Private Equity investment is rapidly emerging as a transformative force in the legal sector, offering law firms access to capital, operational expertise, and new growth opportunities. While regulatory barriers remain in most jurisdictions, innovative structures such as Managed Service Organizations are enabling firms to engage with outside investors without compromising legal independence. The evolving landscape — marked by increased partner mobility, generational shifts, and the rise of artificial intelligence — demands that law firm partners proactively assess the strategic implications of PE investment. Firms that embrace these changes may gain significant competitive advantages, but careful consideration of opportunities and risks remain essential to ensure long-term success.   The past months, not a week went by without at least 2 or 3 articles on Private Equity investments in law firms. The biggest news arguably was about McDermoth considering a PE funded MSO structure. Where previous Alternative Business Structures (ABS) were limited to smaller law firms in jurisdictions that allow, outside ownership, McDermoth is a 1800 lawyer, 20+ offices giant, with about 2.2 billion in revenue, operating in jurisdictions where ownership is strictly limited to registered lawyers only. After the pandemic the legal sector has seen some unprecedented changes. The rapid emergence of Artificial Intelligence is one of them, but also the executive orders against some law firms by the Trump administration. The disruption of international trade and the global economic order are causing firms to reassess their international presence, causing expansion and reduction into and from certain jurisdictions. Today it is still hard to predict the impact of AI on the legal industry. It seems unlikely that the traditional pyramid structure will survive, which will have direct implications for leverage and pricing. It is not unlikely that AI will fundamentally disrupt the delivery model of legal services. A small number of firms such as A&O-Shearman (Belfast) and Clifford Chance (Newcastle) seem well positioned with their advanced AI integration and low-cost legal support centers. Most firms, except for perhaps the absolute elite, will need to reinvent their business- and service delivery model. Talent has become increasingly central to certain segments of the market. In New York today, profit shares of 25-30 million are no exceptions among the top-firms. Partner mobility has increased in the most legal markets, and has become a key element in growth in revenue and profitability. The ability to hire and retain talent is now central to a firm’s success. In the next five years or so the industry will see a great number of today’s rainmakers retire, putting a lot of emphasis on structured succession planning. At the other end, the Gen-Z young talent has a slightly different perspective on career and success in life. The above are just a selection of challenges facing law firms today. It would be easy to dedicate a whole article on this topic, but this in this article I want to focus on the opportunities and risks of Private Equity investment in law firms. Law firms offer an attractive investment potential to Private Equity because of the traditionally high client retention and the predictable cash flows. There is still a lot of market fragmentation, allowing for a buy-and-build approach. Law firms generally have a solid reputation and a great growth track-record: ever since the 1950ties profits have consistently gone up, not even Goldman Sachs can say that. From the law firm’s perspective, engaging with outside investment would offer access to capital for expansion, talent, technology or acquisitions. Private Equity also adds operational expertise, bringing professionalized management and performance monitoring. It will help with succession planning, addressing partner retirements and ownership transitions. Private Equity will also create economies of scale, consolidation, talent retention, brand visibility and access to the investor’s ecosystem. This sounds like a win-win situation, right? Reality is that outside ownership in law firm is currently prohibited everywhere except for a handful of areas, most notably England and Wales where Alternative Business Structures have been allowed since 2007 (Legal Services Act). Further, Arizona, Utah and Washington DC, spring to mind, as does Australia. The results so far have been lackluster: most investment has been in low profile smaller firms that did not grow to great fruition. Because of this ban on non-lawyer (co)ownership, Private Equity and interested law firms are now looking at the Managed Service Organization (MSO), whereby all non-legal functions and activities get separated from the lawyer work. This would  include all staff services, office lease and also the brand. There will be a Service Level Agreement (SLA) and partners will also get a stake in the MSO. This structure allows for the legal arm to remain fully independent and in compliance with the current bar regulations, although some would argue that even this would not be allowed. The discussion on the regulatory topic revolves very much around independence. The ideal theoretical lawyer is totally free from any commercial considerations and only acts in the best interest of the client. In my experience today indeed lawyers act in the interest of the client, but