It won’t be long before Canadians have shares of publicly traded law firms as part of their RRSPs.
Slater & Gordon, a middle-rank Australian law firm specializing in personal injury litigation, became a public company on May 21. It is now listed on the Australian Stock Exchange. This appears to be the first time anywhere in the world that a law firm has become a public company listed on a stock exchange. For Slater & Gordon, the traditional law partnership — once thought to be the encapsulation and the guardian of legal ethics — is a shining artifact of the past.
Why would lawyers do this? The answer is easy. As Deep Throat told Bob Woodward in that famous subterranean garage, “Follow the money.” The shares of Slater & Gordon rose 40 per cent on their first day of trading. Senior lawyers at the firm became rich. The Sydney Morning Herald reported on May 21 that some of those lawyers are now worth A$40 million or more. Said the newspaper: “Asked at yesterday’s launch of Slaters shares on the Australian Stock Exchange if it was a concern to be seen profiting from the law, [Andrew] Grech, the law firm’s managing director, replied: ‘Everyone profits from the law.’ ” Grech, needless to say, is one of those lawyers with shares worth A$40 million or more.
Before its public flotation, Slater & Gordon was “an incorporated legal practice.” It changed to a corporation from a partnership in 2001, as soon as the New South Wales’ Legal Profession (Incorporated Legal Practices) Act, which made such a change possible, came into force.
Of the 35 million shares sold in the S&G public offering, about half were sold by a handful of very senior lawyers. Proclaimed the prospectus: “Our growth to date has been funded internally by key shareholders and through debt. This offer provides an opportunity for those key shareholders who have provided that funding to sell down part of their holding in Slater & Gordon. In addition, we are now seeking an injection of capital to accelerate the delivery of our growth strategy.” After the offer, S&G lawyers still controlled about 56 per cent of the company’s shares.
We’re going to see a lot more of this. In the United Kingdom, the Clementi reforms of the legal profession, soon to be in place, will allow law firms to become publicly held companies. (The UK legal news web site www.lawyer.com said about Slater & Gordon going public: “The world’s legal market has changed forever. . . . There will be bells going off all around the UK. . . .”) In Canada and the United States, current rules prohibit law firm incorporation, but in both countries, a major step in that direction was taken a few years ago when law firms were allowed to become limited liability partnerships. In an LLP, the basic principle is that a “partner” has no responsibility for the liabilities of the “partnership” other than those that arise from his own negligent or wrongful act; risk is shifted, away from the law firm, where it used to reside, to clients and insurers.
Should we care about any of this? What’s wrong with law firms abandoning the traditional partnership model and becoming public companies like Shoppers Drug Mart or Rothmans Inc.? Larry Ribstein, a law professor at the University of Illinois, writing in the online magazine America.com, puts the question this way: “Can society afford to let lawyers sell out to the highest bidder. . . . Shouldn’t lawyers keep themselves apart as a profession, maintaining the conceit that they work for client betterment rather than directly or themselves?” Ribstein’s answer is that selling out is okay: “I think that law firms have crossed that line already. One benefit of law firms being publicly traded is that this would make it harder for lawyers and law firms to deny that they really are businesses.”
But, wait a minute, what about the time-honoured duties of lawyers to courts and clients? The Slater & Gordon prospectus solemnly states: “Lawyers have a primary duty to the courts and a secondary duty to their clients. These duties are paramount given the nature of the company’s business as an incorporated legal practice. There could be circumstances in which the lawyers of Slater & Gordon are required to act in accordance with these duties and contrary to other corporate responsibilities and against the interests of shareholders or the short-term profitability of the company.”
This brings to mind Tom Lehrer, singing about the Vatican: “Bow your head with great respect and genuflect, genuflect, genuflect.” I remember that when British Telecom was privatized in 1984 the company’s head of public relations was reported as saying, with astonishing honesty, that BT’s principal duty was now to its shareholders rather than its customers.
It is too late to bemoan the traditional legal partnership, based on trust of partners in each other, and shared responsibility toward clients. These principles are now dimly remembered, the stuff of archaeology. All that is left of the old-style partnership is the sanctimony that tended to go with it (see quotation from Slater & Gordon prospectus above). As for limited liability partnerships, are they much other than an exercise in deception? What kind of partnership is it that eschews the liability of the partners? Best, now, in all our interests, for law firms to go the whole hog — become publicly-traded corporations, subject to the disclosure and transparency requirements that attend such status, overseen by a variety of regulatory bodies charged with protecting the public interest, all pretense at being anything other than a business with limited liability consigned to the conceptual dustbin.
Can it be long before shares of McCarthy Tétrault, or Torys, trade freely on the Toronto Stock Exchange? Before widows and orphans have a few shares of Bennett Jones in their retirement savings plans? Bring it on.
Philip Slayton’s book Lawyers Gone Bad: Money, Sex and Madness in Canada’s Legal Profession was published this month by Viking Canada.