Beyond Clementi

“Just one area being explored in extensive research being carried out by Practical Solutions on behalf of the Legal Software Suppliers Association (the LSSA) - involving more than 50 hours of interviews with law firms, business clients and introducers - is the potential impact of the new business structures that will probably soon become possible for delivering legal services – the “Alternative Business Structure” or “ABS”

Not radical enough?

The government clearly has its own agenda when it comes to legal services. When Sir David Clementi filed his report and recommended that it might be wise to take the cautious approach of introducing Legal Disciplinary Practices (LDP) before moving on to Multi Disciplinary Practices (MDP), the Government decided to go further. Much further!

In the Government’s White Paper – the Future of Legal Services: Putting Consumers First – published in October 2005, we see for the first time, the more progressive proposal to introduce even more flexible, licensed “Alternative Business Structures” (ABS) which present a very different challenge and opportunity, both for lawyers and for other potential providers of legal services. Some of the key features:

Non-lawyers and lawyers can be partners or directors, to work together on an equal footing;
External investment will be permitted.
There will be safeguards for consumers “to ensure high standards of quality, propriety and independence in the delivery of services”
The Law Society is one of the organisations that can apply to the Legal Services Board to be one of the regulators of ABS’, but there will probably be others. The influence of lawyers is being diluted to make sure that a more commercial approach will prevail;
Regulators will apply their judgement on the basis of the business plans presented to them in granting licences.

This should release some business-minded lawyers to conjure up new, more flexible offerings of a mix of services to customers that include legal, but much more too. However, it also opens up equally interesting new opportunities to non-lawyers, levelling the playing field dramatically for potential new entrants to the legal services market.

The market & the opportunities

Just a few of the relevant key themes we developed in the report that came from our research for the LSSA are the need to:
Move untrained and unskilled managers away from management;
Consolidate so that they can benefit from otherwise costly administrative support;
Collaborate with other law firms and business partners to provide better solutions;
Be more flexible, innovative and receptive to new ways of working that improve the legal experience for customers;
Use the technology tools already available to improve communications and cut costs;
Improve treatment of people and their working environment to keep good people;
Apply strong leadership to support changes in culture.

There are clear opportunities for lawyers who are prepared to be innovative in a new business environment where consolidation of providers, collaboration between business partners, increasing sourcing of work through introducers and commoditisation of many legal services for legal customers are all recognised as inevitable – in crime, family, personal injury, commercial property and residential property … for starters.

Better prospects?

On condition that there is a sustainable and appropriate business plan approved by an appropriate regulator (who may well not be the Law Society), here is an opportunity to:

Operate as a corporate enterprise, with devolved management responsibilities and options for flexible share ownership for lawyers and non-lawyers;
Generate commercial finance to expand the business and invest in large-scale capital projects, such as facilitating technology;
Deliver a range of legal and non-legal services;
Bring in professional managers to run the business;
Broaden your exposure to a wider range of business opportunities within a more flexible business organisation.

No U-turns likely

Don’t allow yourself to become complacent because you feel they’ve talked about changes in the past that haven’t come to fruition. This is being driven by the EU to defeat anti-competitive practices across Europe as part of a concerted initiative that is at the core of EU policy.
Perhaps more importantly, now the cat is out of the bag and this model is up for discussion, most businesses and members of the public like it. So it’s time to start remodelling your business and the way you work to take advantage of it if you possibly can. This will happen within the next 10 years … if not tomorrow. This model fits with the way legal business is developing and what most customers believe they want.

Is it good for lawyers?

Are there enough business-minded lawyers around who are innovative and enthusiastic enough to make the changes that will keep competition from beyond the profession at bay? Does it matter if they can’t? For some it will – which will be an obstacle to innovation and change in established law firms. There are some understandable obstacles in the way here.

Successful legal firms and equity partners don’t want to lose out financially. They may struggle to find the incentive to change unless they operate in areas where they recognise that pressures to improve the client focus and to re-engineer the way service is provided are likely to make them a less attractive option in the future.
But this is true in almost every area of legal practice. It may be more visible in some that have already become more “commoditised” - particularly where collaborative relationships with business minded introducers have moved client service and real service standards to the fore, in residential conveyancing and personal injury work.

On the other hand, there has been a tendency for frustrated lawyers with business acumen to jump ship and set up a niche practice from scratch without the traditional baggage. This will probably happen more often in the future and it presents quite an opportunity for some. Perhaps they will more often become the Head of Legal required by an ABS to provide the legal content of their range of products and services.

Some current introducers of business will roll their services into legal firms that will take the lead in an ABS and vice versa. Some legal firms will provide services through an ABS that might outsource niche legal work to specialists.

There are many options to explore to guide your plans for your practice, but the danger is that fear and uncertainty could leave too many lawyers so unsure about what to do next that they do nothing at all. Most firms need to take radical action to achieve radical change in a short period of time, where the traditional, conservative approach won’t produce results quickly enough. 10 years will pass remarkably quickly, so it’s time to get started now.

Early conclusions

Rather like the old Legal Aid Board’s Franchise scheme, which resulted in genuine improvements in the internal management of legal aid firms, perhaps discussion of the options that an ABS might realistically open up will be a catalyst for new initiatives amongst legal practices of all sizes – from sole practitioners upwards.
If lawyers had been more pro-active in marketing their personal injury services effectively when advertising restrictions were lifted in the past, we would be in more control of the personal injury market – not paying huge introduction fees to claims management companies. If conveyancers had been trained to sell conveyancing services, then the public would be choosing who handles their conveyancing based on who provides the best service, rather than who costs least, which currently allows the estate agents to earn a premium because they know how to “sell”.

Here is another opportunity that reflects the need – being confirmed in our research - to change the way that lawyers operate, to fit what customers want. An ABS is not a solution for everyone. Legal practices will continue as legal practices, but they will complete with ABS-style one-stops shops that will be managed professionally.

There are some characteristics of ABS-contenders here that ought to be investigated, adapted and applied in developing your business. Lawyers should be capitalising on the potential that most keep locked away because we are so focused on getting the legal work done. The comments of two senior executives from major providers of legal business are fairly representative of introducers of business generally and of frustrated professional managers working in legal practices:

“Lawyers are generally hard working, dedicated, with clients’ interests at heart, but they are not great at running a business. Sometimes they are determined to provide a Rolls Royce when a Mondeo would do just fine.”

“Generally they are technically good and know their stuff, but most are not commercially aware. They need to be brought into the 21^st Century. They need to work smarter. I want them to be more pro-active about the solutions.”

It is time to break the mould in more areas of legal work, where lawyers should be pro-active in restructuring the business to play to their strengths, filling the gaps.
Business priorities and development options, including movement towards an ABS, vary depending on the size of your firm and the types of service and clients you deal with. These have been explored in more depth in the conclusions to our in-depth report, recently published by the LSSA in February 2006.”

Allan Carton
Practical Solutions
www.inpractice.co.uk
acarton@inpractice.co.uk
Tel: 0161 929 8355
Mob: 07779 653105

Published on: 01-08-2006