Listed law firms are catching on - but the investor is a hungry beast

The lure of a listing is obvious for those in control of the purse-strings. A massive payout on completion of the IPO, the kudos of rubbing shoulders with the big boys, and that moment each day when you see how the stocks are doing. 

Sure, it’s a risk, but standing still is a risk. No-one ever got rich by standing still. 

Far more qualified (and certainly better remunerated) people than me will have advised the likes of Rosenblatt and now Knights that the stock market was their best option. The cash injection gives short-term reward and allows for the business to grow quickly. 

But the problem with going public is that you’ve invited a different master into the equation. Investors with potentially little interest in the long-term progression of the company want their annual dividend. They want to know the business is money-making and the cheque is in the post.  

But what if the firm needs something more than growth for sake of growth? What if strategic decisions, be it on property, technology or staffing, are guided not by the needs of the firm but the insatiable demands of the investor?  

What happened with high-profile listed legal failures was they could only keep pace with investor demands through the mirage of growth. Staggering – and wildly misconceived – acquisitions were justified on the basis that they showed up well in that year’s financials. 

No one is pretending the partnership model is immune to this need to plunder the business. Plenty of reckless partners will take their cut each year with little concern for the long-term health of the business. 

But at least they have the option of deferring dividends if, say, a major investment in technology is required. With the PLC, the piggy bank is smashed open once a year no matter what – or else investors start to get itchy feet.  

Listed firms are clearly going to grow in number, and those that followed those unfortunate canaries down the mine – the likes of Gordon Dadds, Gateley, Keystone – have enjoyed undoubted success. But beware of investors bearing gifts - next year they’ll want to know that gift has grown.