Shadow shares for law firms who handle company-influencing matters

If a client issues stock to a law firm, most commonly the client lacks cash to pay in full for the firm’s services. During the boom days of Silicon Valley, it was not uncommon for stripling companies to pay their law firms cash and also to issue them stock. Apparently the debate continues, at least in Britain according to Legal Week, Vol. 8, April 6, 2006 at 10, where 42 percent of the law firms responding to a survey favor the tactic – they would accept stock in payment of fees – as against 58 percent who would not.

Might a company, facing a huge lawsuit or company-defining transaction, say to its lead law firm: “We expect a discount from your standard fees, but if our stock price one year from the closing date (or resolution of the matter) has risen from today’s price, you will get that percentage rise applied to your fees.” Hence, if the discount was 10 percent but the price of the company’s shares rose 15 percent after the major legal event, the firm would earn back the discount, plus 5 percent.

OK, calm down. Don’t take any part of this idea to heart, but only to illustrate linking legal outcome to share price. I don’t even know if such an arrangement is legal, but perhaps shadow shares as a form of sweetener could alter the performance and economics of very expensive law firms.

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