The Big Bang Report

Opportunities and threats in the new legal services market

Written by Jon Robins

www.foxwillams.com

Roshan Khan Fox Williams LLPTel: 020 7614 2638 rkhan@foxwilliams.com

Gus Sellitto Byfield Consultancy Tel: 020 7256 4912 gus@byfieldconsultancy.com

For further information please contact:

www.jures.co.uk

The report looks at the impact of the Legal Services Act 2007 on all parts ofthe legal profession from City to high street as well as its impact on non-lawyer businesses offering legal services.

The research is based on more than 50 in-depth interviews with law firms, barristers’ chambers, not-for-profit agencies providing legal advice, representative bodies, prospective new entrants into thelegal services market plus regulators of legal services and government agencies.

The interviews took place between August and November 2009. Respondents were sent the Big Bangquestionnaire, included as appendix 1.

The majority of respondents are listed below, however a number asked for their responses to be inconfidence.

We would like to thank those people and organisations who took the time to help us with our inquiries,including:

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Introduction

3 Hare Court39 Essex StreetA4eAlbert GoodmanAmelansBaker TillyBarlow Lyde GilbertBarlow Robbins LLP BarFuturesBarnettsCitizens AdviceClifford ChanceCo-OpCloistersCubism Law Dale Langley & CoDAS Legal ExpensesDLA PiperEdwards DuthieEpoq

EvershedsFaegre & Benson Field Fisher WaterhouseFirstAssist LegalProtection Insurance ForshawsForum LawFox LawyersFox Williams LLPGeotropes Consulting Gough SquareChambers Guildhall ChambersHalifaxHodge Jones & AllenHorwich FarrellyHugh JamesIan LithmanJomatiKennedy Cater

Landlord-LawLegal Assistance Direct Moorcrofts LLPLBC Wise CounselLegal Services BoardLegal Services CommissionLegal Workflow LimitedLittleton ChambersLyceum CapitalMatthew Arnold &Baldwin LLPMaitland Chambers Outer Temple Chambers Quadrant Chambers Quality solicitorsRickerbys LLPRussell Jones & WalkerRWPSScott-Moncrieff Harbour& Sinclair

Serle CourtSykes Lee & BrydsonSolicitors RegulationAuthoritySolicitors IndependentFinancial AdviceStephensonsSwitalskisTanfield Chambers Taylor Wessing LLP ThompsonsThomson Snell &Passmore TV EdwardsUnderwoodsWhich?Whitehead MoncktonWragge & Co

About the author Jon Robins is a freelance journalist and author (www.jonrobins.info). He has been writing about the law forthe national and specialist legal press for over a decade. His latest book The Justice Gap: Whatever happenedto legal aid (Legal Action Group, May 2009 and written with Steve Hynes) looks at the state of ‘access tojustice’.

Competition is intensifying, as this reportdocuments. What that might mean, whether it isgood or bad for the profession, and whatopportunities and threats the reforms present, isthe subject of this report. The study portrays aprofession in transition.

Many firms and barristers’ sets are looking at thetraditional business model and asking whether it isbest suited to serving their clients’ needs and tocompeting in a different legal landscape. Privateequity firms are sizing up medium sized Citypractices, national players and barristers’ sets.Some firms are actively lobbying the regulators torelax the rules on external ownership ahead of the2011 deadline.

Waiting in the wings are retail giants such as theCo-Op, high street banks such as the Halifax,membership organisations including the consumergroup Which?, insurers such as DAS, as well ascompanies like A4E which hitherto have had littleconnection with the law. All have beeninterviewed for this report and are profiled in thefollowing pages.

In an interview conducted for this report, DavidEdmonds, the first chair of the Legal Services Boardwas asked how radical might be the changes thatare about to be introduced under the LegalServices Act.

The former director-general of Oftel replied bysaying that he had been approached ‘at least’three times over the last 12 months by agitatedlawyers saying: ‘Mr Edmonds, you’re not going tochange something that has over 800 years ofhistory behind it. To which I reply the Legal ServicesAct gives me a set of duties and responsibilitieswhich might well mean me changing 800 years ofhistory - and is the fact that there are 800 years ofhistory necessarily a good thing?’

Legal service providers in all types of organisationswill find this report illuminating, reflecting as itdoes the plans of some, the concerns of othersand the new challenges for all.

Tina Williams Senior Partner Fox Williams LLP, November 2009

The City experienced its own ‘Big Bang’ back in 1986 with the massderegulation of the financial services markets and the banking system. Sofar, the legal profession has proved remarkably resistant to the forces ofliberalisation. However the Legal Services Act 2007 promises to be the legalprofession’s equivalent ‘Big Bang’.

Foreword

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“The Legal Services Act gives me a set ofduties and responsibilities which might well

mean me changing 800 years of history - andis the fact that there are 800 years of history

necessarily a good thing?”David Edmonds, Legal Services Board

Chapter 1: The build-up to the Big Bang• Background to the Legal Services Act 2007. The

present reforms flow from the review conductedby Sir David Clementi in 2003. The Act came intoforce in 2007 and earlier this year there was afirst, tentative toe in the waters of liberalisationwhen non-lawyers were allowed to work inpartnership with solicitors through ‘legaldisciplinary practices’. By 2011, the introductionof alternative business structures is expectedwhich will, as one commentator has put it, ‘blowapart the established conventions’ of the law.

Do you believe that the legal profession has agood public profile? 38% of respondents to theBig Bang survey said ‘Yes’

Does the importance of a good profile increase withthe implementation of the new legislation? 62% ofrespondents to the Big Bang survey said ‘Yes’

Chapter Two: A false start• Since March this year firms have been able to

adopt the new legal disciplinary practices (LDPs)regime with up to 25% non-lawyer partnerscreated under the Legal Services Act 2007. Half adozen respondent firms had adopted or intendedto adopt LDP status.

