Why This Man Thinks Lawyers Should Abandon The Partnership Structure

Why This Man Thinks Lawyers Should Abandon The Partnership Structure

We know the whole business of law is changing – greater competition, fees pressures, alternative billing arrangements – but should the entire partnership structure be abandoned?

It is already happening in some jurisdictions, but the move by Australian and UK law regulators to free up the law business and permit the introduction of outside capital has been slow to take hold in the US.

However now, as the NY Times reports, Georgetown University professor and founder of a major litigation funder, Jonathan T. Molot, firms should receive outside funding so they can invest more readily in training, technology and other areas.

Mr. Molot is a co-founder of Burford Capital, which finances litigation in return for a share of the winnings, He made his suggestion this week in an article in The Southern California Law Review, the law journal of the University of Southern California Gould School of Law.

“Clients feel overcharged and underserved and are constantly searching for a better deal from a different firm,” Mr. Molot said.

The idea of allowing alternate business structures for law firms was rejected by the American Bar Association in 2000, and again two years ago, with the lawyers’ group blocking non-lawyer involvement on grounds that it could interfere with a lawyer’s professional judgment.

“We’d like to see more of a track record of client protection being paramount so there are no divided loyalties,” said William C. Hubbard, president of the A.B.A. The association monitors developments in Britain, Australia and other countries where firms have begun to be publicly traded.

The only exceptions in the United States are firms in Washington with lobbying practices, which can have non-lawyers as principals. Such practices are yet to be allowed by states, which oversee law firms.

Despite the constraints, there is a need for firms to have longer-term investment in technology “to deliver better, faster and cheaper legal services in the future,” said William Henderson, a law professor at Indiana University’s Maurer School of Law.

“We already have accepted that doctors go into business with hospitals, and impose cost controls, but we haven’t reached that point with lawyers yet,” he said.

A rush of lateral hires, where successful lawyers are poached from other firms, and the single-minded focus on driving up billings have eroded the bonds of partnerships and caused more money flow issues.

At the same time, the traditional practice of lockstep compensation has given way to rewarding “rainmaker” partners with big client lists. And that paves the way for partners to jump ship for more lucrative offers from other firms. When they depart, they leave with their capital contribution, which only leads to more uncertain law firm finances, Mr. Molot noted.

Read more at the NY Times

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