Financialization and Organizational Change in Professional Service Firms: The Case of Externally-Owned Alternative Business Structures in England and Wales

Financialization is a distinct form of capitalism, elevating the significance of financial markets, financial actors and financial motives (Cushen and Thompson, 2017). At the organizational level, financialization entails the process by which external financial actors are able to influence or control the internal organizational strategies and management practices of non-financial firms (Batt and Appelbaum, 2013). To date, scholarship exploring financialization in the context of professional services has largely focused on firms owned by professionals (e.g. Faulconbridge and Muzio, 2009; Alvehus and Spicer, 2012). Yet, with regulatory reform in some countries enabling the emergence of publicly-owned accounting and law companies (Pickering, 2012) our knowledge of how financialization may affect externally owned PSFs is sparse. Taking the legal services field in England and Wales as an illustrative case, we focus on a new a type of legal practice – Alternative Business Structures – and draw on qualitative interviews undertaken with senior lawyers and investors to illustrate an intensification of performance monitoring, managerial control, and a professionalization of governance following a change in firm ownership. We compare the different financialization approaches adopted by investor type – private equity (Wright et al., 2013) and publicly listed companies (Roberts, 2001) – illustrating that, in accordance with the corporate finance literature (Kaplan and Strömberg, 2009; Gompers et al., 2015), the two investor types differ as to the performance metrics they prioritise. Our study also provides insights as to why legal practices in sub-fields are more inclined to seek external investment and which investor type is likely to be preferred. Faulconbridge and Muzio explained how a proxy indicator (PEP) “unexpectedly reproduced the logics of finance capitalism” amongst large law firms (2009: 659). Building on this, we show how financial logics have permeated other sub-fields.