The end of the affair: Are partnerships no longer lawyers’ chosen corporate relationships?

Will the traditional partnership structure still appeal to lawyers in years to come? Peter Ranscombe reports.

From Cage, Fish & Associates in Ally McBeal through to Gage Whitney Pace in The West Wing, books and television series are peppered with the names of fictional law firms, named after their prominent and often quirky partners. But is the legal profession’s tried-and-tested ownership model now under threat in real life?

For many firms, their preferred shareholder structure has morphed over the years from a traditional partnership into a limited liability partnership (LLP), with Aberdein Considine last year becoming one of the latest firms to make the switch.

Many members of staff who have the word ‘partner’ on their office door or business card – or, perhaps more pertinently these days, their LinkedIn profile and email signature – are now ‘salaried partners’ and no longer one of the ‘equity partners’ who own their law firm.

“The Law Society of Scotland is targeting the 2027/28 operating year for the implementation of rules that would allow ownership of law firms by non-lawyers,” observes Peter Lawson, chair of law firm Burness Paull, as discussions over alternative business structures (ABS) continue. “Therefore, this is potentially the last year before we see external investment in Scottish firms.

“The framework that allows for external investment in law firms has been in place in England for 15 years now. The need to fund artificial intelligence (AI) solutions and technology upgrades has resulted in significant private equity investment and consolidation, primarily at the lower end of the English market, that has seen multiple, smaller-scale firms brought together to create larger outfits poised for growth.

“We are committed to remaining an independent firm. However, it wouldn’t be a surprise to see some Scottish firms preparing for external investment in the run-up to 2027/28.”

Disruption from private equity

Can the traditional partnership model survive the potential onslaught from private equity? Peter thinks the effect of external money won’t be universal throughout the profession.

“Private equity is a welcome addition to the Scottish legal market and will be an effective model leading to an improvement in focus and operational efficiency for certain parts of the legal sector, such as consumer-facing services,” he says. “However, it is unlikely to be an attractive model for the more elite law firm partnerships focusing on complex transactions, regulatory advice and disputes, which require lawyers with deep client relationships and highly specialist legal skills.

“In order to compete successfully against the private equity model, traditional partnerships will need to lean in hard on the key strengths and differentiators of the partnership ethos – trust, collaboration, deep relationships, mutual respect, culture, personality, collegiality, nurture and legacy. When that all comes together in a partnership it creates a very powerful force that provides an excellent service to clients, an attractive career for ambitious lawyers, and is rewarding in many ways for the partners.

“While the private equity model will disrupt certain areas of the legal market such as consumer-facing services, well-run partnerships with a strong partnership ethos focusing on complex, high-value corporate, regulatory and disputes work will continue to lead the legal market.”

Is ‘John Lewis-style’ employee ownership an option?

South of the Border, about 30 law firms have used employee ownership trusts (EOTs) – through which shares are transferred to trust companies, which hold the stock in trust for the benefit of employees – to plan successions. In some cases, owners give the firm to the EOTs but in most cases the trusts will buy shares from the owner, either in instalments from the business’s profits or by taking out a loan.

Kay Cook, managing partner and former owner at Chester-based law firm Oliver & Co, and fellow former owner David Owen had one eye on succession planning during their 20 years at the helm. “We’d always liked the ‘John Lewis model’ and, the more we looked into EOTs, the more we felt it would be the perfect fit for us,” Kay told The Journal.

Kay and David sold the business to their 85 employees in 2022, with the loan used to buy their shares due to be paid off next year. “Everybody feels part of the firm,” explains Kay. “We have done a lot of work around the culture of the firm and we are now transparent, with a quarterly report that includes profits or losses, expenses and other details.

“The biggest challenge has been arguments over the car park – everyone thinks they can park in the car park because we’re all equal now,” she smiles.

Kay received advice about EOTs from other law firms and now shares her experience with others. “It’s one of my favourite subjects,” she says. “We now run an annual conference for employee-owned law firms, so we can all share best practice.”

A generation of ‘boomerangs’ and ‘hoppers’

Anne Macdonald, a partner and head of the business development department at law firm Harper Macleod, notes: “For my cohort of graduates from law school, the real driver was to reach partnership and do it as quickly as you can – today, that’s not the be-all and end-all for juniors. Instead, they want to enjoy a really fulfilling career, but that career might take some twists and turns, and they may not have the same longevity with a single firm.

“It’s a bit like a river twisting and turning or the tide ebbing and flowing; you will be flowing along very comfortably, really enjoying working at a firm, and then a new opportunity might arise, and that might not be with your current firm – it may be in-house, it may be offshore, it may be in London, it may be outwith law. But then the river twists again, and you find yourself coming back to perhaps where you started your career. We’re finding it’s more of a journey, which might not be so linear within a law firm.

“We have ‘boomerangs’ and ‘hoppers’ – people who like to hop about – and we’re very grateful when they hop back to us because they bring a wealth of experience and exposure to potential clients for us. I think it's actually a good thing for firms when you can get that new perspective brought by people who have maybe hopped elsewhere and have come back to you.”

She adds: “Ultimately, the end goal of being an equity partner is now only for the few, rather than the majority. They may look at the existing partnership model and wonder if it’s sustainable for the future, especially given the arrival of private equity in England and Wales. Is there a role for future leaders when you have private equity involved because, in essence, you all become salaried employees?

“They also want a better work-life balance and I applaud them for that and support them. If I could turn the clock back, would I want to be more like the juniors are now than what I was back then? Absolutely.

“There’s that generational shift, and attitudes have naturally meant that the traditional golden ticket of becoming a partner or equity partner is not the strong desire that it once was. It’s harder to achieve as well; there are more law graduates than ever, so there’s a large number of associates and senior solicitors, making it more difficult to stand out from the competition.”

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