“You cannot override market forces …. We cannot secure your future for you, you must secure your own future.”
John Wotton, Law Society President, 17th October 2011

With these words, John Wotton made it very clear that the profession needs to start taking responsibility for itself in the business arena. Speaking at the Sussex Law Society Annual Conference, he said that many solicitors are very worried about the fundamental changes they are now facing and that he doesn’t have a crystal ball. “It would be wrong to say that everything will be fine”. He confirmed that times could be very difficult for small high street firms who will particularly be in the eye of the oncoming storm. ABS is a driver of change and it isn’t the only one. Reduced availability of legal aid and the changed expectations of both clients and younger lawyers will also drive that change.

It was clear from his address that the Law Society is has a better understanding than many of its members of the challenges firms are facing now. Indeed it seemed at times as if both he and his co-speaker, the Chair of the SRA, were trying very hard to wake the legal profession up. There is a real fear amongst observers of the profession that it will sleep walk its way into a very avoidable disaster.

John Wotton advised delegates that a big issue is now risk management, which is why outcome focused regulation has been introduced by the SRA. Whilst he didn’t put it in these terms, it is clear that solicitors must understand the fact that risk management starts with having a plan for the survival of their firm in face of the oncoming commercial storm.

The President reminded delegates that risk management is important to clients – 47% indicated exactly that in the latest survey figures available to the Law Society. And he invited lawyers to consider this in positive terms. He pointed out that lawyers have an enviable reputation for the level of their training. They offer great guarantees of service through their regulatory structures, their Code of Ethics, indemnity insurance, the SRA and the ombudsman. These are all huge selling points in the new marketplace that is opening up.

The clear message is that ABS is the game changer. It offers much wider business opportunities than law firms have had before and it may well dilute our current perception of what a law firm actually is. Those opportunities though are the point for a well managed and entrepreneurial firm. Investment, partners from other professions and an opportunity to create a more commercially adept business is there for the taking now. He made a particular point of highlighting how the use of a good, well informed website will provide many ways of breaking down a client’s reluctance to instruct a solicitors firm.

The other clear message is that firms need to act now, a message echoed very strongly by the individual presidents of the local law societies who had come together for this conference. There is a gap opening up between the firms who have grasped the opportunity, as well as the challenge, in front of them, and those who are building their own self-fulfilling doom prophecies by doing nothing.

photo courtesy of Mike Quinn’s Profile on geograph.or.uk

Justice Secretary Kenneth Clarke has expressed the hope that the advent of alternative business structures could have as dramatic an impact on legal services as the so-called ‘Big Bang’ of 1986 had on the financial sector.

He was speaking on Wednesday at the CityUK Future Litigation event held at the offices of Clifford Chance. He said: “As for domestic regulation, we are less than a month away from an historic change – the introduction of Alternative Business Structures on October 6 that will allow solicitors, barristers and other professionals to combine together in new ways, should they choose to, for the benefit of the consumer. Time will tell, but I hope that comparisons with the Big Bang in 1986 do not prove entirely fanciful.”

The Big Bang refers to Margaret Thatcher’s deregulation of financial markets in 1986, which involved measures including abolition of fixed commission charges, of the distinction between stockjobbers and stockbrokers, and the move to electronic, screen-based trading. The day the London Stock Exchange’s rules changed, 27 October 1986, was dubbed ‘Big Bang Day’. The effects of Big Bang were dramatic, with London’s place as a financial capital decisively strengthened.

For many lawyers the advent of ABS is nothing less than Armageddon, and the justice secretary conceded he was aware that some voices have expressed a “degree of nervousness about ABSs.” He said that his intention is that the new structures will be of benefit both to the economy and to the profession by improving growth in the legal services market, whilst protecting standards. “Through allowing law firms and Chambers in England and Wales to access capital, ABSs could provide greater flexibility to serve clients, increase competition and afford new opportunities for global expansion into legal services”, he said. He was conscious that this is a time of uncertainty, with particular concerns regarding the pace of change, the fate of smaller firms and the implications for quality. But he affirmed: “My priority is that ABSs help firms to work together in an economically viable set-up and that’s why we’ve taken our time in trying to get the regulatory framework right. It is important that consumers, no matter whether using a traditional law firm or a new ABS firm, are provided with first class service and protection.”

Which is fine, and no-one is arguing the toss on that point anymore. The concern is that lawyers themselves will allow the fear of this change to stop them like rabbits in the headlamps when they should regard themselves as having the upper hand. It is they that have dominated the legal marketplace for centuries and they who have all the experience. Changing the way they sell and operate is what the fight it about, not changing the work they do. Tesco law remains the stalking horse but it is time to make sure that club card points don’t ever become a substitute for great legal services.

