[00:00:00] Josh, Trish, thanks for joining me today. Thanks much. Thanks for having us. Absolutely. So Josh, you and I met in London a few weeks ago at the Financial Times event, and we were at a speakers dinner, and you were talking about your MSOs, and I got to riff. MSOs are something I've been talking to a lot of law firm leaders about who are debating kind of the best path forward from a capital strategy perspective. So I really enjoyed everything that you had to say, and it was great to, uh, great to hear your thoughts. Um, Josh, why don't you just do a l-- I think you guys are two of the most informed people maybe on the planet w- as it relates to MSOs, so I'm super excited to get your perspective on some things. Um, J- uh, Josh, why don't we start with you, just a little bit about what your background, what you're doing today, and then we'll move over to Trish. Yeah. Um, thanks, Ted. So, uh, Josh Poortz. [00:01:00] Uh, I'm a partner at Holland & Knight in our national office, and I co-lead our firm's legal services transactions team with Trish. And I'm the corporate and M&A half of the team. Uh, my background is in healthcare services, where the MSO model originated in the 1980s. And, uh, I came to the world of legal services investments about four years ago when we represented a client in structuring and executing on an MSO, uh, transaction with a law firm. And, uh, I viewed that transaction as something of a novelty at the time, uh, but it turns out it was the precursor to a much larger, uh, movement. So, uh, really then since, uh, start of twenty twenty-five, this turned into something that we have done into more or less all we did all the time. So looking forward to covering this topic with you today. Awesome. Trish? Yeah. Uh, I'm a legal ethics and legal regulatory attorney who, uh, grew up in commercial litigation. It's still some of my practice. But these days, um, along with [00:02:00] Josh, I spend almost all of my time working in the legal industry space, um, working around the areas of MSOs, ABSs, and other legal investments in structuring in the profession. Um, I'm also an adjunct professor of legal regulation at New York University, um, School of Law. And, um, yeah, I split my time between Chicago and New York. But, uh, no matter what day it is, I'm spending about twelve hours of it with my good friend Josh, so And you guys are growing the team, I saw Yeah, we're really excited. We've had a few really, um, great additions both on the corporate side and on the legal ethics and legal regulation side on our team. Uh, recent hires are, uh, uh, Michael Zhang here in Chicago, Courtney Miller in Richmond, and, um, David Georgelou out in San Francisco. Courtney and Michael are both legal ethics and legal regula-regulatory attorneys. Michael is a former br- bar prosecutor and joins [00:03:00] us with that background as well. David will sit both on legal ethics and in corporate. He's the only person at Holland & Knight that speaks Trish and Josh, so we had to bring him in just to sit between us. And then we've, uh, added a number of corporate people as well, including, um, Jessica Berkowitz in our Dallas office, who joined us from another firm, Sam Schaefer in our Miami office, um, Clark in Boston, and a few others. So, um, it's a really exciting time for us. We are, um, I think we've probably added eight or 10, uh, partners and others in the last couple of months, and that's reflective of, I think, just how busy we are in this space. Yeah. I mean, it's a very hot topic and, um, maybe we can just give for listeners who don't really understand what, what MSOs are, I think it's probably hard to not know at least that they exist, especially with the AI native space really starting to, um, emerge, and I think [00:04:00] all of the AI native firms in the US at least are leveraging a similar structure. Um, but Josh, what's the, what's the high level reader's digest version of what an MSO is? Yeah. So MSO stands for Management Services Organization. Uh, as I mentioned earlier, this is a type of transaction structure that originated in the healthcare industry, so another regulated professional services, uh, industry. And the way that it works is you're gonna bifurcate the professional practice, um, and you're gonna split out the non-professional assets and put them into a management company. And when we say non-professional assets here, we mean basically all of the assets of the law firm, everything except for, uh, attorney workforce, right? The lawyers stay behind at the law firm. Client engagement letters, uh, those also remain in place. So this is very important, but viewed externally from the perspective of a client, this [00:05:00] is an invisible behind-the-scenes transaction, right? They still have the same engagement letter with the same law firm to receive the same professional services pre and post. And then, of course, you know, client trust accounts, client files, records, funds, other client property. All of that stays behind. All of the other assets, though, of the law firm are going to get moved over and into a management company. There's nothing magical about an MSO. It's typically just a Delaware LLC. And, uh, you know, we're, we're gonna move over the non-lawyer workforce, the intellectual property associated with the law firm, uh, so trademarks, websites, logos, uh, all of those things. Uh, even a, a lot of the deal-making today involves personal injury law firms, uh, you