Chapter 3: A legal services revolution• Alternative business structures, the most

revolutionary aspect of the Legal Services Act2007, will allow lawyers to formmultidisciplinary practices offering legal servicestogether with non-legal services. They will alsoallow non-lawyers, including external investorsas well as the likes of Tesco, AA, banks andinsurers to have a stake in firms.

Is the prospect of ‘Tesco Law’ good for theconsumer? 50% of respondents to the Big Bangsurvey said ‘Yes’

Chapter 4: The fall-out• The Legal Services Act created the new Legal

Services Board as arch regulator ‘with thepower to enforce high standards in the legalsector’. It also created the independent Officefor Legal Complaints to act as an independentombudsman service for all consumercomplaints about legal services.

Will firms come under more media scrutiny as aresult of the regulatory changes taking place? 68%of respondents to the Big Bang survey said ‘Yes’

The Big Bang report is based on interviews with over 50 respondents fromall parts of the legal services industry including solicitors’ firms, barristers’chambers, representative groups, regulators as well as businesses outside ofthe profession providing or interested in providing legal advice.

We used questions listed in the Big Bang questionnaire as a starting point fordiscussion. The substantive part of this report is based on qualitative research.

Separately, we conducted a survey of 50 leading players in the legal servicesmarket on issues to do with the profile of the profession and how thatmight change. Those results appear as pie-charts in this report.

There are five in-depth cases studies profiling non-law businesses withambitions under the Legal Services Act. These appear at the end of the report.

Executive Summary

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By 2011, the introduction of alternative businessstructures is expected which will, as onecommentator has put it, ‘blow apart the establishedconventions’ of the law.1 Alternative businessstructures will enable the external ownership of lawfirms, they will be able to sell private equity andfloat on a stock exchange. The profession will be inthe grips of a full-blown legal services revolutionwhich will redraw the shape of the market andredefine the way that clients access legal advice.

OverviewSome would-be participants are straining at theleash. As we report later, private equity firms aresizing up medium sized City firms, national playersand barristers’ sets and some of those firms areactively lobbying the regulators to start ahead of the2011 deadline.

The purpose of the first chapter is to provide atimeline for the build up to the ‘Big Bang’, in otherwords, a history of liberalisation in the legalprofession. It also considers the forces that have so fardriven reform. The chapter concludes with adiscussion by lawyers as to how the profession isperceived and whether that image will improve as aresult of the implementation of the Legal Services Act.

Building up to the BangThe legal profession has up until recently provedsuccessful at withstanding the general historicaltrend towards liberalisation. But it hasn’t beentotally immune to change and, for example, theAdministration of Justice Act 1985 enabledlicensed conveyancers to compete with solicitors inthe core high street activity of conveyancing.

The solicitor advocate movement has madeprogress in the courts, formerly the exclusivepreserve of the Bar, via the Legal Services Act 1990which enabled solicitors to acquire rights ofaudience in the higher courts. However thispiecemeal approach to liberalisation has beenovershadowed by the scale of the ambitions of theClementi review which began over six years ago.

The first move towards the Legal Services Act camein the form of a wide-ranging Office of Fair Trading2001 paper Competition in Profession.2

‘Competition brings consumers lower prices, morechoice and new services,’ said John Vickers, thenDirector General of Fair Trading. ‘The law to combatrestrictions on competition should apply as widelyas possible and the scope to exclude professionalrules from competition law should be removed.’

His report identified as ‘existing restrictions’ thoseprofessional rules hindering the establishment ofmulti-disciplinary partnerships (bringing togetheraccountants, lawyers and other professionals suchas surveyors and estate agents); limitations onconsumer access (for example, clients couldn’t seea barrister without a solicitor); the ‘dampening ofprice competition’ by fee guidance; as well asreigniting an old debate over the QC rank (‘hard tosee what benefits it brings to consumers and thepublic,’ according to Vickers).

On July 24th 2003 Sir David Clementi, thenchairman of the Prudential, was appointed toundertake a wide-ranging review of regulation oflegal services in England and Wales by theSecretary of State for Constitutional Affairs.

The present reforms flow from the review conducted by Sir David Clementiin 2003. They have been a long time coming and they aren’t quite here yet.The Act came into force in 2007 and earlier this year there was a first,tentative toe in the waters of liberalisation when non-lawyers were allowedto work in partnership with solicitors through ‘legal disciplinary practices’.

Chapter 1: The build-up to the Big Bang

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1 The Times, May 21 2009 (Big Bang will expose law firms to the full glare of competition)2 Competition in Profession, Office of Fair Trading, March 2001

The former deputy governor of the Bank ofEngland terms of reference were as follows: ‘Toconsider what regulatory framework would bestpromote competition, innovation and the publicand consumer interest in an efficient, effective andindependent legal sector. To recommend aframework which will be independent inrepresenting the public and consumer interest,comprehensive, accountable, consistent, flexible,transparent, and no more restrictive orburdensome than is clearly justified.’

Clementi was asked to report back by December2004 and he published a consultation paper inMarch that year. Three ‘particular concerns’ laybehind that consultation:

A concern about the current regulatoryframework. In July 2003, the Department forConstitutional Affairs concluded that theregulatory framework. was ‘outdated,inflexible, over-complex and insufficientlyaccountable or transparent’. ‘Nothing that Ilearned during the 18 month period of myreview has caused me to doubt that broadvalidity of the government's conclusion,’Clementi wrote. ‘The current system is flawed.’

Clementi argued that those failings were partlydown to the ‘governance structures of the mainfront-line professional bodies’ and partlybecause of ‘the over-complex and inconsistentsystem of oversight regulatory arrangements forexisting front-line regulatory bodies’.

A concern about the current complaintssystem. There was ‘considerable concern’about how consumer complaints were beingdealt with. The concern arose on a number oflevels - at an ‘operating level’ about theefficiency with which the systems are run; at‘an oversight level’, about the overlappingpowers of the oversight bodies; and ‘at thelevel of principle’, about whether systems thecomplaints against lawyers, run by lawyersthemselves, ‘can achieve consumer confidence’.

