Unprecedented market conditions are forcing law firms to choose if and how they meet demands of clients and the legal market itself with private equity being a major and, in many cases, deciding factor in enabling solvency and structural reformation.
My opinion column, The Law Firm Pyramid Rollover, that examined how artificial intelligence, pricing, and transience of the legal service sector’s workforce is causing the traditional law firm pyramid structure to rollover like an upending iceberg sparked two strong and opposing reactions: One was numerous republishing requests, reposts, and commentary while the other was dead silence.
The former reaction is flattering but the latter is more telling. In response to that column and others, the silent majority has told me privately that while they identify with my opinions and agree with many points raised, remaining silent is how they feel they must react publicly due to fear of retribution and consequences.
My message to the silent majority is that I hear and see you; I know that you are there and support you.
The Private Equity Puzzle
Legal services is the last sector to rebuff elements of business modernity. As a result, it is now facing an existential crisis. Cracks in the legal services façade and signs of increasing stress appear daily, which is why a silent reaction has always signaled that I’m on target.
While provoking thought is a desired reaction, initiating decisive action is my intention.
That is why in “Pyramid,” I intentionally chose not to discuss how and why private equity is making inroads along with its potential impact on the legal services sector. Because private investment is a major topic, including it would have been overwhelming.
Still, we need to face the PE factor head on. So, buckle up, buttercup; here we go.
Pioneering Experience
With a plethora of private equity articles floating around, I, like you, have been reading about issues pertaining to PE within the legal services sector. Generally, it seems to me that many or most of these articles are the work of individuals trained as lawyers whether or not they practice.
While this is fair and, frankly, to be expected it also seems that lawyers have a built-in proclivity to lean toward legal practice. Perhaps this is because of training and experience and, therefore, is what they know best. Still, it can result in a natural tendency to focus on how private equity could or will affect legal practice with a lesser focus on how outside investment can affect aspects of legal services business, which with a deep business background is what I know best.
Ironically, we’ve been here before, or at least I have. Oddly enough, and if recent prospective client inquiries are anything to go by, my experience with outside investment in law firms is coming back in fashion like turtlenecks, bellbottoms, and gold chains, but with much higher value attached.
Here’s why: I entered the legal services sector in 1998 with a strong business management background, particular experience restructuring and turning around businesses in trouble, and an entrepreneurial temperament. These traits lent themselves to spending three years as the sole markets advisor to Donahue LLP, a 130-lawyer, three-office business law firm that operated within Ernst & Young from 1997 to 2003 as Canada’s first, and so far, only Big Four multidisciplinary (MDP) business legal practice with a U.S alliance.
We were pioneers. The combination of Donahue’s MDP uniqueness with me being its only embedded markets advisor meant I learned the legal business and how to market, manage, and survive in it with the velocity of drinking from a firehose. I loved it. Working simultaneously with EY and Donahue during that time has served me and law firms I’ve worked with very well over the years since. It has also enabled me to write and speak about alternative business structures (ABS), multidisciplinary practice (MDP), and private investment from both a unique perspective and lived experience.
A Ground Breaker
Donahue was a groundbreaking ABS born and operating at a time before “alternative business structure” was a twinkle in the legal sector’s eye, never mind a term in its lexicon. As a pioneering MDP enterprise that went to market as a “one-stop-shop” for professional business services, we battled damn near daily with law regulators who argued that the closeness of lawyers within what was often referred to as EY’s “captive law firm” – imagine how much the lawyers liked that – and the accountants was too close in too many ways.
While, after a six-year, hard-fought run, Donahue wound up Canadian operations in 2003, I find it deliciously ironic – and as a management expert, am delighted and feel vindicated – that almost 30 years after Donahue’s breakthrough, the Big Four’s KPMG won entry to the U.S. market via licensing in Arizona in February 2025.
I also find it amusing that despite barbarians-at-the-gate fearmongering, pearl-clutching commentary, and the ninny-ness of lawyer “specialism,” many law firms worldwide – due to the triple whammy of artificial intelligence, pricing, and talent transience – have been spurred to learn about outside investment and the value of professional management to handle a firm’s operational infrastructure, all of which enables lawyers to do what they say they went to school for: Lawyering.
So, let’s get one thing crystal clear: Private investment is not just coming to legal services; it’s been here for a long time. Therefore, there is no sense standing on the brakes of this business-based advancement but rather keeping an open mind to learn if and how working with outside investment may have benefits for pioneering enterprises seeking new operating structures to survive in the legal services market of today and tomorrow.
The Last Bastion
Modernization has come to almost every classification of economic activity in the world. The legal services sector is the last professional bastion to be breached by and accepting of modern operational business procedures and conduct. Because the legal services industry is the business world’s last holdout – and to avoid the echo chamber and angst of the legal-beagle set – it is advisable to look outside the law firm purview for change management direction.