know, billboard lawyers. And so you might even see the name, image, and likeness of the, uh, the plaintiff's attorneys transferred into the MSO, uh, treating them as if they are, uh, you know, professional athletes or the like. And then, uh, at the closing of the restructuring, all of those people and assets are leased and licensed back to the law firm [00:06:00] by operation of a long-term management services agreement. And that's really the conduit to which we're gonna endeavor to transfer the economics of the law firm to the management company insofar as possible under applicable law, which, uh, Trish can speak to in the ROFR, uh, uh, the regulatory portion. So blurry lines already, like name, name, image, likeness of attorneys in the practice. Uh, before we started recording, I, I shared a interesting debate that's happening in the industry right now around creating digital twins of lawyers in the practice and codifying knowledge, wisdom, judgment, all of the things that lawyers bring to the table in a legal matter. Um, law firms are doing their best to try to [00:07:00] operationalize and build a tech-enabled legal service delivery mechanism that captures and through learning loops where, you know, maybe it's through the use of red lines or additional metadata that's, you know, upon matter closing. All of those-- all of that knowledge and know-how, law firms are working really hard and spending a lot of money to try and capture that digitally. And there's debate in the market right now about what is the impact to the partners in that scenario. Because if I understand it correctly, the MSO owns that digital asset. And, you know, when a, I think it's Model Rule 5.6 enables law-- lawyers to pick up their book and take it across the street to another law firm if and when they choose to do so. And the portability is going to be impacted by that. And it's [00:08:00] not just limited to MSOs, right? Like regardless if there's an MSO in place, once this l- this loop of digitizing or creating that digital avatar of the partner, it bec-- the relationship becomes more sticky. But in the MSO scenario, it's like, okay, who owns that? And it sounds, Trish, like the MSO would own that intellectual property. Is that accurate? I, I think that's right. Um, the, the s- the sorts of things that have to remain in the law firm, um, to be compliant with, uh, the rules of professional conduct are somewhat limited, but they include all of the things that would, uh, be central to the attorney-client relationship. Um, but, uh, there are lots of, y- you know, as we talked, the name, image, and likeness rights, none of those things are required to be owned by law firms. So, you know, some of these are new problems, but we're [00:09:00] solving them by looking at our, you know, pretty developed and mature precedents in the evolution of the way that we regulate the practice of law. So, um, you, you mentioned ABSs, Trish, before we, uh, in your intro, and, um, you know, that seems like obviously there's only one state that's actively, um, allowing, I think the Utah sandbox is sun-setting or has sunset. Um, is, is the MSO a messy workaround because of five-four and would-- i- is the ABS structure a more clean path towards leveraging external capital for a law firm? I don't think about it like that. Um, uh, first of all, when we talk about MSOs, we're, they're not workarounds. We don't build them as workarounds. Um, we build them to comply with the rules of professional conduct. So every [00:10:00] MSO that we work on is compliant with rule five point four, with five point six, with one point six, with all of them, right? Um, we structure these very carefully, um, and we have legal regulation at the table, like our legal reg team at the table every single step of the day. I mean, it's not a, a... Josh and I always joke that we spend all of our time together, but that's not a jo- we truly spend twelve or fourteen hours a day together every single day thinking about how we structure every one of the deals that, um, goes out from our team. So it is an extremely intense process, um, to make sure that every, you know, e- every, e- every facet of the way the two companies are partnered together complies with the rules of professional conduct, and that when you put them together, they still comply with the rules of professional conduct. So, um, when we, when we structure MSOs, like that's what we're thinking about, right? Which is like, where are those lines, and how do we get people to [00:11:00] respect that, and how do we get peop- and the documents, and how do we get people to respect that even after they leave, right? And they don't have me and Josh looking over their shoulders anymore. Um- With ABSs, ABSs, w- w-, you know, in Arizona and now in Puerto Rico and, um, in some of the sandbox programs like we've seen in Utah and Washington, um, those work because 5.4 has been altered, uh, a- to allow for some amount of non-lawyer ownership and control or control. Um, MSOs, uh, uh, MSOs don't have that feature, right? They don't allow, uh, non-lawyer ownership or control. Um, I, I love the Arizona ABS program. I think it's really interesting and, uh, it's neat. Uh, it's the data they're collecting is really neat. Um, I just-- I think it's, I think it's, uh, always good for us to think about the way that we regulate not just lawyers in the legal [00:12:00] industry, but everything, right? Like, is this reg- like is it, is this