A concern about the restrictive nature ofcurrent business structures. The businessstructures through which legal services were

delivered had changed little despite businesspractices changing. Concern was expressedabout the inability of those with finance or ITskills to become partners. But the main thrustwas directed to opening up the profession.‘There is also concern about whether therestrictive practices of the main legal professionalbodies can be justified, in particular those whichprevent different types of lawyers workingtogether on an equal footing.’

At the time of writing it is the promise of ‘TescoLaw’ that dominates much of the press coverageabout the LSA. ‘Tesco Law’ proved a somewhatslippery concept for our respondents with ameaning relative to where they were placed on thelegal services spectrum and their relationship totheir clients. Despite definitional difficulties it hasbecome shorthand for the ongoing liberalisationencompassing several ideas, mainly:

• the corporatisation of law firms through theexternal ownership of what were hithertotraditional law firms;

• the commoditisation of volume legal services;and

• the entry of retailers into legal services.

Insofar as the Legal Services Act has percolatedthrough to the pages of the national press, overthe last couple of years the main story has beenthe promise of a better deal for consumers.

To commentators outside of the legal press, ‘TescoLaw’ is a very good thing. For years, there has been‘a feeling that the legal profession operates aclosed shop that deters real competition andprovides a cloak of mystification, not least aboutfees, under which tardiness and obscurity canflourish’, according to The Times in May 2009.3

In June 2007 the Sunday Telegraph, in an articleheadlined ‘Tesco takes on “sleepy” solicitors’,reported the UK’s largest retailer was ‘plotting totake on high street solicitors’ by launching aconveyancing service. Although as we discuss later,the ambitions of Tesco in this area appear modestcompared to the likes of Co-Op. ‘The move, which

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3 See footnote 1

could be a prelude to a full-blown estate agencypractice, follows the recent liberalisation of the£20bn legal market allowing companies such assupermarkets to offer legal services to the public,’said the paper. ‘The Legal Services Bill was -appropriately - dubbed ‘Tesco Law’.4

In July 2008 The Observer asked: ‘How much willwe be able to rely on supermarkets’ own-brandlawyers? So-called ‘Tesco Law’ - legal services fromconsumer brand names offering an alternative tothe high-street solicitor - is already availablethrough Which?, the Halifax and the Co-op, butcritics question the quality of advice available.’5

But generally the tenor of the coverage has beenpositive – even in the business press. ‘Competitiondelivers in ways that government bureaucratscannot anticipate,’ reckoned the Financial Times inJune 2006. ‘Consumers can expect more choice,innovative services and lower prices. Familiarbrands such as Tesco and the AA have nothing togain from offering substandard legal services.’6

However it was the issue of complaints that wasdriving change at the beginning of the decade. InSeptember 2000 The Independent reported thatthe then Lord Chancellor, Lord Irvine, had given theLaw Society until the end of the year to sort out itscomplaints handling system. ‘If the Society fails tomeet government targets of dealing withcomplaints, Lord Irvine has threatened to removepart of its regulatory power.’7

The Law Society’s ‘less-than-heroic track-record oncomplaints has dogged the profession for years. Infact, it could well be its undoing,’ wrote the Observerin October 2004. In the same article Which? identifiedthe profession’s inability to deal with unhappy clientsas ‘the greatest threat to self-regulation’ as ministersthreatened the Law Society with a fine of £1 million ifit failed to turn the problem around.8

Many in the profession saw Clementi-style changeas capable of destruction of the law as ‘aprofession’. The more strident voices have beenfrom the Bar (as they are now, see Chapter 2). Guy

Mansfield QC, then Bar Council chief, summed thisup when he said in December 2004: ‘Lawyersbelong to a profession but Clementi uses thewords “legal services industry”. I really don't likethe expression -it creates great anxiety in my mindas to whether he has a real sense of what it meansto be a lawyer.’9

Sir David was ready for the fight. Reform would beresisted by lawyers who were ‘comfortable withthe system as it is’, he said as his report waspublished that month. ‘Changes will requiresignificant political commitment, partly to meetthe expected criticism from some lawyers andpartly because reform will need primary legislation,which requires scarce parliamentary time.’

A white paper based on the Clementi vision waspublished in October 2005 (The Future of LegalServices - Putting Consumers First). The mainClementi proposals comprised establishing anOffice for Legal Complaints to independentlyinvestigate complaints; setting up a Legal ServicesBoard to regulate legal services; and enablingdifferent kinds of lawyers and non-lawyers to worktogether on an equal footing to provide legal andother services.

At the launch, asked whether ‘Tesco Law’ wouldmean reducing a professional relationship to thelevel of buying a tin of beans, the minister BridgetPrentice responded with admirable frankness: ‘Idon’t see why consumers should not be able toget legal services as easily as they can buy a tin ofbeans.’10 Lawyers balked at the idea of a futurestuck on aisle 15 of their local supermarket sellinglegal services somewhere between tinned veg andcleaning appliances.

In May 2009 law firms staged an anti-Tesco Lawprotest outside the Royal Courts of Justice. Theylaunched QualitySolicitors.com, a legal brandbringing together 100 solicitor firms (see interviewwith founder Craig Holt). Lawyers handed out cansof beans with the message ‘Legal services bysupermarkets are as ridiculous as lawyers sellingbeans.’

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4 Sunday Telegraph, June 3 2007 (Tesco takes on ‘sleepy’ solicitors)5 Observer, July 6 2008 (How much will we be able to rely on supermarkets' own brand lawyers?: So-called ‘Tesco Law’, Jon Robins)6 Financial Times, June 6 2006 (The Lawyer doth protest too much) 7 Independent, September 9 2009 (More solicitors than ever accused of misconduct) 8 Observer, October 17 2004 (Flaw Society, Jon Robins)9 The Times, December 14 2004 10 Daily Telegraph, October 18 2005

The law ‘isn’t about selling baked beans’, DavidEdmonds, the chairman of the Legal Services Boardasserted when interviewed for this report. His deskwas adorned with six artfully stacked cans ofdifferently-branded beans. ‘But in a baked beanmarket, as I have demonstrated for myself inrecent weeks, there’s a heck of a lot of differenttypes of beans,’ he reflected. ‘I want to see avariety of provision in legal services which goesright from the difficult social welfare case all theway up.’

