Law Firms Can Go Public: Why Don’t They?
Throughout the history of the legal sector, it has always been clear that law firms are not like “normal” companies. Law firms never have CEOs, as a corporation would, with a partnership system in which those at the top are paid directly from the firm’s profits, rather than receiving a fixed salary.
Aside from the unique employment and ownership traditions of law firms, there are also the myriad ways in which law firms often refuse to behave like a regular company. One telling example of this can be found in the world of initial public offerings, or IPOs.
An IPO is the process of a company going from being privately owned to issuing shares on a public stock exchange that members of the public can freely buy and sell. For most “normal” companies, the IPO is a right of passage and a marker that a company has “made it” and can now list on the stock market. However, law firms have generally refused to conform to this tradition.
IPOs and law firms: A brief history
In the UK, law firms have been able to list on the London Stock Exchange (LSE) since 2007, following the passage of the Legal Services Act. However, few firms in the UK have actually pursued this option, regardless of their growth and profits. The first UK law firm to float on the stock market was Gateley, which did not do so until 2015, raising £30 million in the process.
Since then, a tiny handful of firms have since gone public. Perhaps most notable was the listing of DWF in September 2019, which raised £95 million on a £366 million valuation on the LSE. As of 2022, only five law firms in the UK have completed a successful IPO, a staggeringly low number, given the fact that the UK legal services industry is one of the largest and most profitable in the world.
Why don’t more firms list?
It’s worth circling back and considering why companies go public in the first place. Most often, the IPO route is pursued to raise funds for the expansion of the company. IPOs are widely-followed events among the public, with trading platforms providing detailed calendars of upcoming IPOs for retail investors to follow. Oftentimes, if there is enough public interest in a company, going public can raise huge amounts of money. However, this is not always the case.
In the case of law firms, the benefits of going public might not outweigh the costs. This is partly due to the unique ownership structure of law firms. If a law firm was to go public, profits would no longer be distributed solely to partners, as those profits that need to be diverted to shareholders are dividends. This means that the partners would likely have to accept a standard salary and be accountable to shareholders in the same way that a company board would be.
An IPO would also require the firm to be governed and held accountable in the same way that a “normal” company would be. Some partners might find that this would be too disruptive to their operations and their independence, which is why so many choose to avoid going public.
Despite this, things could be changing. A recent survey of London firms found that more than a third are considering going public as a means to fund their expansion during an era of unprecedented client demand. If these numbers hold up, the UK legal industry could change forever.
