Lawyers slow to embrace employee ownership

Mention the word ‘employee ownership scheme’ and the name ‘John Lewis’ inevitably comes to mind. The retailer used to be one of very few businesses where employees were also partners in the business, but they are not the only ones.

Jam makers Wilkin and Sons, for instance, has been 57 per cent employee owned since 1985, and architectural engineers Arup has been owned in trust for the benefit of employees since 1964. Other well-known organisations have recently opened their share capital to employees, including Riverford Organic and Wallace and Gromit’s creators Aardman Animations. The number of law firms adopting that model, however, can still be counted on the fingers of one hand – just – although Robert Postlethwaite, managing director of Postlethwaite Solicitors, a firm specialising in employee ownership (EO) advice, says this could be all about to change. West-country firm Stephens Scown was the first to embrace the EO model, in 2016, followed by Postlethwaite’s own firm. Listed firm Gateley, meanwhile, offers three levels of ownership depending on individuals’ roles in the firm.

The latest to join this niche club is Carbon Law Partners, a dispersed firm set up as a limited company in 2014, which at the end of last month (January 2019) allowed not only its lawyers but also central management and support staff to buy into the company. So far, however, the firm closest to the John Lewis model is Hodge Jones and Allen. The social-justice practice converted the equity partnership model to an employee ownership trust in December 2018, making all employees beneficiaries of the firm. Postlethwaite, says the traditional partnership model has been a major obstacle, restricting ownership of a firm to solicitors.

The advent of alternative business structures (ABSs) in 2011, which made it possible for law firms to be owned by non-solicitors, doesn’t appear to have helped much. Law firms structured as LLPs or as limited companies may now open up their share capital to non-lawyers, but convincing all incumbent partners to allow employees – and not just senior members – into the firm’s capital, is likely to be a protracted exercise.

“It’s not that there are no advantages, if your firm is minded to as a policy, to involve staff in the business,” says Postlethwaite. “EO is a way of involving, motivating and rewarding people who would not otherwise have the opportunity in the traditional partnership model,” Postlethwaite comments. EO schemes can also be useful if an existing business owner is looking to retire but doesn’t wish to – or hasn’t been able to – sell to a third party or to the management team. But there is more to it than defensive strategies. “It can ensure that the business remains independent and that the people concerned get rewarded for their commitment to it,” says Postlethwaite.

There is one last reason, a cultural one but perhaps the most significant, why law firms have been slow to consider employee ownership schemes: “Lawyers’ conservative instinct,” says Postlethwaite, “which makes them less likely to try something new until they’ve seen how others have experimented with it.” This, he predicts, could well happen in 2019.