June 29, 2008
In light of the Blackstone public offering, I wonder if there are any other partnerships that earn big fees that might go public. Like law firms, for example?
Law firms, of course, just aren’t like publicly traded corporations. They have to be partnerships, or else they will lose their discipline and their cachet. I mean, you may as well be talking about Goldman, Sachs going public, for God’s sake. Oh, wait. . .
But then the investment banking and buyout and hedge fund businesses aren’t like just giving advice. You’d never be able to capitalize expert advice, would you? Oh, wait. . .
Well, of course there are ethical rules about selling equity shares in law firms to non-lawyers. But those rules could be changed. It’s far from clear that it’s in clients’ interests to require firms that practice law be law-only and lawyer-controlled. See my article, Ethical Rules, Agency Costs and Law Firm Structure, 84 Virginia Law Review 1707 (1998).
Moreover, even if we insist on lawyer control, that doesn’t necessarly preclude a Blackstone-type structure, in which the public owners have little or no control.
Now, you might say more convincingly that there isn’t enough value in a law firm to capitalize. Lawyers are involved in the huge transactions, but Blackstone rakes off most of the dough. But then you should wonder why that has to be. After all, lawyers are supposed to be “transaction cost engineers,” in Ron Gilson’s term. Many combine business expertise with legal knowhow. Why should a lawyer like Bruce Wasserstein have to go into private equity to make the big bucks?
For more on the future of big law firms, including a possibly publicly traded future, see here and here. And here’s some recent advice for law firms based on the private equity model.
Originally posted by Prof. Larry Ribstein on Ideoblog