Entrepreneurs Are Attracting Major Cash to Draw Legal Services Away from Law Firms
Ganesh Natarajan, president and CEO,
Mindcrest Inc.Photos by Callie Lipkin
A new class of lawyer-entrepreneurs in U.S. legal services is attracting hundreds of millions of dollars from global investors, even while traditional law firms are forced to cut back.
These risk-takers speak a language investors understand. Rather than profits per partner, they talk about market share and return on invested capital. They converse as easily about finance, technology and management as finer points of law. And their enterprises produce steady returns even when unemployment soars and stock markets tank.
Some drive down costs by automating routine legal tasks. Others assemble dedicated teams of lawyers for in-house legal departments to draft simple contracts, review documents and conduct research. Still others use proprietary models to predict probable outcomes in complex commercial litigation, then contract to finance the most promising cases, freeing up corporate litigants’ capital for other uses.
Backed by institutions, private investors and hedge funds, these entrepreneurs and financiers employ a growing legion of lawyers in the United States and offshore. Even though their enterprises don’t counsel clients—they are prohibited from doing so by the ABA Model Rules of Professional Conduct—they are changing expectations about how legal services are priced and delivered.
They are part of a global legal services transformation that is expected to accelerate if Britain’s new coalition government allows investors to begin buying British firms, as permitted under the British Legal Services Act of 2007.
“The money is going to go where it can work fastest, to businesses that can take market share away from the traditional law firm model,” such as fixed-fee boutiques, says Ottawa, Canada-based legal consultant Jordan Furlong, partner in Edge International Inc. and publisher of the Law21 blog. “The biggest thing that does is change client expectations. All it takes is a few of these corporate-minded, equity-funded firms to come into the market and there’s a tipping point when a client’s question changes from ‘Why is this new firm charging less for this?’ to ‘Why is my old firm charging so much?’ “
The impact would be felt broadly across the U.S. market, especially in light of the wave of cross-border mergers like that of SNR Denton, a top-25 global player created by the merger this month of U.S.-based Sonnenschein Nath & Rosenthal and Britain’s Denton Wilde Sapte.
Continue reading “Law, the Investment” online in the September ABA Journal.
