Unlocking Law Firm Equity

John is joined by Christopher P. Bogart, CEO and Co-Founder of Burford Capital. They discuss the evolving landscape of capital investment in law firms, focusing on the emergence of non-lawyer equity participation and managed service organization structures as potential solutions to long-standing financing constraints within the legal industry. Traditionally, U.S. law firms have been prohibited from allowing non-lawyer ownership, a rule rooted in the belief that outside investors could compromise lawyers’ undivided duty of loyalty to clients. Because of this restriction, firms have largely been limited to partner capital and debt financing, preventing them from accessing equity markets or monetizing the enterprise value they build over time. This limitation affects not only firm expansion and technology investment, but also partner retirement, succession planning, and talent retention.

Other common law jurisdictions, particularly the United Kingdom and Australia, have relaxed these restrictions, permitting outside investment and even public listings. Still, large elite firms have been slow to adopt such models, due in part to risk aversion and concerns about partner compensation. In the United States, regulatory change has been fragmented because lawyer governance operates state by state. Arizona and Utah have experimented with loosening ownership rules, but geographic limits and regulatory pushback have constrained broader adoption of looser ownership rules.

Recently, attention has shifted to alternative structures, particularly managed service organizations. These arrangements divide a law firm into two entities: one engaged in practicing law and a separate services company handling operational functions that can be outsourced such as litigation support, staffing, technology, and trial logistics. While non-lawyer investors could not own the legal practice, they could invest in the services entity, creating a vehicle for external capital, equity incentives, and infrastructure funding. However, implementing such structures within established firms would be complex from operational, management, and tax perspectives.

Despite the slow pace, external capital is widely viewed as inevitable given the legal industry’s scale, profitability, and growing technological demands. Meaningful acceleration across the market will likely require several major firms to demonstrate workable models that others can follow.

Podcast Link: Law-disrupted.fm
Host: John B. Quinn 
Producer: Alexis Hyde
Music and Editing by: Alexander Rossi

Transcript

Note: This transcript is generated from a recorded conversation and may contain errors or omissions. It has been edited for clarity but may not fully capture the original intent or context. For accurate interpretation, please refer to the original audio. 

JOHN QUINN: This is John Quinn and this is Law, disrupted. Today we are speaking with Chris Bogart, the CEO and founder of Burford Capital. This is the third time that Chris has been with us, the only guest on Law, disrupted who's been on our show three times. But Chris is a fascinating guest. He is so far as I know, the founder of the litigation finance industry.

His firm, Burford Capital, is publicly traded in London. They've gone on from litigation finance to do many other things, including innovating in the area of capitalization of law firms and law firm finance. And today we're going to be talking about that very last issue, capital in law firms with equity investments, investments in law firms by persons other than lawyers, private equity, other types of providers of capital, what that might look like, what the obstacles are to it, where it's being done around the world. Chris, thanks very much for joining us. 

CHRIS BOGART: John. It's nice to be back. 

JOHN QUINN: So one of the challenges in law firm finance is that at least in America, and for a long time in other common law jurisdictions, it's changed somewhat now.

You couldn't have non-lawyers who had ownership interests in law firms. That's changed. We've had for many years now, we've had law firms in Australia and in the UK that have had investors that own law firms or had ownership interests in law firms. We've even had law firms that have gone public but that really hasn't happened in the US.

CHRIS BOGART: No, I think that's right, and I think there are a couple of issues in the US, not the least of which is that the countries you were just talking about are federal systems. And so if for example, the UK wants to give this a try, it can do that with one national edict. Whereas in the US as you know, lawyer regulations a state law issue.

And so you have to go state by state. So you've got developments in the US in places like Arizona and Utah, which we can talk a little bit more about, but as a general proposition, most states in the US and particularly what I'll call the money states like New York and California, have not relaxed the traditional prohibition on non-law, non-lawyer ownership of law firms.

JOHN QUINN: So what is the significance for that for, I guess it's kind of obvious, generating capital and investment into law firms. They essentially have to be self-funded, the debt they can raise, they can't raise equity. I suppose in theory, other lawyers could invest in other, other lawyers' law firms, but you can't have the typical financing vehicles that prevail in industries at large.