regulation, does it make sense? Is it narrowly tailored or appropriately tailored? And really importantly, is it getting to the goals that we're trying to reach? Is it like, is it actually effective? And, and is the goal that it's trying to reach, is that a, a goal we care about or we, we, you know, we think about, right? Um, and so, uh, for us, um, when we're thinking about ABSs and how they exist in the absence of Rule 5.4 in Arizona's case or, uh, in, with the alteration of 5.4 in other jurisdictions, you know, I, I think, I think those programs are worth investing in. Uh, it helps us collect data on lots of things, and it helps us think about the way we could regulate the profession differently and not just because we're gonna do it because it's the way we've always done it, it's the way it's been done for 100 years, and that's just how we do it. [00:13:00] Um, because clearly there's something about the regulation of the profession that's not working. Works really, really well for lawyers. It really doesn't work for most other people. Very fair. And, you know, with, with, with an ABS, y- like it, it, it feels, it, it seems clear to me that the lines that we're drawing around what's in the MSO and what's in the legal practice, they seem blurry to me. Um, and the ABS doesn't have that challenge, so wouldn't that be a cleaner, like less intricate, complicated way to get capital into a legal practice? So I don't, I don't think the lines on MSOs are all that blurry. Um, so that's one thing I would say. I, I don't know that I accept that premise. Um, but if the [00:14:00] question is, you know, I'm sitting in Chicago today, it's like, Illinois, well, that's a bad example, but like if Illinois decided tomorrow non-lawyers could own law firms, would MSOs still make sense? Um, probably not, except that, bless their hearts, I love the people of Arizona and, like, the structure they've come up with, but it's extremely clunky and difficult. And, um, there are a lot of-- Is there-- The AB- the Arizona ABS is the most regulated law firm in the United States by far, and it is not even close. And so, um, you know, they allowed non-lawyer ownership, but they regulated the hell out of it, and it's really expensive to set up. It's really difficult to comply with. You have to go in every other year and be recertified if there's any change to your business. The, the i- the whole idea of the compliance lawyer, which I just think is, I mean, I, I call it un-American both literally and metaphorically. Um, but it truly is not [00:15:00] an American idea. It comes from Europe, and that's that you would have a lawyer inside of your organization who would report problems out rather than have privilege like that person would have in every other law firm in the United States. Um, all of it, it creates a structure that's, um, you know, unattractive in some ways. I'm really-- I really want to see the Arizona ABS program be a success. I think it's really important, and I really do think it's, it's quite good. But if, if we're gonna allow non-- ABSs are not a natural alternative to MSOs if the ABS structure looks like an extraordinarily regulated law firm. People would still opt to do MSOs. But Josh, isn't that, uh, isn't all of this regulation because of all of the pushback and, in my opinion, protectionist thinking of the legal profession? I mean, let, let's, let's not pretend that Rule 5.4 does not benefit [00:16:00] lawyers and limit competition. It does. Um, so- I mean, no, I, I would suggest that's actually the point of it. And it's not- Right. I agree with you ... yeah, it, it's not a bug, it's a feature. Yeah. Right. I mean, that's-- Yeah. Right. Yeah, no, um- I mean- Well, lawyers have an unearned monopoly on the practice of law, and it is gonna be... They're, they, it, they're, it, they're not going to give that up willingly. That's it. Yeah. But Josh, sorry, I interrupted you. Um- Yeah ... but that said- I, I, I was gonna, um, reference, uh, your and my favorite, uh, piece of scholarship on this, uh, topic, but there, there was an article that was published in the Yale Law Review a few years ago that talks about the origins of Rule 5.4, and, um, it, it dates back to the kind of beginning of the Great Depression, right? Late '20s, early '30s. Um, at that time, uh, it was common for auto clubs like AAA to have legal [00:17:00] departments that would actually assist their insureds with defending claims. And the, uh, the lawyers in the, uh, Chicago, uh, area brought a lawsuit, um, asserting that these, uh, auto clubs were engaged in the unauthorized practice of law because they were, uh, kind of offering legal services to their insureds Um, and the courts, uh, generally agreed, and Rule 5.4 evolved out of this milieu. But the point of all of this is that the depression was on, and times were hard, and lawyers were looking, uh, more or less for, um, to, uh, to, to build a moat around the profession for protectionist reasons. And so I think that is, in fact, the origin of Rule 5.4. I think that, you know, when Trish talks about the importance of the ABS program in gathering data to evaluate whether the presence or [00:18:00] absence of non-lawyer ownership, uh, correlates at all with consumer or client harm, that's important research to be doing. And so that's why every year we look forward with great interest to kind of the, the new information and, and the data and the reports that are published by the Arizona Supreme