Corporate ABS - Access to Capital, New Profit Centers, Partners Become Employees and More

Right now, Paul, Weiss, along with a number of other Big Law firms, is sitting pretty financially.

So far for 2025, for example, revenue at Paul, Weiss is up 32% and Profit Per Equity Partner 11%. 2026 is projected to be a good year. With so much volatility and uncertainty the demand for its sophisticated legal services likely will be sustained. 

But, Paul, Weiss chair Brad Karp hammered in a 2021 Bloomberg Law interview the growth mandate. If a law firm isn't growing it could go out of business. To grow, he added, requires lots of money.  

In this era of AI, ramped-up global competition among law firms and competition from non-law businesses such as accounting firms it will take more of that money to generate the growth. That will be needed for:

Experimenting to trigger innovation, especially in technology

Developing, as had Dentons, other kinds of profit centers beyond legal service, and 

Restructuring to reduce fixed expenses through more efficient management of the human assets. Rising expenses are a current challenge. Compensation is the tough nut to crack. 

Where will that capital come from?   

One solution is the Corporate ABS (Alternate Business Structure). According to the Google snippet: 

"A corporate Alternative Business Structure (ABS) for a law firm is a legal entity that allows non-lawyers to have an ownership stake or decision-making authority within the firm."

Already that's happening in Arizona, Utah and DC. Here is background from Stanford Law School. But that has been small potatoes. In Big Law, McDermott Will could put a toe in the water to bring in capital from the outside. That is, as Bloomberg Law reports:

"The McDermott approach ... would get around non-lawyer ownership prohibitions by splitting the firm into two businesses. One would be lawyer-owned and advise clients, and the other would be a so-called managed service organization for administrative tasks and be run by an outside investor."

With a corporate structure there would not only be continual access to outside investment. There could also be an elimination of the sources of the considerable inefficiencies of law firms. Those  range from the pyramid structure to the excessive demands of some partners.

The emerging structure could be the diamond: Just enough new hires at the bottom to ensure the succession pool is refreshed, a bunch of seasoned lawyers in the middle to do much of the work and a small group of brandname stars at the top. 

Also, since partners would be reclassified as employees there would be more controls on their behavior. That's the behavior junior lawyers complain about to me and on Reddit and Fishbowl. During my decade with the Fortune 50 I observed seeming aberrant management practices weren't tolerated in the C-suite. The Corporate ABS would kick in governance issues.

All this isn't futuristic. Much of Big Law is already in upheaval. Sure, the financial performance is outstanding. But there's a sense that not much else is sustainable. Paul, Weiss has a track record for firsts. So, it's among the large law firms to watch for possible transformation of its structure.

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