that does not mean that they are free from commercial considerations. In effect big-law already has been a business for many years. Law firms have a strong focus on profitability and partners are subject to predefined performance criteria. Partners that trail behind are kindly requested to leave the firm. Partners are mostly no longer partners in the true sense of the word, they are shareholders instead. Structures are optimized for tax purposes and limiting professional liability. Also in the day-to-day operation of the firm, much is left to management and not to the partner meeting. It has been reported that both for the merger between A&O and Sherman & Sterling and recently Ashurst and Perkins Coie, the partners were not consulted prior to the merger being announced. The theoretical ideal has long been overtaken by the reality of law firms operating very much like any other business. So the question is if PE ownership really represents a fundamental threat. I am not convinced that will be the case. From the point of perverse incentives, Litigation Funding seems more risky to me and this has by now been widely accepted. “You can take change by the hand, or it will grab you by the throat” (Churchill) Today there seems to be a lot of momentum to make PE investment in law firms happen. On 28 November we organized a seminar on the topic which drew great attendance, I doubt if this would have been the same half a year ago. In August 2025, six business law firms in Sweden left the Swedish Bar Association to become AGRD Partners, a new legal service group backed by Danish PE firm Axcel. It is most likely that this is only the start and over time more law firms probably from other jurisdictions will join AGRD partners. Today that would mean leaving their National Bar Association. Leaving the Bar for most lawyers will be a price too high to pay. Membership provides a quality guarantee, legal privilege and the right to litigate in court. But once you peel away the emotions and look clinically at the facts, most work lawyers do, certainly in an advisory practice, could be done without membership. Bar Associations will need to navigate carefully, but proactively and with speed to avoid structurally losing members in the near future. Once a number of law firms will adopt PE investment, this will disrupt the level playing field. Such firms will have a significant competitive advantage over their peers, leaving those peers trailing behind. Private Equity will certainly not be the best way forward for every law firm. As the legal sector stands on the brink of significant transformation, now is the time for law firm partners to proactively evaluate the strategic opportunities and risks of Private Equity investment. By being proactive your firm can position itself to capitalize on new growth avenues, maintain competitive advantage, and navigate the evolving landscape with confidence. We will be most happy to facilitate this process.

September 2023 it was announced that three Kirland & Ellis partners would move to Paul Weiss. According to people close to the matter, the trio would each receive $20 million in annual compensation at their new firm. This is quite exceptional as today at Am Law 25 firms, only a handful of partners have comp in excess of $20 million. The news will undoubtedly leave a number of partners elsewhere in town feeling all at once very unhappy and under-rewarded. Modified lockstep For compensating its partners, most firms today have a system that includes elements of merit based compensation as well as seniority based. Some well-known firms with pure lockstep have introduced merit based differentiators in order to retain and attract star partners. What the modified lockstep looks like varies wildly. Most firms have adopted a set of – sometimes very detailed and complicated – rules for calculating each partner’s profit share. Others involve a compensation committee or have the managing partner decide. Compensation for yardstick Why is partner compensation such a hot topic in many law firms? Partners in business law firms invariably earn more than 99% of the population, so why not just be happy with it and focus on clients and family? One reason is that partner compensation is used as a yardstick for the success of the firm. Partners always compare PEP with other firms, seeing a close competitor have higher comp will trigger a heated debate on the firm’s strategy and sometimes results in star partners leaving. Also the opposite is true: a highly competitive partner compensation is a prerequisite for lateral hiring of rainmakers, which in turn could help the firm become even more successful. This is what’s happening at Paul Weiss. Which compensation model is best? Ideally in a firm, all partners are equally successful in the market and are happy to cooperate with each other. If the bandwidth between partners is narrow, there will be no need for merit based differentiation and lockstep will help avoid partners starting to compete with each other. Each partner will always act with the interest of the firm in mind. Unfortunately there is no ideal world in which each partner is equally successful and also partners are inclined to prioritize self-interest before firm-interest. This will even happen in lockstep firms as each partner is under pressure to meet his/her target. Partners start monopolizing client relationships and are trying to get files