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Irwin Mitchell: we’ll float and take on the mid-tier

Floating a law firm is just a bad idea. Here's how it would inevitably work: the firm floats and gets a load of cash up front, which it uses to offer stonking amounts of cash to a few 'big name' partners, who will most likely be coming to the end of their careers but will be looking for one last big pay day. The new 'big name' partners will have to be guaranteed minimum payments every year, which will be much bigger than the sums paid to existing partners in the firm. This will create resentment, and ultimately a really bad atmosphere at the firm. While the 'big name' partners are offered wads of dosh, the floated firms will struggle to recruit associates to match the new partners' practices, unless the associates working with the 'big name' partners also get paid more. This will create more resentment, and an even worse atmosphere. All the while, the existing partnership sees its profits eroded to pay dividends to the firm's new shareholders. Then, after 3-5 years, the 'big name' partners either retire or go to other firms, leaving the floated firm with a hollowed out corporate practice (assuming that's where the 'big name' partners were), angry shareholders and an obligation to either pay dividends in perpetuity, buy-back the shares at potentially a high cost, or face action by shareholders to do the equivalent of sacking the board (if shareholders would not have recourse equivalent to sacking the board, or no other powers in the event that no dividends are paid, why would they invest in the first place?).

26-Apr-2011

10:11 am