Court on the program. Yeah, but- And I think- Go ahead, Trish ... I think it's worth pointing out that the people that are, you know, sort of what I refer to in this space as the antis, right? The, you know, the, the general pushback, um, crowd, they, they demand two things at once. Number one, they say, "Prove to us it's successful," and number two, "We- we're not gonna let you do this," um, which would be the method by which we would collect data. So it's like, okay, which one is it? Um, I can't prove to you s- I can't prove to you that something's successful if we don't get a try at it. But what Josh said is exactly right. It's not, um, it's not necessarily [00:19:00] that, um, you know, we have to show some great milestones or anything that I, that I think y- y- to, to make a, to make a point of proof, but rather that is it harming clients? Our regula- our regulatory structure is in place to prevent harm from the, from the public. If you look at the, to the public, if you look at the enabling statute of any bar regulation office in the country, that's gonna be in the first sentence. It's gonna say, you know, "We're here to protect the public." And if that's what our regulatory structure is, is a public protection scheme, um- A- and nobody can show that a non-lawyer at the helm is harming the public, then, like, you have to ask yourself, why do we believe so strongly in this one sacred cow? Yeah. Um, Josh, what about 15 years of data from the Legal Services Act in the UK? Why can't we use that as, um, demonstrable proof that no [00:20:00] catastrophes have happened there? We also have Australia. Why- Mm-hmm ... why, why, why can't we use that as a analog to rally support for liberalization of the US market? I think we can and we should. Uh, the Tennessee Supreme Court, uh, recently issued a re- uh, an order requesting input on potential regulatory reform, including 5.4 reform in Tennessee, and we did submit a comment, uh, that, uh, kind of talks at length about the, the history, uh, so far to date of, uh, investment, uh, you know, uh, non-lawyer investment into the UK legal services market, and, uh, the sky has not fallen. Um, now look, uh, some of those law firms that are publicly traded in the UK have not done well on the market, but that's a totally separate matter as to whether there's, uh, client harm. The success or failure of the business model is not really the point. Um, and, uh, I would also point out that if you look at, uh, you know, the, the Big Four, uh, the big, you [00:21:00] know, accounting firms, uh, PwC, KPMG, you go to almost any other country in the world outside of the United States, and you'll see KPMG Law Right and PwC, right? They offer legal services alongside accounting services, and that this-- uh, they've been doing so for many years without issue. Um, so I do think that, uh, the United States is s- it's, it's not a total outlier, but it is something of an outlier globally in how strict the barriers are that it's erected and how high they are, um, in order to, to keep out any type of, uh, potential non-lawyer, uh, ownership. I, I would argue that 5.4 creates harm Um, i-in the A to J scenario, right? We, we have a lack of supply, um, affordable legal services for our needs, and is anybody beating on that drum? Like, hey, you're worried about client harm, harming the public. Are we-- H-how about [00:22:00] we're harming the public with, with the rule in place by constraining supply? Yeah, I totally agree, and that's one of the reasons why, um, may-maybe to bring this back to, you know, AI law firms, why we were so excited about new developments in technology and the, the, the budding partnerships between technologists and lawyers to, um, to disrupt the, the legal services market and really, you know, meet, uh, you know, bring new products and new ways of delivering services to the market that can help meet the incredible demand. And frankly, um, you know, th-there are just huge swaths of the population that simply can't even afford access to quality counsel for, you know, things that really they sh- they ought to have a lawyer, you know. A-and I, I think about, uh, a client like, uh, General Legal, um, which their business model is all about, uh, uh, you know, contract review or commercial agreements, um, you know, done quickly and at a low price point, you know, fixed fee type pricing. Uh, [00:23:00] it's, uh, that, that is a need that, uh, exists and, and, you know, a firm like Holland & Knight, uh, yeah, I mean, I think we're a great firm, but we, we would not be an economical choice to review, uh, you know, a vendor agreement for a small business in most instances. We just wouldn't be. And so having that kind of a relationship where, uh, you're, you're partnering software, uh, developers, uh, and, you know, who are fin- well-financed by, by venture capital funds with lawyers to work together to bring a new way of delivering legal services, uh, to the general public. Uh, uh, yes, um, 5.4, we, we've got to, you know, work within the, the, the rules of the game such as they exist. I wish they didn't exist this way, but, um, uh, you know, in the absence of Rule 5.4, I, I, I think there would be a lot more innovation out there. Yeah. Trish, you mentioned like having non-lawyer direction over legal services being delivered, you know, and [00:24:00] 5.4 getting in the way of that. But don't we have that already with inside legal teams? I mean, these are