CHRIS BOGART: Well, that's right. And it's not, it's a financing question for law firms that are looking for capital, but it's also a question of monetizing equity value. And so if you look at your own experience, for example, you know, you started Quinn Emanuel as a brand new startup. There was nothing to it. No lawyers, no revenue on day one, and over the years you've built it into this global powerhouse with billions of dollars of annual revenue.

If you were doing that in any other business, imagine that you had done that instead of in law, you'd done it in technology. You would have a very valuable piece of equity in that asset. And at some point as you think about retiring or not doing this any longer, you'd be also thinking about how to monetize that equity.

And that's not something that's available to you in the same way in the world of law. And I think that increasingly as law firm partners look at the value that they're creating in their institutions, they ask themselves why it is that unlike basically every other industry around them, investment bankers, for example, why is it that lawyers can't get paid for the equity value that they've created in these institutions over time. So you've got financing questions, you've got exit and monetization questions, and you've also, frankly, in a world of heavily lateral partnering, you've got the fact that law firms are constrained compared to lots of other businesses in terms of the retention devices that they can use. 

So if you look at my own business, for example, at Burford, when we hire people, we can give them stock options. We can give them long-term packages that aid in our retaining those people, and you don't have some of those devices available to you. 

JOHN QUINN: Well, let's take a step back. What are the arguments for this policy, this historic policy that non-lawyers shouldn't have ownership interests in law firms. You shouldn't be able to have investors who are investing in law firms. 

CHRIS BOGART: Yeah. The argument is basically that lawyers owe an undivided duty of loyalty and care to their clients, and that the incursion of grubby money into that mix could cause lawyers to deviate from that unqualified duty to their clients that they might now have.

You know, two incentives instead of just one. But, you know, as we look around us, we see lawyers making an awful lot of money. We see lawyers engaging with their clients in all sorts of different financial structures to be retained in the first place and so it's pretty hard from my perspective to argue that lawyers are not already today engaged in a fully economic business as well as a client service business and law firms have been able to balance those two incentives.

JOHN QUINN: I mean, as we've referenced, there has been some experience in Australia and in the UK with private investment, non-lawyer investment in law firms. I mean, how has that played out? I mean, I think the results to my knowledge have been somewhat mixed. From your perspective, how has the, how have those cases played out?

CHRIS BOGART: Well, the thing that's interesting about what's happened in other jurisdictions is still the fact that this is not even when it's completely permissible like it is in the UK, it's not something that the major law firms have embraced. So if you look at the UK market. There are more than a thousand law firms in the UK that are set up to have non-lawyer ownership.

For example, Burford has a minority equity interest in a UK litigation boutique as just an example but you haven't seen the Magic Circle in the Silver Circle. Firms in the UK give this a whirl, even though it's been available to them for quite a long time. And so I don't know that you can draw much of a conclusion from the fact that in the UK you've got a bunch of smaller law firms, you know, let's call 'em high street law firms that are taking advantage of these structures to do something quite different than a firm like yours would do.

JOHN QUINN: Right. So the personal injury firms, I think, have done this? 

CHRIS BOGART: Well, it's personal injury firms, and it's also firms that wanna combine legal and non-legal services. So it's, you know, it's the firm that does a lot of real estate closings that also wants to own, you know, a real estate brokerage and an insurance company and so on.

So that's been the bread and butter of what's happened in the UK and Australia. 

JOHN QUINN: Why do you think that the major firms have not done this? I know there was some talk about Mishcon going to do a transaction. 

CHRIS BOGART: Yeah, Mishcon's there. There was certainly some years ago there was talk in the market about Mishcon’s trying the largest UK firm that has done anything was DWF I think it's called, which is a firm that does a lot of insurance defense work.

And it actually went public in the UK and had a market value of a few hundred million pounds, and then it got taken out privately by a private equity firm but you haven't seen anything larger than that. Why not? I think there are two reasons.One is lawyers inherent anxiety about change, I think, and risk aversion.

But the other frankly is that when you saw investment banks move from private partnerships to publicly traded entities they basically did it all at once and law firms, I think are nervous that if only one law firm goes and gives this a whirl, it runs the risk of having competitive issues to attract talent when compared to other law firms.

