John Quinn Warns of Generational Clash When Firms Get Investors

Law firms bringing in outside investors is one of the hottest topics in the legal industry right now. John Quinn, founder and chairman of Quinn Emanuel Urquhart & Sullivan, says firms that want to take the cash need to figure out how to avoid alienating their younger attorneys.

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Non-lawyer investment isn’t common yet in the US, but some firms are experimenting with different ownership models—especially as they consider the price tags on AI tools. Bringing in outside investment can help raise capital. It can also dilute the pool of profits that associates and younger partners were hoping they’d one day get to enjoy, Quinn said on our podcast, On The Merits.

“They have to be persuaded that that’s in the long-term interest of the firm,” he told Bloomberg Law reporter Roy Strom. “But these are some awkward conversations. And it’s a generational conversation.”

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This transcript was produced by Bloomberg Law Automation.

Roy Strom:

Hello and welcome back to On the Merits, the news podcast from Bloomberg Law. I’m your host, Roy Strom.

Most of today’s largest law firms are more than 100 years old. That means their founders are, well, long gone. But John Quinn is an outlier. And in today’s legal market, that has some interesting implications. Quinn started what is now Quinn Emanuel 40 years ago, and he’s lived through countless different eras of the legal industry.

I spoke with him about some of the things he’s seen, but also about our current era, where talk of non-lawyers investing in big law firms is picking up steam. It’s a change that could allow law firm founders to cash out. And I spoke with Quinn about that. But I started off by asking him what’s changed since he founded the firm. And he said, in some ways, it would be easier to say what hasn’t changed.

John Quinn:

Well, of course, our firm over that 40 years has changed radically. I mean, 40 years ago when we started the firm, we were four lawyers in downtown Los Angeles. And we’re now about 1,300 lawyers in 34 places around the world. So I mean, it’s been a radical, it’s been a radical change for us.

If you’re four people, you know what each person is doing pretty much every day, what they’re working on, what the cases are. Now we’re working on a couple of thousand matters at any given time. And the time has, in the distant past now, since I’ve known all the matters that our firm is working on, I mean, I know all my partners. I can’t say that I know all the associates and of counsel all around the world. So I mean, it’s a radically different environment.

And of course, the size of the matters that we’re working on and the different practice areas that we’re working on and the different jurisdictions and choices of law and the like are just radically different.

Roy Strom:

What about the competition between firms? Have you seen that grow more intense? You’re obviously competing against the biggest law firms in the world. They seem to be much more willing and able to spend a lot of money to recruit other people’s partners. How has that impacted the way you run the firm or the way you even see your partners?

John Quinn:

You know, there’s always been, of course, competition. Competition for clients, competition for talent, competition for results. We do have more of a phenomenon now in the very recent past in terms of lawyers changing firms for very large paychecks. That’s not something that we spend a lot of time worrying about, frankly. People are well compensated at our firm. We haven’t seen those kinds of departures. But I mean, that is one thing that’s definitely different now.

Some people call it poaching of lawyers from other firms. There’s always been some of that to some degree, but it’s becoming more and more prevalent.

Roy Strom:

Another thing that makes you relatively rare or even unique among the largest law firms is that you founded the place. You started it. It’s your name. Someday, I imagine, you’ll stop practicing and hand the firm over completely to the next generation. But law firm founders like you don’t get to do what founders in other businesses do get to do, which is sell their business. That’s maybe going to change with this idea of outside investors coming into law firms. Do you think that will change? Would you like it to?

John Quinn:

I think ultimately it is going to change. Of course, it’s not an issue in the UK or in Australia where you have law firms that have non-lawyer owners of various kinds, even public traded ownership of law firms. I think that’s ultimately going to happen.

We have the prohibition in the US, except in, I guess, in Arizona, and on an experimental basis in Utah, we have a prohibition against non-lawyers owning interests in law firms. I think the reasons for that are really not very compelling, but the pace of change, of course, in the legal profession is very slow. I think the time will come where you’ll be able to have investors invest in law firms. How long that’s going to take, I’m not sure.

We’re already seeing the emergence of these managed service organizations, MSOs, where you basically take everybody except the lawyers who are practicing law, and you put them in a different vehicle, and that vehicle contracts with the lawyers to provide services. Then that other vehicle, the non-lawyer vehicle, has outside investors. That’s one solution that I think we’ll see, but ultimately, I think this all is going to change.

Roy Strom:

What makes the prohibitions on non-lawyer ownership less compelling today?

John Quinn:

Well, the argument I’ve heard for it is that lawyers should single-mindedly serve the interests of their clients, and that if the law firm is owned by non-lawyers, then they’ve got two masters that they’re serving, the investors and the clients. That’s the theory. I’m not sure how compelling that is, frankly, I’m not sure if it’s any more compelling now than it’s been in the past. I think lawyers have a duty of loyalty to their clients without regard for who owns or manages the firm. To me, that’s a bit of anachronism, actually, Roy, to be honest.

Roy Strom:

But I wanted to ask, what do you think outside capital would allow major law firms to do? I guess, what do they need the money for?

John Quinn:

Roy, it’s a very good question, because law firms are not, or at least have not been, capital-intensive exercises. You think about it, what capital expenditures do we have? What assets do we have? Well, we have some leases on real estate, although these days, or since the pandemic, that seems less important than it’s been in the past. We have some leases on some computer equipment. Beyond that, the assets really are the people.

