I graduated from law school over 20 years ago and accordingly don’t spend as much time thinking about law school admissions as I did in the past. However, as the parent of a high school senior currently in the throes of the college application process, I’ve recently again been considering the right approach for a student to take while applying to undergraduate and graduate programs. In either case, there are myriad good options to select from, and the thought process used to narrow them down can be scattershot.
My wife, Leslie, pursued an entrepreneurial venture mid-career like me, founding Leslie’s Leashes, provider of pet care services like dog walking and sitting to grateful animals on the North Shore of Long Island. There are only so many half-hour time slots for pet visits in a day, especially when everyone wants theirs to be at noon, so Leslie has hired walkers as demand for her services grew. However, some of the more particular clients specifically want Leslie to be the walker.
Carolyn Elefant, writing (sensibly) in Above the Law, argues in favor of loosening restrictions in the U.S. against ownership of law firms by non-attorneys. She focuses on the increasing need for small firms to partner with non-lawyer professionals and how the inability to compensate these professionals by sharing profits makes it unnecessarily difficult to function. Regardless of a firm’s reasons for wanting to bring in non-lawyer equity holders, it’s worth considering the policy rationale underlying the current restrictions.
The general fear is that non-lawyer equity holders would interfere with legal decisions that should be left to the lawyers. This is a reasonable concern. To take a concrete example, suppose I had an outside non-lawyer investor in my firm, and suppose further that I was advising a cash-poor startup company who was negotiating with an outside investor on terms that I found to be inadvisable for the client. Now, it would be in my pure financial interest (short-term anyway) to downplay my concerns and let the client proceed with the investment, since it would mean my firm would get paid. But I’m constrained by ethical obligations that require me to put the client’s interests first. If my firm’s investor, however, became aware of this issue, the investor would be expected to push me to withhold my sound advice to the client.
Andrew Ross Sorkin, writing in the New York Times’ DealBook, profiles Long-Term Stock Exchange (LTSE), a new exchange that would impose unusual restrictions on its listed companies:
Among its changes to the ecosystem: the voting rights of investors (the longer you own, the more voting power you have), new disclosure policies (including a moratorium on “guidance”) and a complete rewrite of compensation schemes so that executives truly focus on the long term (it recommends vesting stock over as long as a decade).
LTSE’s rationale is to address the headwinds that have caused the number of public companies to decline significantly in recent years, leading large private company so-called unicorns to remain private, even with multi-billion dollar valuations. These companies fear that, if they became public, they would be forced to take actions to satisfy their overly short term-oriented stockholders, like activist hedge funds. In contrast, companies adhering to the LTSE listing standards would be dominated from a voting power perspective by stockholders who have stuck with the company for a long period and would have executives who are incentivized to stay for a while and not engineer fleeting short-term results to jack up their compensation.
On September 5, 2017, the U.S. House of Representatives overwhelmingly approved a bill that would allow already-public reporting companies to use the provisions of so-called Regulation A+ to make securities offerings. Regulation A+ in its current form is, in essence, a mini-IPO, allowing private companies to raise up to $50 million, offerings that are too small to attract the interest of large investment banks who underwrite traditional registered IPOs. If the current bill is enacted, public companies could take advantage of this process, which involves somewhat less disclosure than required for a full Form S-1 registration statement.