The debate over publicly listed law firms has been fuelled over the last few years by Slater and Gordon’s fall from grace, as well as Shine Corporate’s share price drop and the listings of IP groups Xenith, Qantm and IPH Limited.
Listed law firms have come under fire for their alleged focus on generating value for external shareholders rather than providing good client service.
Those who are unopposed to listed law firms have shot back that the pressure to generate profits for external shareholders is not necessarily in conflict with client interests.
However, Robert Pierce, who recently took over from Frank Hurley as CEO of privately owned IP firm Wrays, told Lawyers Weekly that law firms could risk damaging their client relationships by listing.
He noted that the shareholders of private firms – the partners – work closely with clients, whereas shares in listed firms are held by investors who often have nothing else to do with the company.
“It’s no secret that companies are required to generate returns for their shareholders. That’s the case for both public and private companies,” Mr Pierce said.
“I would say that shareholders of a private firm are actively engaged with clients and closely involved with the day-to-day running of the business, and that builds a connection to the client.
“I think advisers at private firms have an ability to perhaps focus more on the longer-term client experience. A publicly listed firm will certainly have different stakeholders to manage and expectations to manage, not least with share price fluctuations and what the market is doing, whereas potentially a non-listed firm can concentrate on its long-term strategic objectives and therefore the needs of its clients and people.”
Leon Allen, the managing director of listed IP firm Qantm, told Lawyers Weekly the notion that listed law firms have an inherent conflict of interests just shows that the profession is unfamiliar with this new business model.
“I understand the apparent concern, but I do think it reflects the novelty of listed legal entities,” Mr Allen said.
“There are many forms of listed companies across industry sectors that operate in highly competitive environments. I think you would find that most, if not all, would say they have a responsibility to their shareholders but also to their customers or clients.
“I do not see any inherent contradiction in running a business or a practice which serves the interests of multiple stakeholders, and in this I would include employees.”
However, the challenge of changing the perception of listed law firms may prove too great. Mr Pierce echoed Mr Hurley’s statements earlier this year that both clients and staff are dissatisfied with the listed IP firms.
“If you look at the traditional model of legal services, the model is one where professional staff work towards equity in the firm and the value that it brings from a financial point of view as well as a professional point of view,” he said.
“I'm not sure that the listed model offers that same trajectory for professional staff, so there could be some rising stars out there, particularly in the IP field, who may feel that their route to equity has been blocked in the traditional sense.
“We’ve seen a lot of movement in the market at staff and partner levels. There are some lateral movements occurring as a result of staff and partners not seeing a route through to equity that they once had. There’s also a lot of anecdotal feedback that international and local, but particularly international, clients are wondering how the listings are going to affect the wider market.”
Mr Pierce said the strong relationship between clients and shareholders in a private firm can be difficult to mimic in a listed environment.
“If the shareholders are directly involved in managing the business and setting the business up to enable it to deliver the service that the clients require, and they have an intimate knowledge of that service because they’re actually dealing with the clients on a day-to-day basis, I think a private firm has an agility that potentially a listed firm loses,” he said.
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