Attorneys wary of non-lawyer ownership

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As the idea of expanding law firm ownership beyond attorneys inches forward, Wisconsin practitioners doubt the business model will be an attraction.

The American Bar Association’s Ethics 20/20 Commission is considering a recommendation that would allow non-lawyer professionals, such as accountants or bankers, to own as much as a 25 percent stake in law firms.

But Wisconsin attorneys say the change would be a tough sell to shareholders reluctant to surrender ownership power and potentially shift the priorities of a firm.

“I don’t think it is going to be something lawyers want to get into,” said Dean Dietrich, former chair of the State Bar of Wisconsin’s Professional Ethics Committee. “There is a lot of financial independence for firms and the attorney-client relationship is different than other professions.”

Currently, Wisconsin Supreme Court rules prohibit non-attorneys from investing in law firm ownership.

That prohibition is one that allows lawyers, who have a mutual understanding of firm priorities, to be the sole decision-makers when it comes to firm structure and finances, said Brookfield personal injury lawyer Jeff Zirgibel, a shareholder at Pasternak & Zirgibel SC.

If non-lawyer professionals are given an opportunity to buy a stake in firms, Zirgibel said, lawyers could be pressured to settle cases early or avoid taking others if a minority owner isn’t getting paid.

“When someone puts a 25 percent stake down, they expect a return on their investment,” Zirgibel said. “What if a firm has a bad year? What pressure could that person put on the lawyer to close a case because it’s costing the firm money?”

If non-lawyers were allowed to become stakeholders, the dynamics of a law firm would undoubtedly shift to be run more like corporations, said Milwaukee accountant Michael Friedman, a shareholder at Scribner Cohen & Co.

He suggested that profitability would be the primary focus for investors.

“The problem for law firms is it changes the dynamics to have outside investors who do not practice law,” Friedman said.

ABA Commission member Jamie Gorelick said ownership expansion is being considered as a way to allow smaller firms to be more competitive on a national and international scale.

While Washington, D.C., is the only United States jurisdiction to allow for non-lawyer minority ownership in firms, Gorelick said other places such as Australia and Europe have embraced the concept.

“Perhaps permitting a structure, as it is permitted currently in Washington, D.C.,” Gorelick said, “would allow some innovation for lawyers to be more competitive.”

When Milwaukee personal injury lawyer Jonathan Groth, of Groth Law Firm SC, opened his own practice in March 2010, he said he was approached by bankers who wanted to invest in the firm.

While Groth was forced to turn down the opportunities, he said it is something he would have considered, if it were allowed, to ease the financial burden of opening a new firm alone.

“It certainly would have made my short-term financial well-being better to have investors,” he said. “Instead of just a loan from the bank, it would have allowed me to have more start-up capital.”

But Groth still questioned the long-term value of a non-lawyer partnership and said he would be unwilling to put himself in a position of having to choose between what is best for a client and the bottom line.

The ABA proposal is scheduled to be discussed further by the commission in February, Gorelick said, and any formal recommendation is at least a year away.

But attorneys are bracing for the possibility that firm ownership by non-lawyers could come to pass in the future.

While the ABA dismissed the possibility of majority non-lawyer ownership of law firms, Zirgibel said it could only be a matter of time before that proposal surfaces again, as well.

“It’s a scary thought,” he said. “Once that wall is broken it can never be put back together.”