Law Firms’ Debt Secret

Debt. Almost everyone has some. Should law firms?

I'm Paul Hodkinson, Editor-In-Chief of Law.com International, bringing you this week's edition of The Global Lawyer.

Debt has long been a dirty word in law firm circles. The idea of relying on bank loans to fund a legal partnership feels both low-grade and risky.

But law firms are outliers in the business world. Most large institutions see debt as an important tool to helping them achieve their aims. Apple, one of the world’s largest companies, has around $100 billion of debt.

According to data from Law.com Compass, only 38% of Am Law 200 law firms have any debt. This jumps to 65% among U.K. Top 50 firms, but that number has been falling and still remains low compared with listed corporations.

You can get a feel for how comfortable firms feel about the concept by how open they are about it. The topic is like a secret among law firm leaders, only revealed in vague terms or via historic account filings.

Freshfields Bruckhaus Deringer is one of the world’s oldest legal institutions and I’d wager it has never held any debt before now. Even insiders don’t seem to know for sure, but the firm’s historic limited liability partnership accounts—which go back to 2009—certainly indicate this.

So why have the firm’s latest accounts, as of April 2023, suddenly shown debts of nearly £90 million?

I propose one obvious reason, one less obvious one and one foreboding long-term problem...

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