In October 2005, Lord Falconer, then Secretary ofState for Constitutional Affairs and Lord Chancellor,said reform of the legal services market wasneeded ‘to put consumers first’. ‘Legal services arecrucial to people's ability to access justice for all.Consumers need and deserve legal services whichare effcient, effective and economic. Our proposalswill help deliver that.’

The Legal Services Bill was introduced to Parliamentin November 2006 and received royal assent inOctober the following year. It promised to:

• create a single and fully independent Office forLegal Complaints ‘to remove complaintshandling from the legal professions and restoreconsumer confidence’;

• introduce alternative business structures that‘will enable consumers to obtain services fromone business entity that brings together lawyersand non-lawyers, increasing competitivenessand improving services’;

• allow legal services firms to have up to 25%non-lawyer partners and to allow differentkinds of lawyers to form firms together in thenear future;

• create a new Legal Services Board ‘to act as asingle, independent and publicly accountableregulator with the power to enforce highstandards in the legal sector, replacing the maze of regulators with overlappingpowers’ chaired by a lay person; and

• deliver a ‘clear set of regulatory objectives forthe regulation of legal services.

So where are we up to now? The Legal ServicesBoard was set up 15 months ago – see interviewon page 6. The Office for Legal Complaintsreplaces the Legal Complaints Service next year. Asmentioned earlier, legal disciplinary practices (LDPs)were introduced on March 31st this year (allowingLDPs to be owned by different types of lawyer and / orup to 25% non-lawyers) and the LSB has as its‘objective’ that the first alternative businessstructures licences should be granted ‘mid-2011’.

LSA: opportunity or threat?The first questions we asked our respondent-practitioners related to self-image. Did they believethat the legal profession had a good publicprofile? Would liberalisation of the legal servicesmarket give the profession a better profile? Did theimportance of a good profile increase with theimplementation of the new legislation?

Of course, the answer depended on whererespondents found themselves in the legal servicesmarket. Richard Barnett, senior partner at thenational volume conveyancing firm Barnetts,offered a ‘three-tier’ dissection of the legalprofession. ‘If you’re talking to someone who isbanged up on a regular basis and gets access tothe duty solicitor scheme, they’d say it is a verygood system,’ he began. ‘If you talk to any majorPLC they’d say it is a damned good system but wepay a lot of money for it. If you talk to someonefrom the middle classes whose contact might beconveyancing they’d say it’s a necessary evil.’

There was a general consensus that the profession’sreputation with the public had improved since whatGeorge Bull, head of professional services at the

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20%20%

42%42%

38%38%20%

42%

38%

Do you believe that the legal professionhas a good public profile?

accountants Baker Tilly, referred to as an ‘all-timelow’ over the perceived inability to get a grip oncomplaints-handling. ‘The fact that lawyers are lessthe butt of so many targeted jokes, as opposed tojust general jokes now like accountants, suggeststhat the bad aspects of their profile have beenshaken off,’ said Bull (an accountant).

No respondent was as complacent as a recent surveysuggested that they might be.11 The research,commissioned by the Solicitors Regulation Authority,arrived at the startling conclusion that conveyancingsolicitors, traditionally the source of more complaintsthan any other sector of the profession, actuallyachieved ‘stratospheric’ levels of client satisfaction.‘The public perception of solicitors - I'm not talkingabout the perception of the press - is extremelygood,’ reckoned Ian Lithman, a sole practitioner inLondon and former chair of the Sole PractitionersGroup, who referenced the research. The SRA studyfound that some 93% of clients claimed to be happywith their solicitor’s performance (comprising 65%who were ‘very satisfied’, and 28% who were‘satisfied’).

Nick Hanning, a legal executive with the Dorset lawfirm RWPS, was mindful of regular polls of thepublic as to their views on the varying degrees oftrustworthiness of professionals. ‘Generally,lawyers are always close to the bottom of the list,’he said. ‘However if you ask the question: is yourlawyer trustworthy? I bet people would say “Yes”.’Lawyers were ‘the butt of all jokes but everyone isalways talking about the other side’s lawyer itseems to me’, he said; adding: ‘I don’t thinkjournalists score too highly.’

Good profile was relative, argued Ian Dodds,director of Bar Futures, an alternative barristers’chambers providing clerking, marketing and officespace for barristers without the overheads oftraditional chambers. ‘Compared with estateagents and gunrunners’, then yes, Dodds (a non-lawyer) argued lawyers had a good profile.‘Compared with doctors and teachers, then theyprobably don’t,’ he added.

Quentin Poole, senior partner at Wragge & Co,responded by saying that if he was answering the

question a couple of years ago he would have saidit was ‘OK’ as far as corporate law firms wereconcerned but ‘poor’ for traditional high streetfirms where the service was ‘seen as expensive andslow’. ‘Now corporate firms have become sweptup in the tidal wave of disapproval that has hit thebanks and the financial services sector generally,’he said.

So would liberalisation give the profession a betterprofile? Yes, replied John Durkan of the Yorkshirefirm Switalskis. ‘Firms will have to change and raisetheir game,’ he said. ‘A lot of the public don’tunderstand law firms. The Legal Services Act bringsthe profession more out into the public arena.They will have a greater understanding of what thelaw is about.’ A number of respondents pointedout, as one lawyer put it, that the big retailers likeTesco were ‘a country mile – and then some’ aheadof lawyers in understanding customer services.‘Lawyers are going to have to compete at thatlevel. Firms will be dragged up.’