And you can sort of see the issue there, right? If you are paying partners a hundred cent dollars, because you don't have any investors in your firm other than the partners and your competitors paying your partners 80 cent dollars because the prior partners sold 20% of their equity to an investor like me, you can see the issue there with a new partner, choosing between those two firms and saying, well, I didn't get any benefit from the sale of the 20%, so why would I go to this, the firm that's gonna pay me 80 cent dollars instead of the firm that's gonna pay me a hundred cent dollars? 

JOHN QUINN: You might get options. Or you might get stuck. 

CHRIS BOGART: You might. Well, and that's certainly a good answer to that conundrum, but I think that's in people's minds. And so I think a lot of law firms, because we talk to a lot of managing partners of big law firms about this issue, there's a lot of interest in it in the market.

But everybody's sort of looking over their shoulder and hoping that a couple of big people go first. And then my sense is that a lot of other people would follow. 

JOHN QUINN: As you mentioned, there have been a couple of states in the US that have recognized that it's okay for non-lawyers to own law firms and interest in law firms, Arizona being one.

You mentioned Utah. I think they've got kind of a trial experimental program there for a certain period of time. 

CHRIS BOGART: That's right. Utah has what it's calling a regulatory sandbox or some such thing to let people play with things. But the action has certainly been in Arizona. 

JOHN QUINN: Well, for example, I know KPMG owns a law firm.

CHRIS BOGART: That's right. The big issue with Arizona, and this comes back to where we started a little bit, with this being a state regulatory issue. The real issue with Arizona is that it's just Arizona. And so it's not at all clear what you can do other than practice law in Arizona and there has been some concern recently in Arizona that some firms have taken this too far and basically used an Arizona base as nothing more than a post office box to do some kind of national referral practice.

And so there's actually recently been legislation introduced in Arizona to carve back the, what I'll call the national ambit of what Arizona firms can do. So it's not yet a solution, you know, unless you're willing to lift up your LA office and move it to Phoenix. It's not yet a solution for a firm like yours.

JOHN QUINN: Yeah, really, it's really hard for me to see how one of these Arizona law firms, how this plays out and how they practice it, if at all. Outside Arizona I know in, I don't know the exact status of it, but there was legislation proposed in California, that California would provide, that California law firms could not work with or share fees.

I don't know where the specifics were with one of these Arizona entities. 

CHRIS BOGART: Well that's exactly right. And that's the referral fee point that I was talking about earlier. So there was, you started to see if you will, overuse of the Arizona structure. People showing up and saying, oh, well, we'll have a part-time lawyer in Arizona.

And lo and behold that part-time lawyer is gonna enter into co-counsel arrangements with lawyers around the country. And bingo, financial investors will be able to invest nationally in things. And that clearly is not working. You know, you've got the California example on the one side of the equation, and now you've got Arizona proposing to clamp down on that as well.

JOHN QUINN: Well, we're hearing about another approach to capitalizing law firm revenue streams, these managed service organizations, MSOs, can you explain those structures to us? 

CHRIS BOGART: Sure. So what an MSO is it's basically dividing the current law firm into two halves. There's the half that engages in the absolutely core practice of law, and then there's the half that does everything else.

And while non-lawyers in states like California and New York still would not be able to invest in the first half, the half that is just doing the legal services, they could theoretically invest in the second half, the everything else half. So let's take an example that'll resonate with you.

You've done lots and lots of trials in your career. And when Quinn goes to trial, in a big case, that's a big undertaking and it involves a whole lot of people coming, setting up trial sites, doing lots of prep work. There's a whole lot of activity around going to trial. That actually isn't directly the practice of law, but it's still something that you are charging your clients to do when you fly a team of paralegals somewhere and they set up a trial site and rent it and so on.

So all of those things that are ancillary to you, giving your client legal advice and standing up in court, all of those things don't have to be done by a law firm. You could outsource them today if you wanted to, you know, trial site 1, 2, 3 Inc. and so you could keep those things in the Quinn world, and you could have an arrangement between the Quinn Law Firm and the Quinn Services firm to provide all of those services to you, and you could take external investment in the services firm, but not in the law firm. 

JOHN QUINN: So how does this address the challenges that you identified at the outset, Chris, about law firm finance that is, you know, monetization of the investment, retention of people and the other issues that you mentioned?

