In the wake of the first law firm in the world to float, Harriet Morley reports how some within the profession fear such moves will cause problems for the next generation of lawyers


National personal injury firm Slater & Gordon created a worldwide legal first when it listed on the Australian Securities Exchange (ASX) on 21 May. The Melbourne-based firm sold 32.5% of its equity in its initial public offer of 35 million shares at $1 (43p) each. The firm’s top lawyers – Andrew Grech, Peter Gordon and Paul Henderson – boosted their personal wealth by a combined $36 million when the company listed.



The flotation comes after the introduction of the Legal Profession Act 2004 in December 2005, governing legal practice for lawyers in the state of Victoria. The law created keen interest among firms to adopt a new business structure as incorporated legal practices (ILPs). Some 184 Victorian law firms have taken up ILP status.



In other Australian states, including New South Wales, Western Australia and, soon, Queensland, laws also permit firms to become incorporated entities. Incorporation means non-lawyers can be partners, directors or owners of a legal practice, and is a legal prerequisite for flotation.



Colin Neave, who chairs Victoria’s governing legal body, the Victorian Legal Services Board, says the float might be considered part of the growing trend towards nationalisation of the legal profession in Australia. ‘Incorporation is the fastest growing form of practice in the state and appears to be under serious consideration by Victorian firms,’ he says.



Any type of law firm could list on a stock exchange, but it is not a transformation that would benefit all practices, according to Mr Grech, Slater & Gordon’s managing director and largest shareholder. ‘Any firm that has a sustainable business model has the management capacity to deal with the demands of being publicly listed, is not frightened by transparency and has a call for capital that has the potential to float,’ he says.



Mr Neave says it is too early to tell whether floating was suited to certain types of firms, particularly practices that act for victims of crime. ‘Some commentators have observed that floating can be used to create ownership structures or incentives and rewards not available under other forms of legal practice. However, more time is needed before the full effects of the float can be identified.’



Slater & Gordon’s ‘no win, no fee’ practice – designed to provide legal services to Australians who could not afford access to justice – has helped establish the firm’s reputation as the ‘battlers’ friend’. Its senior lawyers work predominantly on personal injury litigation against corporations and industrial litigation on behalf of unions. Major class action settlements have included cases on breast implants, medically acquired HIV, and asbestos.



Slater & Gordon chief operating officer Mike Feehan says the new ownership structure would not affect the types of cases the firm took on. ‘External shareholders have bought into Slater & Gordon knowing how we operate and what sort of cases we run,’ he says.



‘Having become an incorporated legal practice in 2001, we already had a corporate structure, so it was a smaller step for us than it would be for a firm with a traditional partnership model. We also have a well-recognised consumer brand, so the investment community already had at least some knowledge of us and what we do.’



The race to become the first law firm, possibly in the world, to float gained momentum when three Western Australian (WA) law firms launched a prospectus last October, followed by Slater & Gordon’s original prospectus in April this year.



The taxation and finance-based WA practices formed Integrated Legal Holdings Limited (ILH) and had planned to float before Christmas. It included Brett Davies Lawyers, Talbot Oliver and Durack & Zilko, along with online development business LawCentral and management consulting practice Professional Services Development.



ILH spokesman Brett Davies says the corporate model was appealing because the partnership structure in Australia was ‘beginning to show signs of decay’, as lawyers lost interest in becoming partners.



However, the Australian Securities and Investments Commission issued two interim stop orders on the ILH prospectus on 23 October and 10 November, believing it did not comply with the Corporations Act 2001. A revised ILH prospectus was also investigated by the WA Legal Practice Board in April.



The board raised concerns about the high level of ‘goodwill’ making up the firm’s assets and in May referred its concerns on this and another issue to its Legal Practitioners Complaints Committee.



Mr Davies says the prospectus will go ahead with 59% of the company’s total assets being made up of goodwill (compared to 3% for Slater & Gordon) . ‘It is not unusual for professional services to have that [amount of goodwill], and our auditors and external corporate legal advisers are comfortable with that,’ he said.



He says the ILH public offer period would run, despite the investigation continuing and Durack & Zilko withdrawing, and that the company was hoping for a July listing date. He adds that investors have shown significant interest in ILH’s new prospectus to raise $12 million.



If Slater & Gordon’s first day on the stock market was anything to go by, ILH and other law firms are expected to gain access to greater capital from flotation.



On 21 May, the company’s shares began at $1.32 and climbed to $1.45 before closing at a 40% premium of $1.40. At the time of writing, the shares had peaked at $1.70.



Yet not all sections of the legal profession greeted Slater & Gordon’s move away from private ownership warmly. Sections of the profession were particularly critical of where the firm’s duties now lie.



However, the representative body for solicitors in Victoria, the Law Institute of Victoria (LIV), supported Slater & Gordon’s bold move. LIV president Geoff Provis said he was comfortable with Slater & Gordon’s prospectus, which stated that the firm’s primary duties remained to the courts. Mr Grech says the firm’s first duty is to the courts, the second duty to its clients, and thirdly to its shareholders.



‘If a conflict ever did arise between those duties to the different stakeholders, it would be addressed in that order. The standard ASX listing rules specify the duty to shareholders as being prime, but the ASX has accepted that, as lawyers, we have special duties to the court and to our clients.’



When asked about accusations that the firm is attempting to ‘profit from the law’, Mr Grech says every law firm in the world profits from the law. ‘Law firms are businesses – if they are not making profits, they don’t survive, just like any business. A point of difference for us from other law firms is that as a listed company, our financial performance is open for all to see.’



David Holst, of Melbourne stockbroker FW Holst & Co, predicts that most law firm partners would not commit to swapping ownership of a firm for shares in an umbrella company because most firms would not want or need to increase their capital. ‘I would think to do that would be to lose a lot of control over your law firm,’ he says.



Class action firm Maurice Blackburn Cashman rejected the option of listing, despite becoming an ILP last year. Chief executive Greg Tucker, a former stockbroker himself, says law firms that act for victims should have a corporate structure that delivers a genuine social dividend. He also believes his firm’s ILP structure, which is effectively a partnership, is a better way of motivating partners.



While the Slater & Gordon float was of particular benefit to the firm’s senior management, it may have an adverse impact on future partners and senior staff. As more stock is sold, the public would gain greater control of the firm, which might put the next generation of Slater & Gordon lawyers under greater scrutiny about the type of work they do and the remuneration they receive.



But Mr Feehan says Slater & Gordon’s listing would help the firm deliver broader career development opportunities for its next generation of lawyers. ‘Through the employee ownership plan, a substantial number of lawyers are already able to share in the financial benefits of that growth by acquiring tradable equity,’ he says.



Since listing, Brisbane solicitor Vince Green agreed to sell his military compensation firm D’Arcys to Slater & Gordon for $2.8 million in cash and shares. It will be Slater & Gordon’s sixth acquisition in two years and takes effect when the Queensland government adopts laws to allow ILPs on 1 July.



Australian newspapers have reported that Slater & Gordon’s market capital of $151 million would be dwarfed if any of Australia’s ‘big six’ firms – Allens Arthur Robinson, Blake Dawson Waldron, Clayton Utz, Freehills, Mallesons Stephen Jaques and Minter Ellison – decided to float.



So far, these firms have shown little sign of plans to part from their current partnership models. In the meantime, the Australian legal profession watches the ASX with more than passing interest.



Harriet Morley is a journalist at the Law Institute of Victoria Journal