in which also other partners are active, to be administered under their name. Now the solidarity which underpins the lockstep is compromised, cracks will start to appear. Collaboration will suffer and star partners will demand action against slackers. One could also start from the other end assuming that self-interest is the norm and make the compensation fully merit based. This could even go as far as partners charging internally for helping out in another partner’s file. Such ‘eat what you kill’ compensation systems will allow for a very large bandwidth in partner performance, but provide no incentive for collaboration. Fully merit based systems also give young new partners a difficult start as in order to make an income they will have little alternative than working in other partners files at a reduced rate and without quickly growing a client base of their own. Since both lockstep and ‘eat what you kill’ have their problems, it comes as no surprise the hybrid modified lockstep has become the most popular. In reality the modified lockstep suffers from the same issues: collaboration remains an issue and the weak partners irritate the star partners. “There is no evidence to support that compensation impacts partner performance” Carrot and stick As stated, in our practice we have seen a great many different partner compensation models. Most of them have a few things in common: they favor a small group of partners and they aim to influence partner behavior. Let’s examen both in more detail. Mostly compensations systems favor the more senior partners with an established practice. One argument could be the firm must prevent such rainmakers to leave. While there certainly is some truth in that, it also creates problems, notably when it comes to succession. Also this group is typically also involved in the leadership of the firm whether it be formal or informal. Granting themselves the largest cut can in a way be self-serving. And I have not even mentioned ‘origination credits’, which also disproportionately favors this group. Over there years we have done multiple in depth analysis and never have we found any evidence that individual partner performance and behavior can be significantly influenced by compensation. Never have we seen a weak partner show better performance after his/her compensation was cut. Receiving less money will not transform a weak partner into a strong partner. This is similar for other aspects that are part of a partner compensation formula: rewarding collaboration hardly increases real world collaboration. Partners that feel comfortable collaborating will collaborate regardless and those that prefer to work on their own will continue to do so even it this means they will miss out on a small percentage of their compensation. As a rule of thumb: partner compensation is not the right tool to change the status quo. Only culture can do that. The bigger picture Partner compensation is one of those topics that we come across a lot when working with our clients. Many law firms spend disproportionate amounts of time discussing how to divide the profit among the partners. The problem I see is that having lengthy conversations on how to distribute profit does not make the firm as such more profitable. These discussions are just inward looking and a time and emotions consuming energy drain. We have found there are typically two triggers for discussing partner comp. The first is heavy lifters complaining about partners that seem to enjoy a free ride and don’t put in the effort. The other trigger is the wish to change partner behavior, typically this means stimulating collaboration. As mentioned before, there is no evidence that partner compensation changes partner performance. Taking away money from a weak partner will just legitimize their weakness. Giving more money to a top performer will only keep him/her happy for so long. We have looked in depth at lateral movements of partners across a number of markets. In some markets lateral movements are common in other markets they remain rare and are frowned upon. One thing partners that move firm have in common: the primary motif for moving is rarely money. Typically, they have lost confidence in their firm’s strategy or have developed cultural or interpersonal issues. A partner that likes the firm culture, gets along with other partners and feels supported, is unlikely to leave for more money. Using PEP as a yardstick for performance also has its flaws. Generally we at TGO Consulting prefer to look at profit margin, revenue per lawyer and a number of other indicators more relevant to a firm’s performance. Bottomline Law firms are well advised to have a permanent focus on performance and profitability on a firm level and not so much on an individual partner level. Partners should spend less time discussing internal matters and more time identifying and sharing business opportunities. Firms should invest in creating or maintain a result driven, inclusive, collaborative culture. Partner compensation should not disproportionally favor a small group and should be supportive for young partners who are still developing their practice. Any system that meets these criteria will do. Writing this article I noticed there is so much to cover when it comes to partner compensation, that it is impossible to squeeze it all in 1000 words. Potentially this is a good topic for my next book, what do you think?

