The renewed interest in "alternative business structures" (ABS) is not something that applies only to the largest law firms. Given the right regulatory environment, client base, and practice areas, even small firms can realize substantial improvements in profitability and client satisfaction.
However, an ABS might not be right for every firm.
What is an alternative business structure?
The traditional structures and service-delivery processes of law firms still meet the basic requirements of some clients; but they have become more cumbersome to configure to meet the expanding and more sophisticated expectations of many clients in increasingly competitive and fast-changing legal markets worldwide. Law firms in most jurisdictions are therefore considering and, where permitted, begining to adopt and operate new corporate structures and service delivery models.
Today, an "alternative business structure" usually is understood as involving non-lawyer ownership of a law firm; but the ABS concept is broader than that. Alternative business structures in law firms can follow a wide range of patterns and include a variety of non-traditional components, not just ownership by non-lawyers. These frequently include services, organizations, and structures that are not always included in the scope of definitions referring primarily to non-lawyer ownership or multidisciplinary practice. These other ABS models and components are of equal – and arguably even greater – strategic importance and operational consequence, especially for small and midsize firms. Some of them are not new.
- alternative ownership structures involving non-lawyer ownership or investment
- multidisciplinary professional services, with or without non-lawyers as owners
- specialized "spin-offs" or autonomous subsidiaries offering specialized legal services in high-volume, price-sensitive areas such as company formation, trademarks administration, and collections
- ancillary services, such as real estate title insurance, mediation, and human resources consultancy, which have long been a part of the service offerings of many law firms, particularly in the United States
- partnerships and joint ventures with non-lawyers in independent companies providing legal or other professional and business services, or, very frequently, a combination of such services
- outsourcing of legal functions and tasks to service providers in lower-cost locations
Is an alternative business structure right for your firm?
An alternative business structure is not a "magic key" to the long-term success of any law firm; but ABS models can meet strategic or operational needs that a law firm has to retain its competitive position, respond to the changing needs and service expectations of more sophisticated clients, or continue to deliver price-sensitive legal services profitably. Based on the experiences and observations of Walker Clark LLC advising law firms about the opportunities and risks of ABS models, we have identified five threshold issues for any lawyer or law firm considering a transition to any of the forms or components of alternative business structures listed in the previous subsection. These questions apply to dramatic changes in a firm's organizational, governance, or practice management paradigms, such as the inclusion of non-lawyer owners and professional service providers, as well as to relatively modest changes, such as the creation of an ancillary service closely related to one of the firm's major legal service areas.
All five of these questions have two common elements: They all demand a clear, well-informed investigation of the probable return on investment; and, as highlighted by the final question, action on any of them – even at a relatively modest level – requires significant change-management focus and skills among the leaders of the firm.
- Will an ABS enable my practice to meet and exceed the service expectations of our best clients?
- Will an ABS give my practice a clear competitive advantage over traditionally organized legal service providers?
- Will an ABS help my practice to compete successfully against any non-traditional providers who enter my legal market?
- Can an ABS help my firm to improve and sustain our profitability in a price-sensitive practice area or with a price-sensitive industry sector that currently produces a significant portion of our revenue?
- Are my partners and I willing and able to make the significant investment of partner time, management attention, and other resources that will be necessary to manage any of these changes successfully throughout our firm?
The decision to adopt an ABS structure or model should be based on the development and analysis of a solid business case, based on facts, not on aspirations or overly-optimistic assumptions. The leaders of a law firm should not automatically assume that an ABS is the best strategic option for them, even if it has become something of a fad in one's local legal market. Nor should a firm reject out of hand the potential of an ABS because implementation might seem too difficult.