CHRIS BOGART: Well, I think it goes some distance down the road because now you've got a currency that you can give people, so for example, if you set up an MSO as a traditional corporate entity, you could have stock that people own in that, you could lock that stock up, you could use it as a retentive device and so on.

So there are pros of doing this. The reason I think you haven't seen an explosion of activity is that it's really complicated, you know, you have a law firm with many, many, many employees and you would have to engage in a pretty significant internal restructuring to separate your firm into two firms.

So there would be management and operational issues. There would be tax issues. There'd be a whole bevvy of things that you'd have to pay a lot of attention to and I think lawyers, you know, I think there's, there's no question that there are conversations going on out there, including with, with big law firms.

We're having them ourselves but there is also no question in my mind that this is a relatively slow-moving area. 

JOHN QUINN: Yeah. And as we say, lawyers aren't necessarily in the avant garde of adopting new business practices and structures. Are there any large law firms that are public, have publicly said they're exploring this?

CHRIS BOGART: I think the most, I think the largest public statement has been from McDermott Will & Schulte, who have said they're actively exploring that and I think has said. And the other side of the ledger, you've got a bunch of private equity firms in addition to us saying that, you know, we have capital and we're interested in the sector.

So if there is something that people want to do, we're delighted to talk to them about doing it. And as I said earlier, we've got lots of those conversations going on, but I would characterize most of them today as sort of brainstorming educational as opposed to people being, you know, about to do a deal tomorrow.

JOHN QUINN: Yeah, this problem of unlocking the value of law firm enterprises is something that a lot of private equity firms and firms in the field of litigation finance, including yours, have been trying to address for a long time now. But as he's saying, the pace seems to be glacial.

CHRIS BOGART: Well, it's a huge market, you know, it's, you know, hundreds of billions of dollars of annual revenue just in the US alone. There are estimates that global law firm revenues are approaching a trillion dollars a year. And so this is a really big market for the capital markets not to be touching.

And so I think people, you know, including us, including private equity firms, see that as an interesting way to deploy additional capital and returns are pretty high in the legal world as well but there's no question that it comes with a whole bevvy of complexity around it. 

JOHN QUINN: Yeah. Basically, as you say, you're taking a law firm, you divide into, you create a, not a new non-legal enterprise which receives a fee, fees for a revenue stream from the law firm for providing those services and built into that, I mean, there has to be a profit element built into that. How do you go about pricing all that?

CHRIS BOGART: Yeah, it's challenging because, you know, I think that the, what you've seen in the market thus far, because there's not a whole lot of experience there, is to use some sort of cost of capital based pricing. So in other words, as opposed to going in and trying necessarily to value the equity of this brand new MSO in an untried and untested way, you've seen some structures out there that people have floated that are instead sort of a, almost like an interest rate style return on capital instead of a sort of a full equity like participation. 

So you can almost think of it as being like mezzanine financing, like the place where it is much easier with a startup. So if you have, you know, half a dozen litigation partners at a big law firm that either are tired of the conflict problems or don't like the merger that's on the table, and they say, okay, we're gonna leave and we're gonna start our own brand new firm, you know, that's becoming easier and easier.

First of all, there are firms out there that will stand you up from soup to nuts. So you don't have to, you know, you don't have to do what you do, what you did years ago and like figure out how to get a phone system in your office. There are firms that'll do that. Kindleworth is one of them and we actually have a minority interest in it.

The other thing about that though is that you can, from the very get go, set yourself up into these two halves so that you don't have the legacy work to do to try to separate a big firm like yours into pieces. And those six partners can, from day one have the law firm and the separate services organization.

And so you do see some of that happening, but it's obviously happening at a pretty small scale. 

JOHN QUINN: Yeah. That some of the, that type of firm would not face the kind of challenges that I see an existing firm facing, like trying to decide, okay, who gets the quote unquote equity, if you will, in the MSO, who shares in that?

On what terms do they share? How do they exit? How is retirement handled? You know, how is the buyout handled? All these different issues, which are very complicated for law firm partners to get their heads around. 

CHRIS BOGART: Well, I think that's absolutely right. And, the other thing that, you know, this has always been true about law firms, but it's particularly true when it comes to these issues is, you know, lawyers are, are trying to practice law as well.