n-non-lawyers, investors, public businesses that, that direct and manage inside legal teams that deliver legal work. Isn't that kind of already happening? Sure, but that happens under the supervision of an attorney. Um, and so that, for that reason, it's blessed as okay by the rules. Whereas, like having that person actually have an equities, they can do all of those things, but if they had an actual equity stake, then all of a sudden it, you're, you know, you're in prohibited territory. Yeah, but like the legal team at Bank of America, right? They-- I don't know, there were s- couple thousand of them when I left 15, 20 years ago. But I mean, they, they ha- they report to the chief legal officer there and ultimately are held, uh, who reports to the CEO, who is, you know, directed by a [00:25:00] board of directors that shareholders, um, vote into existence to hold account-- I mean, that chain of accountability in the corporate legal space, isn't there-- Are, are there not any... It, it feels like we're kinda already doing it. Yeah. Um, well, I would not want, um, inconsistency to, uh, be the thing that made our whole entire regulatory system fall apart. But there are plenty of examples of things just like that in the way that we regulate the profession of law now, um, where you can, you can put, put something, you know, a, a column A and a column B next to each other and say, "Why do we treat these things differently?" Um, so like legal staffing companies is a great example. Legal staffing companies don't need to be owned by lawyers, and I can own a legal staffing company as a non-lawyer and send these people, uh, lawyers out to all sorts of law firms and make [00:26:00] money on those legal fees. But why is that different? Well, like the philosophy behind it is like once those people are at a law firm, they're then being supervised by lawyers, but here I am, a non-law firm making, selling legal services, right? Why is that allowed? Yeah, that's a good point. Yeah, like- I hadn't thought about that one ... yeah, I, I could come up with, I could come up with a dozen or two dozen examples of just, like, these inconsistencies in the profession where we've just decided, um, that, and we're gonna regulate, you know, this, this kind of thing is different. And a lot of times the, the thread that runs through it is expediency for lawyers. Um, and so it's worth it to us to keep s- keep out a non-lawyer owned law firm, but a non-lawyer owned staffing company, it's worth it to us to bring them in because we use them, right? Um- Right ... it's just, uh, y- you know, if you look at the way [00:27:00] regulation twists and turns, the common thread is that it tends to benefit lawyers. Yeah. You know, a- another interesting dynamic when you split the MSO and the practice up apart, um, a- an- there's another dynamic that is unique to each entity at that point. The practice will generate cash flow, the MSO will generpri-- will generate enterprise value, right? So the if, if things go as they one would hope as part of delivering services ac- especially across multiple law firms, efficien- efficiencies get gained, there's recurring revenue. It's almost like a software company, right? You've got long-term contracts that a investor or a potential acquirer of the MSO would value that side of the business very differently than they would a practice that just generates cash flow, right? Th- those typically, [00:28:00] the businesses that do not have recurring revenue trade on a multiple of EBITDA. Um, businesses that are growing, um, especially at venture scale that have recurring revenue trade for a multiple of revenue. So, um, you know, I've heard the, I've heard the metaphor, I don't know if you guys agree with this. I've gotten, I've gotten, uh, mixed, um, uh, reactions wh- when I talk about this, but, and I think I mentioned it in London, Josh, like, um, the, it feels like the MSO becomes the hive and the lawyers almost become the worker bees, right? And again, based on the-- I don't know, h- how does that, how does that metaphor land with you? Do you see it differently? Yeah. Um, I, I think it's a, a fair metaphor to, to posit, and I can see it both ways. And I think part of, of my reaction is, is kind of [00:29:00] what kind of law firm are you talking about? Because I think the MSO relationship with the corresponding law firm can look quite different depending on the context. I'll give you a couple examples. Um, a l- a lot of the investments activity to date has occurred in the personal injury segment of the market. One reason why private equity has found that particular vertical so attractive is they have discovered that if you peel back, uh, you know, the onion a couple layers, at base, a personal injury firm is first and foremost a marketing business. It's all about creating as big a funnel as possible to get the claims in the door, then the lawyers work the cases and look, some PI firms are, uh, kind of very highly specialized trial shops with incredibly skilled trial lawyers, um, who litigate the big cases and, and get big, big results. Lots of the PI firms are much more focused on volume and [00:30:00] simply getting the cases in the door, uh, settling cases as quickly as possible for the maximum, uh, recovery that's feasible under the circumstances, um, and then referring out the more complicated matters to the more trial-oriented shops. And so, you know, when you look at a business like that, what are the