‘Most large businesses have very slick complaintshandling systems,’ commented Paul Gilbert, an in-house lawyer and founder of LBS Wise Counsel consultancy. ‘They often see it as anopportunity to address something that has goneslightly awry. A quick intervention creates good PRopportunities and an opportunity to cementrelationships which might otherwise go adrift andmaybe fracture.’ The solicitor argued that ‘thatdiscipline will come into the profession in a verysignificant way’.

George Bull, at Baker Tilly, agreed. Other industriesunderstood complaints handling better and that,in his words, ‘a mild answer deflects wrath’.

However there was a strong element in theprofession that felt liberalisation would ill-serve thepublic. Already legal services were ‘beingcommoditised and “dumbed down” and you canonly see that increasing’, reckoned Nick Hanning.‘The feature of large organisations tends to bereducing work to the lowest commondenominator and shunting it through onproduction lines?, How could the profession’sprofile improve? asked Ian Lithman.

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11 Law Society Gazette, August 20 2009 (Huge vote of confidence for conveyancing solicitors)

Interview 1: David Edmonds

David Edmonds is the Legal Services Board’sfirst chairman

The LSB came into being on January 1st 2009with its ‘overriding mandate… to ensure thatregulation in the legal services sector is carriedout in the public interest, and that the interestsof consumers are placed at the heart of thesystem. It has 42 staff and has running costs of(in Edmonds’ words) ‘less than 0.0001%’ of thesector’s turnover. On January 2nd 2010 the LSBfinally comes into full effect with powers toapprove the rules under which the providers oflegal services must live.

Has the LSB enough resources to do its job? Edmonds says ‘at this stage’ he was ‘confidentthat the resource we have available to us and theresource that we have set out in the levyconsultation document is sufficient for us to dothat job’.12 ‘The profession has clearly had atough year,’ he adds. ‘I don’t want to impose anycosts that aren’t absolutely necessary.’ Hedescribes his organisation as ‘non-hierarchicaland clever’. ‘I have totally turned around themodel that I was presented with when I arrived,’he says.

What are his ambitions for the LSA? ‘My hope is that the legal services market will, asmarkets tend to, lead to the evolution of newkinds of services, support and help for theconsumer,’ replies Edmonds, who spent five yearsas director general of Oftel. ‘If you always focuson what the consumer needs then consumerdemand for those services comes through, to usea controversial metaphor, either the value bakedbeans or the premium baked beans.’

The law isn’t ‘about selling baked beans’,Edmonds says. ‘But in a baked bean market, as Ihave demonstrated for myself in recent weeks,there’s a heck of a lot of different types of beans.I want to see a variety of provision in legalservices which goes right from the difficult socialwelfare case all the way up.’

How radical will the changes be? Edmonds replies by saying that he has beenapproached at least three times over the 12months by agitated lawyers saying: ‘Mr Edmonds,you’re not going to change something that hasover 800 years of history behind it. To which Ireply the Legal Services Act gives me a set ofduties and responsibilities which might well meanme changing 800 years of history - and is the factthat there are 800 years of history necessarily agood thing?’

What about their plans for introducing the ABSregime? This month (i.e., November 2009) the LSBlaunches its major consultation on the shape ofABSs which Edmonds describes as ‘incrediblyexciting’. ‘The ABS’s structure is all aboutopening the market up by aligning alternativeservice providers with other professionals, byusing the economies that come through scaleand using marketing in a different kind of way.’Edmonds says his board will be listening to allsides (lawyers, new market entrants and potentialsources of external capital).

‘I didn’t come here because I thought there was awonderful opportunity to create a betterframework for independent regulation. That isinteresting,’ he says. ‘The real motivation for meis ABSs. For me regulation is all about the consumer, the citizen and providing for thecommunity.’

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12 The Levy: funding legal services - Discussion paper on payment arrangements for the levy on set-up costs, with consultation oncomposition of statutory instrument, Legal Services Board, September 11 2009

OverviewWe asked firms if they had, or intended, to applyfor LDP status. As of November 2009, eightmonths into the new regime, there were 109 LDPswhich between them included 52 other lawyers(mainly legal executives, but with some licensedconveyancers and two patent attorneys) and 75non-lawyers now making partner grade. So far theappointment of non-lawyer partners appears tohave been more about structural tidying up ratherthan using the LDP vehicle as a stepping stone toalternative business structure status as had beenpreviously envisaged.

Amongst the Big Bang respondents, half a dozenhad either taken advantage of, or intended to do so,of the new LDP regime. According to the SRA, of thenew generation of non-lawyer partners, most werein a finance role (without a particular qualification)who had been with the firm for a long time - aboutone quarter had some kind of accountancyqualification. Firms were using LDP status ‘to retainand reward rather than it being a particular movetowards a very different direction’, said AlisonCrawley, a consultant with the SRA.

However Crawley didn’t see the introduction of LDPsas ‘the damp squib’ it was reported to be in the legalpress. When the government first brought in limitedliability partnerships the profession ‘pressed us tosupport the legislation’ but when the LimitedLiability Partnerships Act came into force it took overa year before the first LLP was announced, saidCrawley. Once the first firm converted, themovement very slowly gained momentum.

Non-lawyers interviewed for the Big Bang reportincluded Nick Hanning, a legal executive at RWPS,Clint Evans, CEO at City firm Barlow Lyde & Gilbert(BLG), and John Durkan, practice director, atSwitalskis, a large legal aid firm in Yorkshire.13

Hanning was the first Institute of Legal Executives(ILEX) member to make a request for a certificateof suitability to become partner. From a personalpoint of view, Hanning said his new status ‘hashad no impact at all, other than the fact that myname can sit on the letterhead and I can describemyself as a partner’. Hanning had been with RWPSLaw in Poole from the start in January 2000 andsaid he was always involved as ‘a quasi-partner’anyway.

Six months into the new LDP regime and BLG hadyet to convert to LDP status. If it was on the to-dolist, then it was ‘a long way down right now,’ saidClint Evans, a chartered accountant bybackground. He became the City firm’s first everCEO in 2007 having previously been head ofbranding at Clifford Chance in 2001 (following itsmerger with US firm Roger & Wells).

