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Law firm management

Big bang or drop in the ocean?

The Authorized Revolution in legal services in England and Wales

The UK deregulated the legal services market in England and Wales with passing the Legal Services Act (LSA) in 2007. This harbinger of change ushered in two new regulated entities to deliver competitive legal services: Legal Disciplinary Practices (LDP) and Alternative Business Structures (ABS). LDP are firms with different kinds of lawyers and up to 25 percent of nonlawyers providing legal services. ABS allow external ownership of legal businesses and multidisciplinary practices providing legal and nonlegal services.

ABS provide an opportunity for increased investment to improve the efficiency and lower costs in delivering legal services and allow for integrated legal and other professional service offerings. The alternative entities also aim to improve consumer choice and value and remove existing restrictions on ownership of law firms.

Although the global financial crisis in 2008 applied inexorable pressure to change the legal services market, the crisis affected the corporate sector with implications to make transactions and litigation less costly and more efficient. The financial crisis provided little impetus to the LSA and ABS, which focus on high-street legal services to consumer households, e.g., conveyancing, personal injury and will writing.

On 31 March 2009, provisions in the Administration of Justice Act 1985, the LSA, and amendments to the Solicitors’ Code of Conduct came into force to permit LDP, with owners and managers not exclusively solicitors or lawyers. With LDP, firm-based regulation also came into effect.

In October 2011, the Council for Licensed Conveyancers licensed the first ABS. In January 2012, the Solicitors Regulation Authority (SRA) accepted licenses from prospective ABS and in March 2012 the SRA licensed the first ABS.

ABS: A drop in the ocean

By April 2015, the SRA had licensed 375 ABS. The 375 licensed entities pale compared to the 10,316 solicitor firms in England and Wales. Of 3,567 incorporated firms in the legal market, 230 are ABS; of the 1,560 LLPs, 114 are ABS; and of the 5,143 entities that are sole practitioners or unlimited partnerships, 31 are licensed ABS entities. Pop goes the revolution: ABS are a drop in the ocean compared to traditional law firm structures.

Chart shows the breakdown of ABS and Solicitor firms

Although ABS have not taken the high-street legal services market by storm, they remain crouching tigers everywhere in England and Wales. ABS are a nation-wide phenomenon with the highest concentration in London and in the industrial centers of Bristol, Birmingham, Liverpool, Manchester and Sheffield.

ABS are predominantly one-office solicitors, sole proprietors or small pools of lawyers and professionals providing legal and multidisciplinary services. Large law firms don’t regard ABS as an opportunity. They have already accomplished much of what the LSA does for high-street firms, such as adopting new service offerings and practices, improving efficiency in delivering services, applying alternative billing practices and implementing new technology. For global firms, an ABS is perceived to inhibit a one-stop shop for legal services to international clients that operate in multiple regulated jurisdictions that may not allow ABS.

Despite the low turnout for ABS, there continues to be motivation to establish the new entity in existing corporate forms, such as Limited Company, LLP and PLC. The limited company is the dominant form. Many high-street solicitors seek scale and brand visibility in an ABS to provide residential conveyancing, divorce, personal injury claims, will writing, etc. Nonlegal entities seek to complement nonlegal services, such as insurance claim handling and motor claims, with legal services. PLCs are adding complementary professional services and diversifying services by moving in-house legal teams externally.

There are also ABS entities bringing to the legal market new technology, such as online document automation and data analytics, and new business models, such as alternative and fixed fees for transactions typically accomplished by contingent fees or the billable hour.

Unlike large law firms, no accounting firms are too big for ABS. Three Big Four accounting and auditing firms are licensed ABS entities, adding complementary services to advise customers on tax law, banking and finance, corporate structure and human capital. This relatively new phenomenon is exemplary of a multi-disciplinary ABS that poses a competitive risk to large non-ABS law firms.

Chart shows why ABS firms are registered: They are responsive to customer needs.

The accounting firms can hire solicitors and qualified barristers to potentially go well beyond complementary legal services. And the Big Four accounting firms are ahead of large law firms in implementing workflow efficiencies and process mapping. They have long been under strict accounting standards and regulatory frame-works and have not been confined by legal jurisdictions.

Except for a few, most ABS are licensed by the SRA to provide reserved legal services under the LSA: exercising rights of audience to appear in and conduct court  proceedings;  conducting  litigation; engaging probate activities and reserved instrument proceedings, such as conveyancing; and administering oaths.

From SRA surveys with ABS and applicants that withdrew from the licensing process reported in May 2014, ABS practice areas appear responsive to consumer needs. Over 80 percent of ABS are registered to litigate personal injury claims, write wills and trusts, and provide tax planning. Almost 80 percent have employment practices and over 60 percent are registered to  provide legal services in residential property, family and matrimonial issues. Approximately 55 percent of ABS practice probate and landlord-tenant law.

The turnout has been small but the potential remains for ABS to change the delivery of legal services in England and Wales. Although the LSA has introduced an authorized revolution in legal services, structure alone will not bring about change. There has to be a will and a mind-set in the management team to bring about change, facilitated by the new capital structure and the availability of multidisciplinary services. External investors and nonlawyer managers will ask the tough questions, set difficult goals and hopefully change the ways law firms operate and how legal services are delivered.

This article is based on a presentation made on April 24, 2015, by Professor Mari Sako, Center for Professional Service Firms, Saïd Business School, University of Oxford, at the Georgetown University Law Center conference “Authorized Revolution: Regulatory Disruption of the Legal Services Market.”

About the author

Marie SakoMari Sako is professor of Management Studies at Saïd Business School and a member of the Centre for Professional Service Firms, University of Oxford.

She is a socio-economist with expertise in global strategy, outsourcing and offshoring, and professions.

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