But we do have these salary wars, which we’ve talked about a little bit, compensation wars, and the numbers are getting pretty big. So I could see firms who have access to more capital being able to compete more. You have more firms competing for the very top talent, talent that has large client followings.

I guess you also hear about investments in technology, whether the coming transformation of law practice by AI will require more investments in technology. I frankly don’t know enough about that myself to know what the capital requirements of that might be. But those are two things that come to mind that law firms might need capital for.

Roy Strom:

Yeah. How do you think a leader would make the case to partners or to the next generation of lawyers that this would be in their benefit? Because I think some people worry that it would look like a certain group of partners sort of cashing out.

John Quinn:

I mean, definitely, that’s the risk. The younger people interpret this as the senior people, as you put it, cashing out, taking money off the table. And the investors are going to be getting some of the profits. So instead of the lawyers going forward getting 100 cents on the dollar of the profits, they’re maybe only getting 80 cents on the dollar. So they have to be persuaded that that’s in the long-term interest of the firm for competition reasons on the other side, that this capital can be needed, plowed into the business, and it’ll be better for everyone. But these are some awkward, some difficult conversations. And it’s a generational conversation. There’s different interests. People who are a senior are not going to be practicing that much longer. Their interests are different than the younger people.

But look, we’ve seen this in many professions. We’ve seen this in the investment banking industry. You look at the Goldmans and JP Morgans or Morgan Stanleys, which were partnerships. You’ve seen this in other professions, large physician groups and the like. I mean, the record is that these things ultimately don’t stand in the way of the capital transformations if there’s compelling reasons to do it.

Roy Strom:

I’ve been laying out all these roadblocks to it. When you hear people talking about this, what are the compelling pitches they’re trying to make?

John Quinn:

Well, I mean, look, obviously the people who want to sponsor these transactions, talking to somebody like me or senior people, they’ll say, you know, you’ve looked, look, you’ve created this enterprise, you know, you do $2.5 to $3 billion in revenue at very healthy margins. If you could capitalize that and get even a conservative multiple, you know, it’s worth $10 billion plus as an enterprise. You know, they try to paint the picture of, you know, dollar signs raining from the sky. That’s how they would try to sell it to senior people.

They’re not really in a position to educate us on how we would use the capital. We know that probably better as well or better than they do. But, you know, it’s basically, why don’t you have an opportunity to realize the wealth creation that you would in any other profession or industry up to this point, except law. And here’s your chance to do that.

Roy Strom:

How do you think about that? Because it’s an awful lot of money, I’d imagine. And at the same time, you’re not the only person making the decision, I’m sure.

John Quinn:

Well, look, I mean, if our firm were to do something like this, that remains to be seen about who in the partnership and at what levels would benefit and would benefit at what level. I mean, that would all be a source of discussion and what would be the money applied to. And I don’t know how that would all play out, you know, if there was a fulsome, robust conversation on that. I don’t know whether our partnership would want to go for one of these transformations or not, to be clear.

Roy Strom:

I mean, one of the interesting things when I speak with lawyers and the topic of how much money attorneys at large firms can make today, is that nobody really went into it thinking about how much money being a lawyer would provide. You know, average profits per partner of $9 million.

John Quinn:

No, I mean, this is a relatively new world. I mean, the numbers have gone up and up, but really only for not that many firms, Roy. I mean, we’re talking about a small sliver of the law firms in the U.S. These things are all relative. I mean, lawyers have always been relatively, if you look across the economy in different occupations and professions, lawyers have always been very well compensated.

We’re seeing very, very large numbers being thrown at people to move law firms now. Those are exceptional. The numbers are extraordinary, but we’re not talking about many people. You know, we’re probably talking about, what, 20, 30 people a year. I mean, that’s a teeny fraction of the number of people who are practicing law.

Yes, the numbers on profits per partner for the AmLaw, you know, say the top 10, 20. There’s an increasing separation, I think, between the most successful firms financially and other firms. But so, again, we’re talking about kind of a very, very small subset of the profession as a whole.

Roy Strom:

I know Quinn Emanuel has some of the few partners who bill in excess of $3,000 an hour. I think that sort of always gets a lot of coverage, you know, the billing rate growth. But how do you and the firm look at billing rates? How do you set billing rates? And do you think at all it’s part of the calculus that sort of in order to be seen as the best, it kind of helps to be among the most expensive, too?

John Quinn:

No, I don’t think that’s putting it backwards, honestly. Prestige comes from results. I mean, I really don’t think the legal profession is one where it’s smoke and mirrors. I think firms that are regarded as prestigious are regarded as prestigious because of their results, the quality of their work, the quality of their lawyering.

And, you know, the discussion about law firm billing rates, that’s never-ending. My whole career, rates have been going up. My whole career, journalists have been writing about, you know, how rates are going up with kind of an attitude, can you believe it? And they’ll quote clients saying, you know, this really seems to be getting out of hand. That’s been true my whole career.

Roy Strom:

That was John Quinn, a founder and chairman of Quinn Emanuel. And that’ll do it for today’s episode of On the Merits. For more updates, visit our website at news.bloomberglaw.com. Once again, that’s news.bloomberglaw.com.

The podcast today was produced by myself, Roy Strom, and David Schultz. Our editors were Chris Opfer and Alessandra Rafferty, and our executive producer is Josh Bloch. And thank you to Alison Lake for booking our guests today.

Thanks, everyone, for listening, and see you next time.