Resolution or revolution?
Date: 07 October 2011
Authors: David Greene
Issue: Vol 161, Issue 7484
Categories: Opinion, Legal services
The Legal Services Board (LSB) recently published a report prepared by consultants Oxera into the monitoring of changes in the legal service sector (A framework to monitor the legal services sector, 20 September 2011). The report follows in the wake of the Legal Services Act 2007, Pt 5 of which is now being put into effect with the introduction of alternative business structures (ABS). The report seeks to establish monitoring tools to measure changes in the business of law. For those involved in litigation, however, this change in the structure of law firms is but the latest in the constant revolution for supply of legal services in the sector.
Lord Woolf’s legacy
The revolution for litigators started ten years ago with Lord Woolf’s report and the changes to civil procedure that flowed. Such have been, and continue to be, the changes, that it is difficult to sit back and see not only where we have been but where we are going.
The Woolf reforms did not achieve all that was intended of them. Ten years of satellite litigation has followed. Contrary to intention the costs of litigating didn’t go down, they went up. One lesson we have learnt is that this is a very complex area to try to manage and there can be dramatic unintended consequences. The Oxera report tries to draw on that experience.
What to expect post-Jackson?
We can expect much the same following Jackson but, in addition to procedural changes, we are also going to see as part of this package some more fundamental changes to the way in which we run our practices. The introduction of ABSs on top of the Jackson changes has the potential for a potent mix for litigators.
Can we foresee where our practices are going? Some are trying to stay one step ahead of the changes. The idea behind “QualitySolicitors” is to build a brand in a way perhaps alien to legal services. Other firms have grabbed at the concept of ABSs and say they will immediately establish an ABS and seek third party finance.
If the process of changes in practice and the way that we run our practice has already started, will the inception of ABS speed up change? Will solicitors meet and drive change or will others, such as claims management companies (CMCs), take the initiative.
Non-lawyers take the wheel
ABS is a “new form of practice that will allow non-lawyer organisations to provide reserved legal services”. There is relatively minimal requirement for the presence of solicitors or barristers within the organisation, save that there must be at least one lawyer manager. The opportunity for non-lawyers to drive the process is substantial. Further there is concern that with regulatory competition between the SRA and other regulators there will be a race to the bottom in regulation so that the SRA will be competing in providing light “outcome focused” regulation.
In terms of our practices, the question on many solicitors’ lips is whether they should be looking at establishing an ABS and attracing outside investment. Those at the top of the tree, the City firms, would probably say that they have sufficient capital to run their businesses and expand. For those in the mid-tier, the initial reaction has been that their businesses are not run in a way that is immediately attractive to outside investors. Solicitors may be used to the way that they run their practices in an almost individualist commercial sense. They know their clients and know how to trade profitably. Their business model is, however, often difficult to squeeze into the box that secures investment.
Commoditised litigation services
The place where external investment looks more likely is in the ever-growing commoditised litigation services. The interest for investors (mainly through CMCs) has tended towards the personal injury market but recently there has been a growth in commoditised financial services claims.
The commoditisation of these types of claims has been ongoing now for some 10 years. CMCs have been growing alongside. One can see the permanence of their place in the marketplace by the imposition of regulatory control. CMCs have increasingly been taking work in-house and use solicitors in limited circumstances. This growth in CMCs and the commoditisation of their service is likely to drive them towards establishing ABSs. Further, with a proposed ban on referral fees in personal injury cases, the CMCs will see their relationship with solicitors change.
Can solicitors compete with CMCs?
It remains to be seen whether solicitors are in a position to compete with the CMC’s to secure this work. It seems likely that there is going to be a squeeze on smaller firms and sole practitioners to undertake personal injury work.
Those firms must also consider the challenges they face in the remainder of their work. Conveyancing is also commoditised. Solicitors have been facing challenges for many years with a drive to the bottom in terms of both quality and cost. We are already seeing challenges in other areas of the practice such as will writing and probate. This is all bread and butter stuff for practices and absent it there will be increasing strain on the smaller firms. They can survive in this new atmosphere but they are going to have to respond to it collectively and aggressively.
For solicitors generally the adoption of opportunities offered by ABSs may be a slow burn process but for commoditised services the pressure will come from outside the profession and it needs to be met or solicitors will be left behind.
David Greene, senior partner, Edwin Coe LLP & consultant editor of NLJ.
E-mail: David.Greene@EdwinCoe.com Website: www.edwincoe.com
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