pathways to, to increasing its, its size and sophistication? It's about growing a marketing budget, very simply, uh, or using, uh, enhanced technology to increase the sophistication of the marketing efforts. But, uh, regardless, uh, this is a playbook that I think private equity is quite comfortable with and quite familiar with. Um, so it makes sense that started that end of the market. And for that kind of a law firm, I think the analogy that you drew is, is pretty apt. Uh, y- you know, y- you have the MSO that's really the, uh, the source of the, the, the business for the law firm, right? The, the marketing engine, uh, of the firm has been outsourced to the MSO. Uh, and then the lawyers, uh, who are left behind, [00:31:00] they, they work the cases, they represent the clients, they exercise independent professional judgment. Uh, but the life, you know, the, the lifeblood that flows through the law firm r- really, you know, it starts from, from the, the beating heart, which is, uh, you know, been, been moved over into the MSO. But, um, contrast that with A corporate law firm, right? Uh, where you have, uh, highly skilled lawyers who have very intensely personal, you know, client relationships. Uh, and I, I think that there are certainly, uh, you know, that would be a tight bond between the MSO and the law firm in that scenario, but I don't think the Hive worker bee analogy holds at that point, at least not, not nearly as much. Um, if you have a, you know, a, a top-tier M&A practitioner at a major law firm, um, and then they, they jump ship and move to a different firm, I mean, chances are their clients are gonna come with them, and there's nothing that the MSO or that law firm can do to stop that. Um, and [00:32:00] so, uh, yeah, I, I think, uh, that, that's more akin to the queen bee departing for, you know, greener pastures at that point, uh, building another hive. Yeah. So Trish, how well does this model fit in big law? To my knowledge, there's been no Am Law 200 firms that have gone down this path. I just read this morning several have, um, Paul Hastings, there was, uh, several named. I don't know how they got that information, but, um, how well does this model apply to the Am Law 200 space? Um, so obviously we can't talk about any particular firms here. Uh, but what I'll say is that there are lots of reasons that a lot of law firms might want to be in an MSO partnership or just have an MSO. We do all kinds of MSO structuring. Um, a lot of law firms will do these to grant equity rights in the MSO to [00:33:00] non-lawyers. So think about, for example, um, if you had a law firm that, uh, had, uh, y- I guess one law firm we're working with has a staff member that has real- is really valuable and, um, a non-lawyer staff member and helped build the law firm from the ground up and runs all the operations on a day-to-day basis, but is not a lawyer. And so granting that kind of person, um, equity in the MSO is a pretty old idea. The oldest opinion that we've been able to locate on MSOs goes back to 1997. So these are not particularly... That kind of structure is not particularly new. Um, and there are lots of reasons law firms might want to do those that don't involve bringing in outside investors or outside equity. Um, there's other models as well, but when it comes to sort of the, um, Am Law 200, the Am Law 100, the Am Law 10, right? For them, the question is [00:34:00] just going to be: How does our firm prefer to access capital? Obviously, if you're a large law firm, you can walk into a bank most of the time and take a, a business loan or a line of credit and access capital that way. But there might be reasons you want to do it another way. Um, there might be, uh, benefits to you as a law firm to partnering with, uh, some other kind of business interest. For example, if you are a law firm, let's just use traditional private equity for this example, even though w- when you hear people talk about investors in, um, i- in the space, they talk about PE as if PE is, you know, the worst thing that ever happened, but there's lots of kinds of investors in this space. But we're just traditional private equity for this example. Uh, a law firm that has a client who's a private equity company and they've worked with closely for years and years and years, it, there may be a benefit to them to investing and [00:35:00] working together with one of their clients. Or, um, they have like a particular technology, you know, uh, expertise or, or whatever. Like, there's lots of reasons a law firm may want to, um, have a business partner instead. And, you know, I think a couple, uh, one really important thing too is it can help with retention. If a law firm, if a, if an equity partner at a law firm has equity in the law firm- Uh, they can leave whenever they want. If they have equity in the MSO, the MSO has more latitude around, for example, non-comp- non-competes and, you know, tying lawyer, tying lawyers up that way. Um, that, that's, uh, uh, you know, at least one reason, uh, other w- kinds of law firms may want to explore that. But there's, there's lots of, you know, it's, but for the, there's lots of reasons it might make sense. For every firm it may be different. Um, but it's a structure that [00:36:00] allows people to think differently about the way that they do business and the way they access capital. Yeah. I think, um, you know, p- part of, of my sense of it, having been immersed in this world now for, uh, a