Kennedys became the first City firm to become anLDP when it appointed two legal exec partners,Alan Finlay as head of employment and RichardCrockford, head of health and safety; and Olswanghas since made one of its patent attorneys partnerand promoted chartered accountant KevinMunslow, the firm’s chief executive, to thepartnership.

Since March this year firms have been able to adopt the new legaldisciplinary practices (LDPs) regime with up to 25% non-lawyer partnerscreated under the Legal Services Act 2007. Commentators in the legal presshave treated this first step along the path towards liberalisation as more ofa damp squib than ‘Big Bang’.

Chapter 2: A false start

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14 The three non-lawyers were interviewed in an article for the Law Society Gazette, 9 April 2009 (Why legal disciplinary practices areoff to a slow start, Jon Robins) and then six months later for the Big Bang report. Some of their comments were included in anarticle in Managing for Success, the October 2009 issue of the magazine of the Law Management Section

Evans welcomed LDPs as a way for firms like BLGto more closely align themselves with the interestsof their clients. His view was the law firm modelhad moved on ‘to the point where there needs tobe a close working relationship between lawyers,who know how to deliver legal services to clients,and professional managers who know how to runa firm’. But at the same time there was no rush forhim as non-lawyer to become a partner. ‘I’mtreated as a partner by this firm anyway andcompensated as a quasi-partner,’ he said. ‘So itdoesn't make a difference to me personally.’

Evans took the view that LDPs were perhaps theleast interesting thing about the Legal Services Actwhich he described as ‘a catalyst for the sector toreview itself’. ‘The landscape is likely to changewhich means that there will be competitiveopportunities that were not there before. Thescope is to change the profile of your traditionallaw firm.’ He added that BLG ‘do not have fullyformed plans in that area’ yet.

John Durkan, another chartered accountant, joinedSwitalskis in 2001 and had been managing partner‘in all but name’ since 2002. He described beingappointed partner as ‘a relief more than anythingelse. In my role previously as practice manager Iknew that non-lawyers were going to becomepartners, however the date seemed to get furtheraway.’ Durkan added that there was ‘no change interms of our day-to-day practices. It just makesthings easier for us.’

A solution for which there is no problem?We went on to ask firms whether their clientswanted non-lawyers in top management positionsthen whether lawyers wanted non-lawyers in topmanagement positions and, finally for this section,whether non-lawyer partners diluted the law firmmodel.

Answers ranged according to client profile. RichardBarnett, senior partner at a national volumeconveyancing firm Barnetts expanded on his ‘three-tier’ analysis of the legal profession (i.e., dependingon whether the client was ‘banged up on a regularbasis’, ‘someone from the middle classes’, or a majorPLC). Asked whether clients wanted non-lawyers intop management positions running law firms,Barnett replied: ‘The clients locked up in cells don’t

care; the middle-class person using conveyancingservices couldn’t care; but the top firms instructingmagic circle people probably would.’Paul Gilbert, a former in-house lawyer and chiefexecutive of LBC Wise Counsel, offered thewarmest response. ‘Non-lawyer executivemanagement in law firms would be very welcomeindeed,’ said Gilbert. His consultancy LBC WiseCounsel had conducted 30 or 40 law firm panelreviews for companies in the past two years. Anappointment of a non-lawyer at the head of a lawfirm could send out a positive message to clients. ‘Ican see that many in-house lawyers will see that asa very positive development indeed.’ Gilbert citedthe example of ITV becoming the first big Britishcompany to ditch the billable hour. Thebroadcaster cut down its panel of legal advisersfrom 50 firms to nine.

It was ‘a bit of a cliché’ to say that lawyers ‘weren’tvery good at management’. ‘There are manylawyers who are very good at it,’ Gilbert said.‘However it is also true that most lawyers go intothe law to be lawyers. If you can bring in executivemanagement with greater experiences of how tobuild businesses I think that can only be a goodthing. Many law firms will embrace thatopportunity because they see it as a way effectivelyof delegating the day-to-day running of thebusiness but also its strategic decision.’ Thesolicitor took the view that the introduction of theLegal Services Act would hasten more client-friendly reforms. Although the legal profession ‘hasbecome more innovative, competitive anddeveloped all sorts of innovations over the last fiveto 10 years’ this was ‘the first time there has beena really fundamental challenge to the way that lawis regulated in the UK’, he argued. Gilbert saidthat, although he was ‘not pathologicallyoptimistic’, the reforms ‘simply must result in morecompetition. That can only be good news for bothlawyers and the consumers of legal servicesbecause it tends to result in more competitivepricing and more innovation.’

Ronnie Fox, principal at the City firm Fox Lawyers,argued strongly that lawyers didn’t want non-lawyers in top management positions and thatnon-lawyer partners’ dilution of equity was not tobe welcomed. ‘At the moment there is a lot ofpressure on law firms to keep the equity tightly-

8

controlled. Once you have given away equity youcan never get it back,’ he said. ‘A solution forwhich there is no problem’ was how he describedLDPs. According to Fox, non-lawyers inmanagement positions (and external ownership ofa law firm) were anathema to the traditionalpartnership model. The ‘underlying assumption’was wrong, he argued. ‘The underlyingassumption is that non-lawyers will be able tomanage law firms better than lawyers can. The un-stated assumption is that if non-lawyers arerunning a law firm they will be able to generatenot only enough profit to keep the law firmpartners going but also they’d be able to rewardoutside investors adequately.’ Fox also pointed to atrend fairly well-documented in the legal press ofnon-lawyers struggling to retain senior executiveroles in law firms.

