By Barbara Hendrickson
The current traditional partnership structures for law firms have been in place for hundreds of years and are enshrined in legislation. Currently the legal profession and our regulators are examining alternative business structures including ones where non-lawyers can be owners of law firms. Lawyers tend to be split on the desirability of such a move, raising concerns both about the protection of the public interest and the erosion of the current legal monopoly that lawyers have in Canada. A number of other Commonwealth jurisdictions are ahead of the curve on this trend including England, Wales and Australia.
The subject of alternative business structures (“ABS”) is being considered by Canadian Bar Association through its Legal Futures Initiative. The CBA is set to release its final report in August of this year, which among other things will make recommendations on ABS.
The final report is the last step of a multi-phase project which has consisted of initial research and analysis which resulted in a 2012 preliminary report identifying trends and issues, followed by consultations which wrapped up earlier this year and in which ABS were a point of contention.
The Legal Futures Initiative has a number of teams, including a Business Structures and Innovation Team, which focused on various business models including non-legal management, public ownership and non-partnership arrangements.
The CBA is expected to recommend that provincial law societies consider alternative business structures with the guiding principle that any structure is acceptable as long as the model is consistent with the preservation of core professional principles in the delivery of services to the client including privilege, loyalty and avoidance of conflicts.
The Law Society of Upper Canada is also examining the issue of ABS. The LSUC Alternative Business Structures Working Group, in a report delivered to Convocation on Feb. 27, 2014, has recommended that non-lawyers be able to own at least a portion of law firms. The LSUC report has concluded that there is no evidence that the regulatory liberalization will cause harm. The report outlined four different models for further study:
Entities that provide exclusively legal services and in which non licensees are permitted to own up to 49 per cent;
Entities that provide exclusively legal services and in which there are no restrictions on non-licensee ownership;
Entities that provide both legal and non legal services (unless those services are identified as posing a regulatory risk) and in which non licensee owners are permitted a ownership share of up to 49 per cent;
Entities which provide legal and non legal services (except those that are identified as posing a regulatory risk) and in which there are no restrictions on non licensee ownership.
Currently other Canadian jurisdictions including Nova Scotia and British Columbia are examining the desirability of ABS and in Quebec non-lawyers are already allowed to own a stake in a legal firm.
The idea of a law firm being a public company is intriguing. The world’s first publicly traded law firm, Slater & Gordon, is headquartered in Melbourne, Australia. Slater & Gordon Ltd. has been public since 2007 when it listed on the Australian Stock Exchange. Australia has permitted investment in law firms since 2001. Slater & Gordon is a full service law firm providing legal services in 30 areas from family and criminal law to corporate and securities laws.
Slater & Gordon has a number of unique features, including a call centre which fields nearly 100,000 calls per year and where may law students begin their careers. Data on current and potential clients is collected and analyzed for cross-selling purposes. Data is also collected to create fixed-fee pricing structures. There is no partnership to be a part of – lawyers are advanced based on a “balanced scorecard” that is a combination of financial performance (the firm’s and the lawyer’s); contributions to brand and marketability; contributions to mentoring and developing others within the law firm; and contributions to the intellectual capacity of the firm. Slater & Gordon has an external board of directors, which is said to bring a different perspective to decision-making and strategy. Slater & Gordon traded at a share price of AUSD$1.000 when it was listed in May of 2007 on the ASX and closed at AUSD$4.66 on May 13, 2014. That could be our future.
Barbara Hendrickson is securities partner BAX Securities Law