couple years I- in seeing the rapid pace of, uh, technological developments, uh, as it's unfolded and the increasingly just cutthroat, uh, competition for talent in the legal services market more generally, I mean, every day there's a headline around some group of lateral partners, you know, departing one firm and, and going to another one, is that there's risk i- in any, in any direction that a law firm might choose. There is risk in staying the course and simply just proceeding, you know, business as usual. Uh, there is risk in a potential MSO transaction and partnering with, you know, private equity, for example. Um, you know, it, it, it's, it's something of a gamble, right? If let's say that, that, that you have a, a law firm, it forms an MSO [00:37:00] and takes in some private equity investments and let's say it sells 10% of the equity of the MSO, right? And, uh, if you've got a, a multi-billion dollar Am Law, you know, 100 law firm and, and you're, you know, multiply that by whatever the multiple's gonna be, 18 times, 20 times to get your valuation, right? It's gonna be a big number. That's a lot of capital flowing in. And the question is, if you access X billion dollars of capital through that method, does that outweigh the long-term consequences of potentially having given up 10% of the economics of that, you know, uh, of the MSO in perpetuity? And that is putting your cards on the table in, in a sense, right? You're, you're kind of making the claim that we think that we can put this money to productive enough use, right? Coaching talent from our rivals if we get access to the capital first, right? There's kind of a first mover type, um, uh, taking the initiative, uh, type advantage that could be [00:38:00] gained here, uh, that we think we can make it work. Um, it forces your rivals into a defensive posture as they have to fend you off, right? There, there's all kinds of possibilities on the strategic map here, but man, is there risk, too, right? What if you get it wrong and you are the steward, uh, potentially of a, you know, an institution that dates back over a century, a storied law firm, and, you know, you don't wanna be the generation that blows it up. The problem is that, you know, there's no guarantee of success even if you just stay the course. So, um, yeah, I, I think, I just think there's risk anywhere you slice it based on the, the ongoing crosscurrents of, uh, technological and, and industry change and competition. Trish, you mentioned like talent recruiting, retention. Um, you know, one challenge I see with that, uh, first, I fully acknowledge that law firms are going to have to start to get creative About how they recruit business of law professionals, right? We're entering into a tech-enabled [00:39:00] legal service delivery, delivery era, and we need tech talent, and we're gonna be competing with the Silicon Valley companies of the world. What law firms don't have is a pe-- you know, a eminent liquidity event like a startup does, right? So what is this-- what are these options worth to me? You dangle that carrot and say, "Okay, hey, we're gonna give you a com-- piece of the action." All right, maybe there's some profits interest that I can upside, but in terms of liquidity event, how do you sell that as a recruiting tool? I don't know, Josh, you wanna take that one? Yeah, sure. Um, I mean, look, um- I saw you, I saw you look like you were to go ahead. Yeah. Uh, I mean, you looked at, I think, uh, a, a lot of the times, uh, th- these structures are created with a long-term view of, of getting to a liquidity event of one kind or another. And so, um, [00:40:00] the, I mean, that could look, uh, that, that could take multiple forms. Um, it could be, you know, one private equity trading hands to, you know, uh, to selling to a different private equity fund. You could see more of what we call patient capital, right? Where, um, and, and, and to illustrate that for your, your listeners, um, a lot of private equity funds, they raise fixed life cycle funds, right? So they have to invest the money and then liquidate within five or seven years or whatever the life cycle of the fund is. But then you take a, a different capital source, like a, uh, family office, for example, right? Very wealthy family with no particular fixed, you know, need to liquidate at any particular point. Um, this is what we call patient capital. And so that could be an interesting partner for a law firm because there isn't a need to liquidate, uh, at any par- particular point. And I think the pitch to, you know, the tech talent or the, the non-lawyer, uh, talent, whatever form they take, is, "Look, w- you know, join our company.