Why Do Law Firms Use a Partnership Model?

Jacob Lauritzen says a law firm partnership exists because the only capital law firms have is human capital. In professional services, including consultancies, the value sits in the people. A manufacturer or a software firm can hold physical assets or intangible assets that pay dividends to shareholders. A firm cannot own its people, because slavery is abolished. It can pay them, which rents their time. A partnership makes the human capital the owner of the company so the people stay.

He gave the question real thought last week. The partnership does not have to change. What he wants is for lawyers and law firms to build intangible, durable capital. A system can learn how a firm works. The way of working can be codified into a self-improving knowledge graph, precedent files, and documents, so a repeatable method produces strong output. The result can be the firm's IP: human expertise and judgment stored in a system. Helping firms build that asset is work he wants to empower.

The incentives are the obstacle. In a partnership, the reward comes from bringing in more clients, under an eat-what-you-kill system or lockstep pay. Time spent writing down how the work is done takes time away from bringing in clients. Partners need a reason to codify the work and build an asset for the company. Right now they have none, because once they leave the partnership they receive no dividends from the assets they built. The reward structure needs to change a little.