Yes, I know; lawyers are different. Being trained to argue, they will often resort to whatever defence can possibly apply at that particular moment that lends some kind of support to whatever position they have taken. Furthermore, they often collect cronies to join them in a pile-on and are apt to consider themselves having won whatever fight they think they are in due to having what they believe is the last word.
Still, my concern is that a tendency to claim rightness may be a deciding factor in winning the battle but losing the war. Not that lawyers who are often subjected to over-simplification as a homogeneous class are the enemy in any way, shape or form, but a lawyer-like risk-averse trait of clinging like a barnacle to what was can often be fatal.
There are also times when I sense a self-selected destructiveness within the resistant ranks of legal services that supports Charles Darwin’s evolutionary theory of “survival of the fittest” and an observation by that old Machiavellian, Napoleon Bonaparte, who allegedly quipped: “Never interrupt your enemy when he’s making a mistake.”
Money Talks
As to private equity, it would be a mistake to say that we have not been party to enabling PE to be active within the legal services sector.
Take, for example, Chambers Global that was bought in 2018 by U.K. private equity firm, Inflexion, that realized a 4.7x return on its investment when it sold Chambers Global to U.S. mid-market investors, Abry Partners, in 2023. After selling Chambers Global, Inflexion bought U.K. law firm, DWF, that same year.
However, Chambers Global being owned by Inflexion from 2018 to 2023 means lawyers and law firms that participated with and were listed in Chambers anytime during that five-year period were enmeshed with a private equity organization. Think about it: Not only did participating lawyers and law firms provide Chambers Global with reams of information – some of it borderline confidential – but also handed over what is often privileged but client-often-reluctantly-approved contact information in the hope that interviews with these contacts could culminate in lawyers and law firms having a chance to be listed in a blessed directory.
The same year that Inflexion bought DWF, Allen & Overy spun off its risk management business to Inflexion and Endicott Capital prior to merging with Shearman & Sterling with the intention to hold a “significant minority stake” in this business that provides finance sector clients with subscription-based online legal analysis pertaining to compliance topics.
As recently as November 2025, U.S.-based McDermott Will & Schulte acknowledged “fielding inbound interest” in private equity investment. When an AM Law 50 firm considers PE funding, any argument that this type of investment is suitable for only small- to medium-size law firms or boutique practices falls away and fails fast.
Private equity is also active in Canada. Speaking personally, in 2024, a venture capital company asked me to access efficiencies of targeted Canadian law firms and consult with the VC to decide which of these firms to approach for potential investment. I declined due to a myriad of reasons ranging from potential client conflict concerns to lack of capacity and general disinterest. It didn’t help that this particular VC had a notion that applying pressure tactics and time constraints was a strategy that would achieve their objective to retain me rather than the resulting zero-sum outcome. (Watch for that.) However, anyone who knows me is fully aware that I don’t take direction well. No independent advisor worth a damn does.
Still, I find it puzzling that when private investment has been active in the legal services sector for years, handwringing about it now seems to be the newest obsession rather than tackling more prevalent factors threatening the business of law, such as AI, pricing, and transient talent that are impacting the legal services sector right this minute. Then again, for some law firms, introducing private equity into their business back office may be a possible solution to solving parts of this puzzle.
Business, Not Practice
Private equity is interested in injecting new capital into legal business, not practice. This is evident in private equity’s investment in other sectors, such as dentistry where PE has bought into the business operations side because that is their strength. They’re not capable, licenced, or interested in drilling teeth.
The same can be said for the business of law where many firms long ago spun off their internal business services into a separate unit to house finance, IT, marketing and business development, professional development, human resources, and whatever else might be applicable, leaving the practice of law side of the firm as a unit unto itself.
It’s this spun-off internal business piece that is of interest to private equity because it’s ripe for conversion to a professionally Managed Services Organization (MSO). PE is well-able to ignite better efficiency aided by professional management, guidance, and resources to streamline operations starting with removing procedures and deadwood (as suggested in “Pyramid”) that seem to be sacred cows to many law firms unable or unwilling to execute this necessary efficiency requirement themselves.
Control Issues and Structural Flaws
The nut of this issue for law firms is the lawyerly trait of needing to have control along with a potential threat – real or imagined – of losing whatever control they think they have. However, running a business is not what most lawyers identify as a strength, nor do many of them want it to be.
Because of PE’s deep understanding of business and that money makes the world go around, there is no danger of them asking such questions as, “What does ‘variance’ mean?” This was a question I overheard a senior partner who – wait for it – practiced business law for 30 years ask another lawyer who didn’t know the answer. (Over the years, I’ve asked other lawyers this question and none has known the answer, which is that variance is the difference between budget and actual that is analysed and reported monthly.) Principles of finance are basic business, which is not taught in law schools, but it is the lifeblood of commerce and corporate management.
Ironically, the reason we’re talking about private equity at this point in time is a direct result of law firm structure history.
Consider what could have happened if law firms of yesteryear had had the sense to structure themselves like almost every other enterprise of commerce by employing both a strict business approach to money along with savvy financial professionals to manage it without interference, rather than what we’ve got now: Law firms that seem to treat their businesses as private clubs or banks, and drain the coffers each year to dole out doubloons to equity partners. If you think about it, the history and absurdity of this antiquated structure is mind-boggling to the point of completely bonkers.