[00:41:00] We'll get you your, your options, your profits interests, or, uh, you know, what- whatever form that incentive equity takes, and then help us grow the company. And if you leave in three, five, seven years, you know, subject to whatever vesting schedule you have, we'll buy you out, and you're gonna get the benefit of, you know, the appreciation and value of your equity during that, that kind of period." So, um, ideally, there would be some liquidity event. I think that is what a lot of, uh, these companies are building towards, but you don't even necessarily need that. I think you can create a similar incentive structure just based on, you know, ordinary, uh, um, yeah, purchase and sale of incentive equity as people come and go. Yeah. I think the upside looks very different than it does for, let's say, a scaling software company, you know, where- Yeah ... it's just a different animal. Um, okay, we only have, like, five minutes left, and this is a big topic, but it was on the agenda, and I know you guys have thoughts about this. Um, there's been some le- there's been some recent academic scrutiny around these MSOs. And I happened to just [00:42:00] stumble upon it. I'm a nerd and geek out on the business aspects of law firms, so I, I just stumbled on it. Um, w- what is y- and, and they were, it was pretty scathing. Um, there were a lot of question marks that were put forward by this assessment and, um, I'm curious, I know you guys have had a chance to look at it. Whatever you're comfortable sharing on your perspective of these, of th- of this academic perspective on the ethical validity of the MSOs Yeah. Um, I think I know the article you're talking about, and I would say, um, you know, over here in the actual practice of law where we have clients that we work with day in and day out, um, the observations made in that article are just not accurate or true, uh, in our experience. Um, so let me just give you one example. Um, one of the author's main criticisms is that there is a, a [00:43:00] lack of oversight and compliance programs. Um, that is simply false. Uh, we have many, many clients in the space. We hired at Holland & Knight a former bar prosecutor to build an audit and compliance program and procedure, and many, many of our clients with us have opted into that. Um, the idea that that is not happening is just not accurate. And I appreciate that professors don't always have the benefit of, you know, having worked with clients in the space and understanding how clients think about these things. But I also think it's pretty hard to write an article that has, you know, two underpinnings that are in contrast with each other, which is number one, um, a- a- you know, an MSO will only be valuable if the lawyers keep their licenses. And number two, because the MSO is at the [00:44:00] table, everybody's a lot less likely to keep their licenses because the MSO is going to tempt these lawyers into, like, breaching all their, uh, ethical obligations. I mean, you, you kinda have to pick one or the other. Um, but there are, uh... I, I, I if- i- assume we're talking about the same article. I, I think if we are, um, I think that article is pretty divorced from the reality of what the space actually looks like. And I, uh, I write a lot in the space, and I understand, um, wanting to write something that, you know, gets you tenure or gets you clickbaits or whatever. Um, I get it, uh, but I just don't think it's grounded in the experience we've seen with, you know, hundreds and hundreds of clients who are trying very, very hard to comply. Um, there are lots of ethical ways to set up MSO partnerships and, you know, the people that we see in this space doing that are trying very hard to comply. Yeah. Yeah. I, I think it's really important to keep in mind that these [00:45:00] private equity funds themselves have investors, right? They're investing other people's money, and they're putting hundreds of millions of dollars. Ultimately, you know, if... So we've already done more than a billion dollars of transactions closed this year. And- Uh, these funds want to ensure that the i-investments that they're making, uh, can withstand regulatory scrutiny, right? And so we're, we're making the assumption, we have to, that all of these structures that we are building will, at some point, sooner or later, uh, be reviewed by a regulator. Maybe that never comes to pass, but you have to build them with that in mind. And our clients are-- That, I mean, that's why they invest, uh, you know, in, in, uh, you know, people like us to, uh, help give them some comfort that what they're doing here is gonna work, uh, and that we're, we're constructing something that's durable and can withstand that kind of scrutiny. Uh, so they have, uh, billions of, of dollars of worth of reasons, uh, to, uh, try [00:46:00] to make sure that they are constructing these in a way that complies with applicable law. I would agree. I mean, just my experience in dealing with institutional investors, they bring a certain amount of discipline and scrutiny that may not exist. Um, these, these entities may, may be better, uh, m- or more well-run and aligned with the requirements. Um, you bring an outside investor in, they don't just ask questions about new revenue. They ask all sorts of risk management scenarios, people risk, um, info sec risk, because anything that happens that impacts their investment, they wanna be aware of and understand the mitigation strategies in place. So I agree with you. I think it will bring more discipline and operational, um, excellence because the, the investors will demand it. [00:47:00] Um, so that makes a lot of sense. Well, we're out of time. I could literally have, uh, uh, t- I could talk another hour on this topic, and, um, I really appreciate both of you, uh, taking time. I know how busy you are, and, um, I appreciate you spending a few minutes with us to talk about all of the, your deep expertise on this topic. Well, thank you so much for having us. Yep, we enjoyed it. Thanks, Ted. Awesome. All right. Hope to, hope to see you soon. We'll talk to you soon. All right. Bye-bye. Thanks. Thanks for listening to Legal Innovation Spotlight. 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