Image courtesy of conservativeparty’s photostream on flickr

6 October was the date on which the first alternative business structures (ABS) should have been able to open for business in the legal services market place in England and Wales. But now there has been a delay, and it will probably be at least the end of the year before non-lawyers can fully own and invest in law firms.

An ABS is a firm where a non-lawyer is a manager of the firm, or has an ownership-type interest in the firm. A firm may also be an ABS where another body is a manager of the firm, or has an ownership-type interest in the firm and at least 10 per cent of that body is controlled by non-lawyers. Under the proposed rules, ABS are not limited in the services that they can offer to the public. The Act is designed to liberalise the £23bn UK legal market by allowing companies to provide legal services, and will permit firms to float on the stock market or seek external capital. The expressed belief is that ABS will bring benefits to consumers through increased competition, the development of new services and ways of delivering them and the integration of the delivery of legal services with other related services.

The Ministry of Justice has informed the Solicitors Regulation Authority (SRA) that parliamentary approval processes will not be completed in time for the SRA to be a designated licensing authority for alternative business structures (ABS) on 6 October, as originally planned. According to LegalWeek, parliament needs to approve the appeals process before allowing the SRA to start licensing ABSs. Provisions must also be made to enable the SRA to check spent convictions of potential owners of law firms.

On their website SRA Chief Executive Antony Townsend said: “We were on track to license ABS from 6 October, so it is disappointing to learn that we will not be able to do so. We will work with the Ministry of Justice to do all we can to speed up the process. But we are in the hands of the parliamentary timetable. It seems unlikely that we will be able to license ABS much before the end of the year, and we shall make further announcements as soon as we have more certainty.”

ABS is the tipping point for the commercial future of the legal profession. The difference is, perhaps for the first time, we will see how non-lawyers will seek to change the way law is practiced in England. The battleground will be online and the future belongs to anyone who uses it well.

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Lord Hunt of Wirral was commissioned by the Law Society in October 2008 to advise on what was needed to establish best modern practice in the regulation of solicitors. His terms of reference were:

‘In light of current and forthcoming changes in the Legal Services market, the differing needs of different types of client, current regulatory debates and the need to promote equality and diversity, to consider the appropriate regulatory rules, monitoring and enforcement regime to ensure high standards of integrity and professionalism for solicitors and their firms in all sectors, and to make recommendations.’

This week the Law Society published his report. In his ‘Welcome’ to the report, Lord Hunt acknowledged that the legal sector is undergoing a radical transformation. Alternative Business Structures will have to be assimilated into the legal regulatory system, the ever changing demands of clients will need to be satisfied, and English and Welsh law must maintain the high international reputation which provides so many business benefits for the UK. “For these, and many other reasons, it is critically important that the regulatory system is constantly revaluated to ensure it is fit to meet both new challenges, and long standing regulatory needs”.

Lord Hunt makes 88 specific recommendations, and there are four main themes in the report. He stresses that all firms must be regulated to the same standard, by a knowledgeable and credible regulator and in accordance with the well-established BRE principles of better regulation. But this does not mean that every firm should be treated in the same way. He advocates a system which he describes as Authorised Internal Regulation (AIR). AIR will be available to all firms, not just those concentrating on corporate work, who demonstrate their willingness and ability to set up internal governance standards that are robust enough to secure compliance. Secondly he recommends the extension of the regulatory net to include will writing, claims management companies and all of probate, as these are complex matters with potentially far reaching consequences.

Lord Hunt recommends that legal professionalism should be translated into regulatory principles. He says it is essential to base any regulatory system in a strong and transparent theoretical framework, ensuring that it has the necessary resilience and flexibility to adapt to the changing world in which it operates. His view is that legal professionalism, rooted firmly in the concept of the rule of law, provides a sound base for the regulator to build on. The fourth theme concerns the regulation of Alternative Business Structures (ABS). He does not oppose the 2011 launch date, as proposed by the Legal Services Board, but stresses the importance of getting it right. It is crucial that appropriate public and consumer safeguards are put in place. Regulators must be clear about the information they require, the scrutiny they intend to undertake, and how they will deal with regulatory breaches. He recommends that ABS should be subject to the same regulatory requirements that govern other law firms.

Bob Heslett, President of the Law Society, welcomed the report and said “Lord Hunt has set out an imaginative and thought provoking blueprint which I am confident will be invaluable to the SRA [Solicitors Regulatory Authority] as it charts its way forward for the future. We look forward to working closely with the SRA as it develops its approach.”
The full text of Lord Hunt’s report can be found at:

http://www.legalregulationreview.com/files/Legal%20Regulation%20Report%20FINAL.pdf