Alternative Business Structures Q&A with Neil Rose, editor of Legal Futures and Litigation Futures
As part of Moore and Smalley’s Financial Stability for Law Firms series, we talk to Neil Rose, editor of Legal Futures and Litigation Futures, to gain an insight into how Alternative Business Structures, and a host of other pressures, are changing the legal sector.
Q. Neil, you’ve been reporting on the legal industry for 19 years. Has the pace of change over the last two years taken you by surprise?
Bill Gates is quoted as saying that less happens in two years and more happens in 10 years than you might think. And the fact that we haven’t seen anything truly jaw-dropping since the start of ABSs makes some people think that not that much has happened. But in fact, it has. Ten years ago just the thought of a non-lawyer being a partner in the law firm would have been unthinkable, and since 2012 we’ve had an incredibly wide range of new legal businesses take off. Though only 270 or so ABS licences have been granted in that time, there are some big businesses in that number and it doesn’t take into account the new legal services providers that don’t need an ABS licence but have been inspired by the general mood of innovation.
Q. Give us a flavour of some of the ABSs that have sprung up and how this is increasing competition?
There’s a really broad spectrum. At one end you’ve got big brands – Co-operative Legal Services, Direct Line, the AA, Saga, Admiral Insurance and so on – and at the other small practices bringing a non-lawyer into partnership.
There is a huge spectrum in between. There’s private equity (including from James Caan of Dragon’s Den fame); a trade union part-owning an ABS; a law centre setting up a for-profit ABS to funnel money back into its not-for-profit work; previously unregulated legal businesses embracing regulation; in-house legal teams effectively turning from cost to profit centres; and a range of businesses adding legal services to what they already offer their clients.
Q. But it’s not just big players is it?
No, there are lots of niche practices, from a business that specialises in helping wealthy Russians relocate to the UK that can now include legal advice in its mix, to the Country Gentleman’s Association, which already offers financial advice to its 15,000 or so members.
Barristers’ chambers are also exploiting ABSs. Richmond Chambers, which specialises in immigration work, was the first ABS not to include a solicitor and is a chambers run as a law firm.
While we’re yet to see a true multi-disciplinary firm emerge, you’ve got other professions looking to encroach further into areas of work traditionally done by lawyers, for example accountancy firms looking at doing probate work and so on.
Q. There’s been a sharp increase in business failures in the legal sector. Will this continue?
We’ve seen failures across the board, from the largest firms to the smallest, from corporate to conveyancing. Many of the characteristics of failing firms – as laid out by the Solicitors Regulation Authority – seem just to be poor business behaviour.
It is trite to say that lawyers can’t run businesses, because clearly some can, but equally quite a few are proving the cliché to be true.
It’s not necessarily competition from ABSs which is driving this. Law firms are dealing with the impact of LASPO, legal aid cuts, unprecedented levels of scrutiny from the SRA, tax changes for LLPs, the changes for conveyancing panels, to name just a few. It’s inevitable we will see more business failures.
ABS is only a means to an end, and we have seen ABSs fail as well, so it’s no magic bullet. But arguably the ability to bring in non-lawyer managers and give them a stake in the business, and perhaps access capital to improve efficiency, helps them in this context.
Q. Are we going to see more mergers?
We already are, but research from other industries shows that mergers often do not achieve what they were meant to. It would seem that too often mergers do not have real strategic thinking behind them, and can even be motivated by desperation. Two plus two doesn’t always equal five. A merger of two weak firms just leads to one larger weak firm.
Q. What must law firms get right to survive in this new legal landscape?
The SRA’s work on financial stability shows they have to get the fundamentals right. For example, there are still plenty of firms where partners are drawing more than the firm is earning – a position which is clearly unsustainable and which banks will not be prepared to fund.
Then there are business fundamentals – solicitor and business development consultant Ian Cooper did some interesting research recently, cold-calling firms to see how they dealt with enquires. The results were damning: 97% of 254 firms he called failed to ask if he wanted to go ahead and make an appointment.
The key lesson of the ABS era is that firms need to strip out the process – that is, the work which can be automated and does not need the attention of a qualified solicitor – and instead focus on the real value they add to a legal transaction. This might mean lower fees for a particular piece of work, but equally the solicitor should spend less time on it (by not spending ages cutting and pasting precedents), so overall the firm benefits.
Q. Has the rise of alternative business structures been a force for good?
It’s just too early to say but as I said earlier, what they have done is inspire people to look afresh at the traditional model for providing legal services. My own experience of that model in recent years has not been a particularly good one, and while research shows a large number of people are happy with the service they receive from lawyers, the proportion who are not is large enough to justify the call for change.
Research throws up issues around cost, transparency and communication too often for it not to be a concern. While there are, of course, many law firms that serve their clients well, I don’t think it is too controversial to suggest that there is plenty of room for improvement. ABSs have concentrated the mind.
Neil Rose is a qualified solicitor and has been a legal journalist for 17 years. Neil has been writing about the Legal Services Act since its genesis and is a recognised market commentator in this area. He founded Legal Futures in April 2010. In 2012, he launched Litigation Futures, the first website dedicated to costs, funding and the Jackson reforms.