The Problematic Pyramid
The pyramid structure of traditional law firms has always been peculiar due to relying on hierarchy and scaling from the bottom up. Now, due to hair-on-fire business issues that include AI, pricing, talent transience, and private equity, the pyramid structure is flawed to the point of faltering and in many instances, failing.
The hierarchical pyramid structure is the opposite of flatter structures that encourage and enable contributions of ideas, systems, and improvements from all team members regardless of tenure, status, or whatever label you want to put on people. It is how entrepreneurial entities work best and grow with assurance that is based on rock-solid business plans that are also engineered for flexibility within brightline boundaries.
This is why anyone who has worked outside of the legal industry prior to coming into it, quickly and fully grasps an understanding that law firms breathe rare air. How law firms operate and why is often completely mystifying to these people since law firms in general and their operations in particular usually defy both business principles and basic logic. As a result, there are many law firms that are successful by sheer accident. I should know having experienced this many times since 1998, and I’m not alone.
For outsiders who join legal services, their physical, mental, emotional, and spiritual safety valves require taking the work seriously and either cultivating or being naturally blessed with both a sense of humour and the ridiculous. Otherwise, and without these personal and professional features, they will often up sticks and go elsewhere.
Backward, Then Forward
A strong sense of self is a sanity and safety mechanism because egos are a major factor within legal services. I’m not talking about one’s sense of identity or self-worth that is important for each of us to have and nurture, but rather about the fragility of humanity and its potential for failure than can manifest as toxicity and/or oversized perceptions of self-importance that demand constant validation.
Another factor is the notion of legacy. Legacy is a fallacy because changes or advancements made at the time of their doing tend to fade sooner than you think. Again, I should know having made systemic changes to structures and operations of various law firms only to see some of these improvements backslide and for a firm to eventually revert to its former state. Oftentimes, I’m asked to return and shore up what was lost. However, recognizing the overarching futility and that I’d be doing it solely for money – which runs contrary to my ethical streak – I usually don’t bother since without consistent management and reinforcement, improvements are often like sandcastles on a beach; the tide or a storm will eventually sweep them away.
Because the practice of law is an evidence-based profession, there is a strong reliance on using data as proof especially in troubling times. Management expert, Peter Drucker, said, “The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic.” I go one step further and suggest that a reliance on data means working with dated information culled from history since that’s what data is: Historical. This means that even with all the data in the world allegedly acting as proof, that old chestnut: “Past performance is not indicative of future results” is the perfect argument.
Therefore, the trouble for the legal services sector in coming to grips with the understanding that while precedence is a basis on which the practice of law sits, any data culled from history are not one whit predictive of the future pertaining to the business of law. This is why that terribly tired yet pervasive old question: “Who else has done it this way and been successful?” has been and always will be a sure-fire recipe for stagnancy and eventual decline.
Still, there are bright spots that happen when the way forward is illuminated by maverick law firms that, determined to pursue active and solvent futures, acknowledge a nodding acquaintance to the existence of data but, much more importantly, have the intestinal fortitude to break free of it to think differently, act accordingly, and shatter the mould that defines structures and cultures that confine exponential growth.
These traits are the hallmarks of law firms of the future.
Focus and Act
Distractions are aplenty in the legal services sector, which is why the topic of private equity is “flavour of the [ insert whatever timeline you want ]” and feeds into many lawyers’ professional and personal quirk of admiring the problem (for ages) before hammering out potential solutions, and discussing them ad nauseum before acting.
The problem right now is that the legal services sector is at a precipice. As noted in “Pyramid,” the traditional law firm pyramid structure is rolling over and will upend like an iceberg and by 2030, global legal services will operate much differently than they do now.
While I’m not advocating for private investment, law firms losing their lower tiers of legal talent along with operational stability due to the twin juggernauts of artificial intelligence and pricing are well-advised to consider PE for potentially better and sustainable business solvency. Yes, some degree of control will need to be forfeited to ensure better evolvement and survival, but that’s how both business and life works.
Time’s Up
Lorenzo Pietro “Yogi” Berra, an American baseball player who was probably more famous for his witticisms than his sport suggested, “When you come to a fork in the road, take it.” Applying that wisdom to legal services where up to this point, many traditionally structured law firms have been successful by fluke rather than design, we’ve finally come to a critical fork in this sector’s road where law firms are now being forced by clients and the legal market itself to choose if and how they change.
There are essentially two paths: One leads to carrying on business as usual and hoping to survive the disintegration of an historically flawed and rapidly destabilizing traditional pyramid structure. The other requires vision, grit, and determination to change the business, its models and flexibility as well as welcoming a multidisciplinary and constantly shifting talent roster to work with and within newer, flatter legal services structures that merge with the modern world to realize solvent and successful futures.
Choose wisely. Be fearless.
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