Above image generated by using Dall-E artificial intelligence Although vast amounts of students graduate each year from law schools and universities, the talent pool for top law firms remains limited. Most graduates have no interest in working in Big Law, and of those who do, a number does not meet the quality criteria. As a rule of thumb less than 10% of all law graduates falls within the Big Law target group for recruitment. It seems that with Gen-Z this number is declining. This means that in most jurisdictions, there is more demand than there are talented graduates entering the market. Hence the ‘war for talent’. Law firms go through great lengths trying to identify top talent early on and spending substantial budgets (including offering salaries up to $190.000) luring them to their firm. Look at the ‘Careers’ sections of the websites and one could be inclined to believe that joining a top-law firm equals working in paradise. There is just so much emphasis on individual career paths, mentoring, diversity, personal development and super interesting work, that it is easy to forget that in reality it is just hard work, like it was pointed out in a presentation that transpired from Paul Hastings: It is hard work Although the prevailing sentiment after publication of this slide was outrage and denial, I don’t see much wrong with it. Anyone pursuing a career at the top end of the legal market can only succeed by putting in a lot of effort. If you cannot stand the heat, get out of the kitchen. Having said that, this does not mean unfair and unhealthy working conditions. In February 2021 trainees at Goldman Sachs humbly requested management to be allowed to work slightly less than the about 100 working hours a week against an average of 5 hours of sleep: Fortunately, working conditions in law firms are nowhere near those at Goldman Sachs. However increasingly young lawyers are quitting the industry because of Uncaring Leaders, Unsustainable Performance Expectations and Lack of Career Development (McKinsey: Great Attrition, Great Attraction survey 2021) Generation Z Young lawyers entering the legal profession today are mostly born after 1997, the year that marks the beginning of Generation-Z. The first started during the Pandemic when there was hardly anyone in the office and at the same time workload was very high. Law firms, like other industries, seem to be confused and spooked by this new generation which is believed to have different priorities-in-life and no ‘old-school work ethos’. While it remains questionable if this is a fair characterization, many law firms struggle with how to ‘manage’ these young professionals. It is hard to count the huge number of reports, articles, conferences and workshops that have been devoted to Gen Z in the legal industry alone. This can probably be traced back to the perceived gap in the mindset and values of the partners – Baby Boomers and Generation X – and those of the new recruits. The former claim they had to work hard for their achievements, the latter were allegedly born with a silver spoon in their mount. Although this characterization is largely a caricature, Gen Z is different in at least one crucial aspect: young people resent being ‘just a cog in the billing machine’. For them the purpose of life is not helping the partners make millions. They are in it for themselves, not for the partners. Law firms are increasingly aware of this, hence the wordings on the career sections of their websites: “we value you as a person”, “we will invest in your personal growth and development” Preferring Profit over People During the Pandemic, profits soared across the legal industry. Demand was plentiful and costs were low. For most law firms 2020 and 2021 have been the best years on record. Last year, 2022, could not have been more different. The world entered in a global economic crisis. Inflation became high and money tight. At the same time costs substantially increased. All this impacted partner profits and that is where problems arise. Unlike other entrepreneurs and businesses, partners in law firms have for decades only experienced a steady growth in profit. To the extent that even slowing growth would lead to ‘panic’. A decrease in profit, in the minds of many partners, would be totally unacceptable. Now this is the reality for the first time. Welcome to the world I’d say. For a growing number of law firms, the prospect of slightly lower partner profits, compared to the year before - but still above 2019 - became unbearable. To ‘rescue’ the profits, law firms have started to layoff junior associates. The trend is to quietly make cuts through the review process. This year’s "aggressive" performance reviews* are resulting in an increasingly blurry line between layoffs and review-time cuts. On social media associates are buzzing with chatter about layoffs and cuts at many firms. No need explaining that for Gen Z social media carries more weight than law firms’ website ‘career’ pages. The Profit is in the People I have said it before and I will say it again: for a law firm people are the most important asset. The business of law is people’s business before anything else. No law firm can gain an advantage over the competition based on legal knowledge. It is the non-legal skills and attributes that make the difference. The law firm that is the best in attracting, retaining and developing talent is the one that is going to win. The knee jerk reaction to cull talent to save the profit might turn out to be a costly mistake. These firms might save some pennies on the short term, but they will suffer reputational damage for the years to come. There is a ‘war for talent’ and Gen Z does not want to be just a cog in the partners’ money machine. There is no better way to highlight that is ultimately what they are as by firing them at the first signs of headwind. Layoffs are short sighted and selfish. The same thing happened after the 2008 Banking Crisis and it became something those firms bitterly regretted. When the economy picked-up they found themselves understaffed and unable to attract new talent in a buoyant market. The difference is that at that time it were the Millennials, who tend to be more forgiving than Generation Z… Invest in talent development For commercial companies it is normal that revenue and profitability show variations over the years. Even Goldman Sachs has good years and bad years. Law firms partners must understand and accept that the legal industry cannot remain an exception and that sometimes a decline in profit is just a consequence of the economic reality. Like other entrepreneurs and businesses, law firm partners are well advised to focus on cumulative profit over the years. In today’s economy it is probably smarter to invest in talent, even though it impacts this year’s profit. Those law firms that retain their talent and invest in developing legal and non-legal skills will be tomorrow’s winners. Taken over a number of years these firms will have a better average profitability. TGO Consulting has developed a methodology that helps law firms with setting up a sustainable talent development program for all lawyers, juniors and partners alike. *Note: Structural periodical performance reviews are essential and should be standard practice at any law firm. The purpose of such reviews is to provide the associates with open, honest and constructive feedback, aimed to learn and improve. Feedback should never come as a surprise or ‘out of the blue’. Associates should get sufficient time and coaching.