Quentin Poole, senior partner at Wragge & Co(Wragges), argued that there was ‘somethingphilosophically unattractive’ about the idea ofsharing law firm equity with non-lawyers. ‘It is likeselling the crown jewels,’ he said. Wragges wascelebrating their 175th anniversary this year. ‘Eachgeneration within that period has handed over afirm to the next generation. You have an almosttrustee-like obligation to leave the next generationin at least as good or a better state. So to sell offhalf the equity is a bit like selling the family silveror the crown jewels.’

Poole noted that he was ‘quite conscious’ of sucharguments ‘sounding like old fart-ism’. It wasn’t,he insisted. He cited the example of one of theirup-and-coming lawyers looking towardspartnership. ‘Does he want to become a partner ina firm that has sold half of itself out or does hewant to become a partner in another firm?’ heasked. The ‘short answer’ was that aspiring younglawyer ‘most definitely’ would want to become apartner in the other firm. ‘That’s a serious risk ifyou fail to attract or even lose some of your bestand brightest,’ he added.

It was a minority view – and one that certainlypolarised opinions. To argue that firms should notshare money with anybody who is a non-lawyerwas ‘frankly an elitist, outdated attitude’, reckonedAndrew Garard, ITV’s general counsel. ‘But Iwouldn’t want to sit on the fence about that one.’

The lawyer argued that ‘absolutely firms should lookat taking in senior non-lawyers’. ‘Lawyers reallyought to get back to lawyering and look at normalbusiness disciplines and they need experts to do thatfor them. There is a huge benefit in firms recognisingthat they are no different from other businesses,’ hesaid. ‘They need to generate cash and need to planand create proper business plans. I don’t think thatthey are going to be able to do it by themselves.’Garard argued that ‘to some extent’ firms have‘slipped into a lazy way of looking at the world’. ‘Theoverwhelming majority of general counsel want toget rid of the chargeable hour. They have to comeup with new business planning tools.’

Richard Barnett said that law firm structure was‘based on a partnership model that was 50 yearsout-of-date in some ways’. ‘The more modernfirms do recognise certain non-lawyers give amuch better perspective on certain managementduties,’ he added.

DLA Piper (currently the largest firm in the world)replied that ‘dilution of equity was not a problem’.The current regime was there ‘due to regulatoryconstraints rather than because this is the bestmodel for delivering legal service’, reflectedMichael Pretty, executive risk manager at DLA PiperUK. Equity partnerships were ‘complex and bespokestructures’, reflected Jonathan Rees, a partner atSouth Wales firm Hugh James in a response thatacknowledged the inherent conservatism of thelegal profession. ‘Arrangements for how the equityis shared, how decisions are made, whatcontributions are expected and so on can bedifficult to dissect - especially when measuringrelative contributions to the business and thussharing profits,’ he reasoned. ‘Many lawyers wouldsay the partnership structure is not an idealbusiness model for the demands of the modernlegal world, but equally many in a conservativeprofession might well say: “It works – don’t changeit.”’ He concluded that non-lawyer partners ‘mightwell dilute the law firm model as we know it, butthat might serve to bring about new models thatare a better fit in the modern legal sector’.

9

“So lawyers have a good profile? ‘Compared withestate agents and gunrunners’, then yes, reckoned

Ian Dodds, Bar Futures. ‘Compared with doctorsand teachers, then they probably don’t.”

Bar to progress?There was considerable frustration from barrister-respondents over the perception their profession’srepresentative bodies were, as one of them put it,‘dragging their heels and leaving us behind overLDPs’. Despite a number of consultations, the BarStandard’s Board (BSB) has yet to make up itsmind as to the wisdom of amending the Bar’scode of conduct to allow for LDPs. Over thesummer of 2009, and two years after the LegalServices Act had been passed, the BSB said that itwouldn’t sanction LDPs until there was ‘quantifiedevidence’ all forms of ABSs were compatible withthe objectives of the Legal Services Act in bringingbenefits for consumers.

Christine Kings, commercial director of OuterTemple Chambers in London, recently told the LawSociety’s Gazette most barristers hadn’t begun toconsider the Act. ‘The Bar should have strategygroups and consultants coming in,’ she wasreported to have said. ‘I’m shocked there aren’t aload of consultancy firms banging on our doors.Chambers should be asking questions, like: what ifour competitors merge with a solicitors’ firm as anLDP? What do our solicitors want us to do? Does it matter to them what structure we practisein, and what are their issues in a deregulatedmarket?’14

A few weeks later Stephen Hockman, who waschairman of the Bar Council when the legislationwas going through Parliament, spoke out indefence of the Bar’s position. There was never anyplan to create a ‘homogenous, uniform andmonotonous regulatory regime under which alllawyers in England and Wales would practise’,Hockman argued. ‘I think Parliament expresslyintended to preserve a diversity of differentregimes. It intended the Bar – both employed andself-employed – to go on practising under a regimewhich preserves, rather than dilutes, its essentialcharacteristics.’ Legal commentator JoshuaRozenberg, who interviewed the QC, noted that he‘seemed to be fighting a rearguard action, tryingto preserve an independent Bar that pessimistsmight think is already doomed’15.

The barristers’ sets we spoke to had been doing alot of thinking about the new regime and were farfrom happy about the perceived lack of progressfrom the BSB and the Bar Council. ‘The Bar has toooften approached the issue as a trade unionmembership issue,’ complained one of our off-the-record respondents. He was head of chambers at oneof the larger regional practices. He argued the Bar’sopposition to ABSs was ‘primarily, overwhelminglydown to concerns about membership’. The notionthat ‘we as businesses wouldn’t be able to absorband manage solicitors as well as barristers’ was‘positively ludicrous’, he added.

The problem was ‘time critical’ because the nextround of criminal legal aid contracts wasapproaching, complained a criminal defencebarrister from the North East. What form ofpractice would they adopt assuming the powers-that-be would sanction it? ‘In a perfect world,we’d have a company owned by a group ofbarristers that would employ about 20 solicitors. Itwould be a quasi-criminal defence operationinsofar as it would specialise in crime but it wouldalso have offshoots such as judicial review andregulatory work and it would be region-wide fromBerwick down to Teeside.’

