Law firms, like many businesses, are faced with agency problems that arise from the separation of ownership and control in a company. These issues are commonly defined as the difficulty in motivating one party, the agent, to act on behalf of another, the principal. The extent of these problems can often be influenced by factors including the size and structure of a law firm and the relationships between firm stakeholders.
According to Michael Di Gennaro at The Law Practice Exchange, nonlawyer private equity ownership of law firms can present a valuable solution to these governance problems. This form of ownership can provide benefits for shareholders and other parties who are susceptible to disparate interests, helping law firms overcome hurdles inherent to agency issues. For detailed insights into how private equity can remedy law firm agency problems, read Di Gennaro’s extensive analysis of the subject on Law360.