this page still functional but outdated - please visit our new homepage Reports TGO Consulting conducts research into aspects of the legal market worldwide and publishes reports that provide insights into both clients’ buying behaviour as well as the organisations of legal service providers. We collect and analyse market data, conduct in-depth interviews as well as quantitative surveys, whichever will be fit for the purpose at hand. We are currently, amongst other, working on a report on legal markets in Africa, as well as a report jointly with a Fortune top-10 company that will examine current and future tools in buying legal services. Partner mobility in the German market This is the first report that presents an in-depth analysis of lateral partner moves in the German market over a longer period of time. It covers the hiring activity of the 25 top-ranked law firms in the German legal market since the start of 2011. For the first time, it is revealed that the German lateral hiring market has evolved to reach an unprecedented high and that partners are shifting across the board. An analysis of the data provides an insight into the practice areas that are most concerned and which type of firms are hit the hardest by equity partners seeking opportunities elsewhere. In a sector where the hunt for talent is fierce and law firms are scrambling to shape themselves for the opportunities to come, top lawyers are simply in too high demand to be loyal. The results of this report can be seen as a sign of the times we can expect ahead. With Brexit on the horizon firms will jostle to position themselves in order to benefit from a shifting market. In an ever more competitive playing field the fittest will survive. A PDF version can be downloaded for free by clicking on the report. If you are interested in a complimentary hard copy please do not hesitate to request one here . Commoditisation of legal services Few of us have failed to notice how clients are changing the manner in which they purchase external legal services and their efforts in putting pressure on pricing. At the same time, law firms are reporting more or less business as usual. How can this be? TGO Consulting undertook a quantitative survey amongst lawyers aimed at canvassing to which extend there is a real downward pressure on the price of legal services. Senior lawyers from over a 100 business law firms across Europe were invited to participate on-line, on an anonymous basis. Further, 15 general counsel, or persons in charge of managing outside legal services, were interviewed face-to-face on the subject of commoditisation of legal services. All interviewees represent internationally operating companies that are large buyers of legal services. The results presented in this report are thought-provoking and we hope that our conclusions stimulate a further debate. A PDF version can be downloaded for free by clicking on the picture of the report on the left side of this text. If you are interested in a complimentary hard copy please do not hesitate to request one here .

this page still functional but outdated - please visit our new homepage TGO Consulting Reputation Index TGO Consulting has developed a unique method to visually show the reputation strength of the leading law firms in a country. The reputation is calculated on a mix of external data and TGO Consulting's own assessment. We employ a balanced scorecard that does not favor large size law firms of well known brands. A countries leading boutique firms are equally represented. Clients' feedback weights heavy in the method that we use.

this page still functional but outdated - please visit our new homepage Digital transformation Artificial intelligence is like teenage sex: “Everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it.” (Dan Ariely) This holds certainly true for the legal world. Today the majority of business law firms claims to use artificial intelligence... TGO Consulting helps its clients to set specific and realistic automation goals and make smart choices focusing on maximum return on time and capital spend, taking into account the learning curve needed for lawyers in order to use the new tools. We are not IT sales people. We help distinguish between what is hype and what will benefit lawyers in the real world. We focus on business opportunities for our clients embracing technology in a new and smart way. Technology seen as a business Q3 2017 we have made an inventory of LegalTech and identified some 1700 tech companies and initiatives offering services for the legal sector. Total investment in the sector mounted to 2.2 billion. Significantly up from the 550 million in 2015. About 60% of all investment has gone into software for e-discovery, IP-management and contract management, software predominantly used by clients. Most legal tech companies are not profitable and are still heavily reliant on Venture Capital. It is hard to predict what percentage of the 1700 tech companies will still be around by 2025. AI will probably not replace lawyers in the foreseeable future and being a great lawyer will increasingly come down to human skills. Lawyers will lose the monopoly on legal knowledge. AI and other IT solutions will augment lawyers and make them more efficient. Lawyers will have to learn how to use the new software tools and the learning curve could well be steep and time consuming. Not every lawyer will be prepared to invest the time and effort required. Certainly something to keep in mind before investing. AI is only as good as the data it receives. And it is able to interpret that data only within the narrow confines of the supplied context. It doesn’t “understand” what it has analyzed, so it is unable to apply its analysis to scenarios in other contexts. And it can’t distinguish causation from correlation. AI is more like an Excel spreadsheet on steroids than a thinker. Contact us to discuss your situation and let us help find our where to invest.