This year has started with a flurry of activity and announcements that give the lie to any notion that ABSs will be a damp squib and of no consequence, or that external capital will not be interested in law firms. So far, so good. What I want to explore here is whether external capital should be interested (at least without deep and meaningful enquiry into its target).

In founder-led firms, ownership has real meaning and value. The founders are responsible for developing clients, running the business, and making sure work is performed at a profit. These businesses usually respect the role that everyone plays, and they present an exciting, challenging, and motivating environment. The connection between effort, investment and return is often close and evident.

However, a start-up cannot last forever, and the founders will begin to consider the future of the firm. This has historically meant admitting new partners. In the early days of a firm, the new partners might well have been trained by the founders and will owe a lot to their mentors. But as the firm develops and grows, this link with the founders (and therefore with the business idea and culture they promoted) becomes more tenuous. As a consequence, the Anglo-American ‘model’ of the modern law firm has evolved.

In the standard form of this model, a junior lawyer has become a partner as a reward predominantly for being a good lawyer and enduring the firm for a number of years. Under this system, a career track of sorts is clearly identified and understood, though the length of the track has been increasing and other ways have been found to delay or avoid promotion to equity. The ‘jam tomorrow’ approach of keeping associates working hard in the expectation of the rewards, status, security and involvement of a partner has been the historical foundation of many large commercial law firms.

However, its effects are not positive, and may yet be the undoing of several. Too often, law firms today are having to face up to the idea that clients are no longer willing to pay for the training or expensive (and often, to them, unnecessary) involvement of those below partner level. They are also having to deal with some employee-minded partners who do not understand the nature of ownership risk, and whose expectations of a continuing high (and increasing) income is at odds with the economic climate and their own contribution.

So, in this model, what are the assets subject to the ‘ownership’ of partners in law firms? They certainly include premises, furniture, technology, equipment and the like. For the most part, though, these physical assets are taken on lease and are therefore more of a continuing liability than an asset; and even where owned they are a depreciating asset at best. There is, of course, the value of work-in-progress and outstanding invoices. But these represent work already carried out – the past, not the future. Ownership of a share in the past is certainly a questionable asset.

In fact, much of the productive value of a law firm does not appear on its balance sheet: the talent and know-how of its people, their network of internal and external relationships, and the processes and efficiencies that support them. Nor are these assets subject to the firm’s ownership.

Yet the notion of ‘ownership’, especially through the structure of partnership, is still espoused – often in tandem with its tenuous bedfellow, ‘collegiality’. I have recently been prompted to wonder (with ‘wonder’ in both its inquisitive and amazed meanings) whether this pervasive fondness for partnership and its claimed collegiality in fact reflects a romanticised but misplaced notion of both.

The reality in too many law firms is that their leaders and partners promote and defend their ‘collegiate’ cultures while at the same time condoning the behaviour of those who operate in silos, in an environment that encourages internal competition for clients and profits, where the quest for effective cross-selling is longstanding but frustrated, where the dominant philosophy prefers short-term income extraction to long-term investment, where there is a lack of mutual respect and an unwillingness to be accountable, and where collective aspirations and management decisions are too often ignored in the daily press of individualistic and self-interested (if not downright selfish) behaviour.

If the productive assets that determine the ability of a firm to survive, develop and prosper are not owned by the business or its partners, we might expect the so-called ‘owners’ to nurture and respect those who carry that productivity. Unfortunately, however, too often we find hyper-critical and hyper-sensitive environments where support staff, many lawyers, and even some partners, have a sense of inferiority or second-class citizenship; they are actively discouraged or overtly excluded from any meaningful involvement in the firm to which many have devoted their working lives.

In these circumstances, ownership is worth little. It is a mirage – in the sense both of being increasingly elusive to those who aspire to it, and as not being what it is thought to be to those who have it. I often hear partners in the large firms say that they are not interested in taking external investment. To be honest, the real surprise would not be a firm wanting external capital, but rather the prospect of external capital falling for the mirage it would be investing in. More of a miracle, perhaps! But then the institutional memory of such investors might well be short enough not to recall the past acquisitions of investment banks, brokers and estate agents.

Large law firms might be relatively profitable. However, they have yet to demonstrate that, from an external perspective, they have the stability, sustainability, discipline and cohesion that gives their ownership any true, independent, value. The appearance of continuity can become strikingly ephemeral. How quickly all-conquering names can be turned to dust (remember Andersen and Halliwells?). Ownership should be valuable – and there should be a market for ownership shares. But the mirage needs to disappear first and be replaced by a genuine pool of value.

(This post is an expanded version of a guest blog that first appeared on Legal Business Digital (£) in December 2011)