AA are evidently testing the market. These are exciting times for lawyers seeking variety.

If you feel that it’s the right time to make the move in-house we would love to help you make this step with our elite client base.

Maame Eshun

Associate Director, Head of Legal, Financial Services

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