Comment

The Judge Rules: publicly listed law firms will mean even fewer training contracts

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Gateley’s move this week closer to the door of the London Stock Exchange signals the advance of yet another factor law students and young lawyers will have to confront

Think Gordon Gekko. Following developments earlier this week, he could be the future of legal practice in England and Wales, and possibly Scotland.

For those that can’t recall a pre-“The Hunger Games” period of cinema, Gekko was the creation of film director Oliver Stone for his 1987 epic, “Wall Street”. The character was everything you’d expect from a red braces-bedecked, Cohiba-puffing, blood-raw steak-eating macho stockbroker.

He took no prisoners and he paid little attention to the rulebook. Greed was not just good, it was life itself, with the generation of dosh being paramount, as Stone’s 2010 sequel left in little doubt with its title, “Wall Street: Money Never Sleeps”.

And now Gekko’s real-life successors will potentially have a lot more to say in the fortunes of law firms.

Anglo-Scottish practice Gateley announced at the beginning of this week that it was gearing up for an initial public offering on the London stock exchange. Since implementation of elements of the Legal Services Act 2007, law firms can register as alternative business structures, a status that opens a range of possibilities.

Many firms have become ABSs simply to allow long-standing, senior non-lawyer staff to join their partnerships. Others might be keen on a short, sharp injection of private equity investment.

But Gateley is going the extra mile, opening itself to wider shareholders and the vicissitudes of capitalisms nirvana, the market. It is the first UK-based law firm to make the move, but not the first with a big presence in this jurisdiction to list.

That honour went to Wallaby firm Slater & Gordon, which floated on its home exchange in Sydney in 2007 and three years ago Hoovered up London practice Russell Jones & Walker.

Mafia Law

The gestation of the ABS model triggered much rowing and legal profession soul searching. Doomsayers forecast that allowing external investment into law firms would effectively give the green light not just to Tesco Law, but IRA Law, Mafia Law, and — if they’d thought about them at the time Islamic State or Boko Haram Law.

So far, the doomsayers have been proved wrong. But will publicly listed law firms be a good thing for young lawyers and prospective law firm entrants aspiring to reap the benefits of a the same profession that current law firm partners enjoy?

No.

As law firms become law companies they will have to pay increasing attention to non-lawyer shareholders and investors. Institutional shareholders put the bottom line pretty high up on their agendas. That means business efficiencies.

Business efficiencies at law firms will mean cutting fat, and some might argue there’s plenty to cut at both the top and bottom ends. At the latter, that could translate to ever-greater use of non-qualified (and cheaper) paralegals based in UK regional centres, on the one hand, and good news for overseas-based legal process outsourcers, on the other.

Which means bad news for the already gradually evaporating pool of law firm training contracts.

Moves by the Big Four accountancy practices into the legal services market through conversion to ABSs are also important. It is not beyond the realm of possibility that within the decade, there will be no such thing as a global law firm. Global professional services firms providing a range of advice, some of which will be legal, will have replaced them.

Such a development will also have a profound impact on the training and development process for young lawyers as well as on the number of roles available.

So it is no wonder that, for the time being, all eyes are on Gateley. Earlier today, Thomson Reuters released survey results showing that still only a small minority of law firms are interested in floating.

According to the research, just 4% of finance directors at the top 100 UK practices said their firms would consider following Gateley to the doors of the Alternative Investment Market of the London Stock Exchange.

But, commented Samantha Steer, head Thomson Reuters’ entertainingly-titled large law strategy department:

“The Gateley IPO will be very closely watched in the profession, especially by those firms below the magic circle level who may feel that they can use an IPO to accelerate growth.”

Just whom that growth will benefit could be one of the most crucial issues for young and wannabe lawyers.

Previously:

National law firm becomes first ever to flog shares on London stock exchange [Legal Cheek]