Thankfully, Law Firms Are Usually Owned Only By Lawyers

// I was recently listening to a podcast that discussed the impact private equity ownership has had on the medical profession in recent years. Although I am definitely not an expert in that field, apparently, private equity firms have been buying up healthcare practices, and priorities within the healthcare industry have shifted as a result. Allegedly, after private equity firms take over practices, physicians complain that management focuses far more on efficiency and profitability that the softer side of practicing medicine. This could have a negative impact on how physicians deliver care to patients. The podcast explained that some physicians even suffer from a moral injury since they are forced to promote a profit motive and other goals at the expense of having a human connection with patients.

My initial reaction to this information was to question how this can be permitted in the medical industry. As professionals, physicians should not have their judgment impacted by people who are not trained in medicine. The podcast explained that some states have regulations that prohibit certain medical establishments from being owned by people other than physicians. However, some private equity firms have ways around these requirements, and some physicians seem to be complicit in efforts to separate medical decision-making from the people who are medically trained.

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Hearing this story made me glad that I worked in a profession that has strict rules about not permitting nonlawyers to own law firms so that a lawyer’s professional judgment remains inviolate. Some exceptions to this rule of course do exist. For instance, the District of Columbia permits some professionals who are not admitted to the bar, such as lobbyists, to be partners of law firms. Also, there may be less interest among private equity shops to own law firms, but some law firms abroad are publicly traded, and others are owned by entities not controlled by lawyers.

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Briefly reviewing materials off the internet, it seems as if a few jurisdictions have some interest in expanding who is permitted to own law firms. Indeed, according to some sources, programs in Utah and Arizona may expand ownership of law firms to nonlawyers. Although innovation is always welcome, jurisdictions should be very cautious about expanding the capacity of nonlawyers to own law firms, and we can look to the example of the medical establishment for reason to have concerns.

Although many people might think that lawyers are interested only in money, many legal professionals and policymakers do not want a profit motive to be the primary reason for why attorneys complete tasks, and ethical rules are in place to prevent this. The legal profession, like the medical establishment, is very people-focused, and lawyers often build strong connections with their clients. This connection can strengthen a given representation and also be rewarding to lawyers as well. Not every call from a client might be a work call that needs to be recorded as billable time, and not every client can be fit neatly into categories for the sake of efficiency. If private equity firms or other nonlawyer owners run law firms and institute profit-promoting practices, the practice of law can lose a personal touch that is hard to replace.

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Moreover, it is possible that widespread ownership of law firms by nonlawyers can reduce the opportunities of attorneys to earn more money or advance in their careers. The prospects for attorneys to have a fruitful and lucrative career have diminished greatly over the past few decades. Although people used to be offered partnership after eight years of working as an associate, and many partnership positions involved equity in a firm, this is no longer the case. Now, it can take much more time than in the past to make partner, and partnership might not come with the equity stake that is especially lucrative to attorneys.

Numerous law firms have recently instituted nonpartnership track or staff attorney positions to also limit the amount of equity and partnership opportunities that go around. Moreover, with the advent of predictive coding and artificial intelligence, many contract attorney jobs have disappeared in recent years, and this trend is likely to continue. If private equity firms or other nonlawyers run law firms and are solely motivated to earn the highest profit possible, they might accelerate the trend of cutting lucrative jobs to reduce costs and maximize profit.

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I’ll be the first to admit it, I’m just a practicing attorney, not a legal academic or someone who is particularly well-versed on broader trends within the legal profession. However, all of us in the legal industry can have a sense of pride in that, in order to preserve the independent professional judgment of attorneys, among other reasons, we do not usually permit nonlawyers to own law firms. Although relaxing rules regarding law firm ownership can be advantageous in some situations, policymakers should be cautious about changing this landscape by allowing companies run by nonlawyers to own and manage law firms.

Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at [email protected].

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Biglaw, Jordan Rothman, Small Law Firms