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The personal injury law firm Jacoby & Meyers (known for its TV commercials) is suing to overturn state laws in New York, New Jersey and Connecticut that prohibit non-attorneys from owning stakes in law firms. From The Wall Street Journal:
The firm, which has more than 60 lawyers and specializes in personal-injury cases, claims that the restrictions have hurt its ability to raise capital to cover technology and expansion costs, and have hampered it in providing affordable legal services to its working-class clients.
U.S. law firms typically are owned by their senior-most lawyers, called partners. The structure was designed to ensure that all the principals of the business were accountable for the firm’s work and that of their fellow partners.
The ban on law firms accepting nonlawyer investors is nationwide, with the exception of Washington, D.C., under ethics rules established largely by state supreme courts. Violations of the rules can lead to disbarment.
The restriction on investors is decades old and stems from even older strictures against lawyers sharing fees with nonlawyers, for fear that might compromise their professional independence.
So, should non-lawyers be allowed to hold shares in a law firm?
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I was talking about the same thing only a day ago, and was not aware of the law suit that had been filed. I think that if there will be no problems associated with access to information by the shareholders, then law firms should be allowed to go public. A more complete response can be found here in my blog post:
Can Law Firms Go Public? http://t.co/KrXbsYR
Absolutely!
Its the one big gap in the financial markets. We positively need investment vehicles that allow investors to cash in on Ambulance Chasing and Patent Trolling.
Do it now!
Well, we certainly couldn’t have a lawyer doing anything “unethical.”
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@Olli: If one company just started charging more, their customers would go elsewhere. It’s different with legal restrictions because it applies to everyone equally. Corporations usually complain because it hurts their revenue as well.
I am against it. I think one of the reasons we have so much corporate irresponsibility is that the owners (shareholders0 are so far removed from any responsibility for the operation of the company. Today, most individuals who own pieces of the company are far removed from the business, either because the shares are held in mutual funds or pension funds and the like. I own pieces of thousands of companies through my 401(k)s, but couldn’t name more than a handful of them. How am I, as an owner, supposed to influence the responsible running of these companies? I think making law firms public would be a bad idea.
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My first reaction is “I don’t see why not, yes”. But then I wonder if a law firm could ever become the size of Wal-mart. And if so, a law firm that size, owned by investors, run by CEO’s, solely pursuing profits, lobbying government… This worst case scenario makes me think twice.
Realistically, what would happen is that opponents would have people buy a few shares in the law firm and then either object to their actions or claim they have a conflict with their shareholders. It would make it impossible for them to accomplish anything.
I think the example of the financial firms wild excesses since they went public should give us pause. The profit motive is generally a good thing but the spoils of liability litigation are not profits in the usual economic sense and definitely do not result from an increase in the total wealth of society. So, improving the ability of law firms to extract profits will reduce the total wealth available for productive investment. Therefore law firms should not be allowed to sell stock.