Tonight:
4°c
It's tempting, but the Magic Circle is unlikely to go public
Joshua Rozenberg, Evening Standard16 Oct 2007
Fancy buying some shares in a law firm? Slater & Gordon Ltd acts for claimants in personal injury, commercial, family and asbestos-related cases. The company was first listed in May and anyone who invested £100 then would find their shares worth £176 by the end of last week.
This particular investment may have passed you by as it is listed on the Australian Stock Exchange. At the end of this month, though, the UK parliament will pass the Legal Services Bill - paving the way for law firms in England and Wales to float on the stock market.
Don't call your broker quite yet, though. The need for a new licensing scheme means that what are called "alternative business structures" - firms partly owned by non-lawyers - are unlikely to be permitted before 2011.
If you fancy buying into Clifford Chance or Linklaters, you will have to wait a lot longer than that.
Going public is not a trick we can expect to see from the Magic Circle firms. They have other ways of conjuring up cash.
"The legal sector in this country is very dynamic but I doubt whether the Legal Services Bill will lead to massive institutional change at the top end of the market," says Michael Smyth, head of public policy at Clifford Chance.
He does not foresee the City law firms merging with the big accountancy practices either. "We are simply too big and too culturally independent. And there is no evidence, in the post-Enron era, that the clients are demanding that."
Nor do the big corporates want their legal transactions scrutinised by City analysts, anxious to assess whether clients are being charged enough to justify the lawyers' share price.
John Young, senior partner of Lovells, thinks the major law firms will resist being seduced by financial institutions anxious to buy into them - not least because they would pay more tax as companies than as partnerships.
He believes the sort of law firm that would want to raise capital to expand the business or reward its staff is more likely to be at the High Street end of the profession than in the City.
True, but going public would be a big step for a small firm. Issuing shares as a private company seems a more practical option for most.
As in Australia, the greatest interest in alternative business structures seems to come from medium-sized, high-volume, low-margin claimants' firms - such as Russell Jones & Walker, which has its roots in the trade union movement.
Michael Napier, senior partner of Irwin Mitchell, has guided his firm from four partners in Sheffield to 110 nationally in his 35 years there. He fears if solicitors have to wait three or four years before being allowed to accept external investment they will lose work to the growing numbers of largely unregulated legal service providers.
"We want to develop even better legal services for our clients on a level playing field with the non-lawyer competition that will eagerly enter the legal services market once the Legal Services Bill becomes law," he says.
Meanwhile, Irwin Mitchell wants to be able to take legal executives and other non-solicitor professionals into the partnership. This is likely to become possible in 18 months' time, once the Solicitors' Regulation Authority has put the necessary arrangements in place.
It all seems a far cry from the days when self-regulation was regarded as the mark of an independent legal profession. With the clients protected instead by independent regulators, solicitors will soon be free to concentrate on making more money. No wonder they are so keen to embrace change.