And so there's not, in most law firms, you know, a substantial executive managerial suite of people who spend all of their days thinking about these kinds of issues. You know, if you were a Fortune 100 company, you'd probably have a corporate development strategy and M&A function. They would have a whole bunch of people in that who could spend their time thinking about nothing but this.

Whereas at your firm, that's something that practicing lawyers are doing sort of off on the side. And you know, so what happens is you think about it for a week and then, gee, I got a case going to trial. So you put that down and a month later you come back to it and that also makes the pace of change slower.

JOHN QUINN: I mean, I can see younger partners perceiving an effort to set up one of these organizations as well. The senior, this is for the benefit of the senior partners, they're gonna get wealth out of this. What do I get out of this? And it'll create, has a potential to create, a divide within the partnership versus the long-term partners versus the younger partners. 

CHRIS BOGART: Well, that's certainly something that people cite as the risk. And what you have to believe is that doing this has some advantage for the firm beyond just, you know, cashing you out, for example. And that's where technology comes into play a little bit because you're seeing now the need for law firms to engage in, you know, pretty significant and relatively unprecedented investments in technology to stay competitive, that's not something partners have had to figure out how to finance historically. And there's also, I think, the perception in some firms that the more you engage in that, the more your competitive advantage has the potential to become in the future. So I think that's one way of addressing it. 

The schism that you just talked about is, is using the capital not only to cash people's equity out, but also to really invest in the firm going forward.

JOHN QUINN: And also to attract talent. 

CHRIS BOGART: Absolutely. 

JOHN QUINN: I mean, we're seeing partners, changing firms at very high levels of compensation that we haven't seen in the past.

CHRIS BOGART: Yeah, absolutely. And if you think about my own business, if I have somebody that I'm trying to hire and I'm having trouble getting there just on cash, I can sweeten the deal with a grant of, you know, five-year equity. And that's something that law firms just don't have the ability to do today. 

JOHN QUINN: So if there are listeners on this podcast and they wanna learn more about this, how can Burford help?

I mean, what kinds of things is Burford doing? You must get a lot of inquiries about these MSO structures. 

CHRIS BOGART: We do and we simply talk to people. You know, Burford’s market is principally the large law firms and the boutiques that spin out from them. So, you know, we're up to now having done business with I think 94 of the Am Law 100, but none of those firms are cookie cutter and so just like investment bankers and management consultants, you know, we engage with law firms individually. So the simple answer is pick up the phone and we're happy to talk to people. 

JOHN QUINN: So Chris, where do you see this whole area of monetizing law firms going, MSOs, what's going on in Arizona?

If you look into the crystal ball, what does the future look like? 

CHRIS BOGART: I really do believe that the long-term future sees a world where law firms have access to external capital and the reason I think that is because I think the industry is too large, too profitable, and too significant for it to remain an outlier compared to all of the other industries that it sits adjacent to.

So I think we're gonna get there. I think the question is, you know, what is the road we're gonna travel to get there? And how quickly will we drive down that road? And at the moment, it doesn't feel to me like we're going to speed down that road, but it feels like we're gonna go at a fairly leisurely pace.

I do think, though, we're gonna ultimately arrive at that destination. 

JOHN QUINN: No, I agree with that, Chris. It's gonna take a while, but I do believe that there's a lot of compelling reasons why these types of structures and non-lawyer ownership investment in law firms should exist. What do you think it's gonna take ultimately to break the log jam?

Maybe one major firm doing this. 

CHRIS BOGART: I actually think it's gonna take a few major firms that have people who are frustrated with their inability to either invest the way they want in their firm or to realize the equity value that they've created and it's for two or three of them to send signals in the marketplace that they're moving in this direction.

JOHN QUINN: We've been speaking with Chris Bogart, the CEO, and founder of Burford Capital about managed service organizations and capitalization of law firms with equity investments and managed service organizations. This is John Quinn, and this has been Law, disrupted.

Thank you for listening to Law, disrupted with me, John Quinn. If you enjoyed the show, please subscribe and leave a rating and review on your chosen podcast app. To stay up to date with the latest episodes you can sign up for email alerts at our website, law-disrupted fm, or follow me on X at JB Q Law or at Quinn Emanuel.

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