What was the attraction of a legal entity run bybarristers? ‘Cradle to grave defending’, replied thebarrister. ‘You would have lawyers covering thepolice stations, Magistrates’ Court and CrownCourt and all done in-house by the samecompany.’ An approach that he argued wasfavoured by the Legal Services Commissionbecause of the economies of scale delivered bylarger and fewer organisations bidding for work.

The barrister had been practising in crime for 15years and was concerned that the junior Bar hadseen its workload eroded because ‘we aren’t at thecoalface, we are in chambers’. ‘The junior Bar haseffectively been decimated and one of the reasonswhy we decided to take this route is thatcommercially it was the only thing we could do tosurvive.’ Is the Legal Services Act an opportunityfor a very troubled profession? ‘Yes’, he replied.

10

14 The Law Society Gazette, 24th September 2009 (Barristers and the Legal Services Act: will the Bar modernise in time? Does it evenneed to?)

15 The Law Society Gazette, 29 October 2009 (Bar to progress?)

On its website BarFutures describes itself as ‘a newand entrepreneurial business designed specificallyto meet the challenges and opportunities of theLegal Services Act 2007’. It predicts the reformswould put ‘enormous pressure for change on thelegal profession in England and Wales and the wayto a secure and prosperous future for the Bar hasnever been less clear’. With legal aid reforms(namely, ‘one case, one fee’ and best valuetendering) ‘the need for creative thinking andflexible working will be even greater’.

‘We have taken away all the unnecessary andavoidable structure that a barristers’ chambersusually involves and boiled it down to its bareminimum,’ said director Ian Dodds, a professional manager, not a lawyer, withexperience managing other professional businesseslike chartered surveyors and solicitors as well asbarristers’ chambers. Reading the Clementi reportback in 2004, Dodds claims to have came to theview it was ‘quite obvious’ that alternative business structures were ‘going to be the wayforward’ and Bar Futures would ultimately end upan ABS.

The new business started off as ‘a virtualChambers’ addressing concerns about the cost ofrunning Chambers particularly in London whichDodds reckoned cost barristers as much as 30% of

their income ‘to run what aren’t in any waystreamline business structures and which arecursed with antediluvian hierarchies andmanagement’. ‘So we set up an office inManchester and an office in London and for 10%barristers become door tenants.’ Barristers have‘virtual premises’ and with high-qualityinformation technology, remote computer access,BarFutures recruited 20 barristers of their own andtook over the management of a small Londoncriminal set.

He described the Bar’s blocking of LDPs as ‘nomore than a negative, Luddite backward-lookingdenial of the truth’. ‘The Bar doesn’t really wantanything to do with ABSs. If they have to havethem, they will have them run by barristersbecause their view is non-lawyers cannot betrusted either as managers of a legal servicesbusiness or to manage possible conflicts ofinterest.’

What are his ambitions for the post-LSA world?‘We’re going through a series of revolutionarychanges. We have built links with other solicitors,recruitment businesses, medical consultancies andchartered accountants and we have the makingsaround us of a multidisciplinary partnership,’ Doddsaid. The LDP and solicitor-barrister relationshipwould be ‘the first step’, he added.

11

“My own cynical view is that the LegalServices Act has come at a time when the

government is denigrating legal aid atpretty much every step and “Tesco Law”

might be all about cut-price,commoditised work being done by the

least qualified person but it might be theonly way that a number of consumers will

be able to access legal services.”Craig Holt, QualitySolicitors.com

20%20%

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20%

18% 62%

Does the importance of a good profileIncrease with the implementation

of the LSA?

Interview 2: Carolyn Regan

Carolyn Regan is chief executive of theLegal Services Commission.

Regan joined the Commission in September 2006after 25 years in the NHS. She was chief executiveof three health authorities between 1996 and2006, finally heading the North East LondonStrategic Health Authority from 2002.

Does the Legal Services Act have much to do withlegal aid? ‘Absolutely, there is a link betweenalternative business structures and legal aid,’replies Carolyn Regan. ‘There should be realbenefits for clients in terms of better choice andgreater consumer focus and there should bebenefits for us as purchasers. I think people arehesitant around publicly funded opportunitiesbut I think that they are there in droves.’

Competition will improve legal services, Reganargues. She draws an analogy with her career inthe NHS. ‘Now everybody looks at the website oftheir local GP to see what its outcomes are. If Iam living in a commuter area I want to know ifthey open at 7am. Equally, [a law firm client] willwant to know how does a firm relate to them asan individual?’

However, she warns there is ‘a role for regulatorsto step up to the mark though’ in order to makesure that the process of liberalisation isn’t

unnecessarily fettered. The rules are ‘veryprescriptive especially in relation to theindependent Bar,’ she adds.

Is there any interest in external sources of capitalin publicly-funded law? Regan says so. ‘First ofall, there is a steady stream of clients plus withlegal aid eligibility rates going up, you have moreclients than you had last year and, of course,there are more people unemployed,’ she explains.

Regan points to the £2billion budget which shelikens to a ‘government bond backing legal aid’.‘It is quite a good bet. Even if it was £1.8 billion,it’s still a big whack of government guaranteeddosh.’ Plus she argues that there is plenty ofpotential for introducing more modern businesspractices and realising the kind of economiesdelivered through the deployment of IT. ‘It is anold fashioned market out there. Mostpractitioners still operate 9-to-5 in high streetpremises.’

Where does she stand on the Law Society’s ideaof taxing ABSs that might cause a detriment interms of access to justice? Regan reckons that theproposal ‘seemed to be contrary to what the Legal Services Act was designed for’. And, sheargues: ‘The cost would be passed on to thefunder - in other words, us. If the Co-Op had topay a premium they would want to negotiatethat into whatever we were paying them to docivil work. They wouldn’t do it for nothing and neither would any other firm coming into themarket.’

12

“You have an almost trustee-like obligation to leave the next generation in at least asgood or a better state. So to sell off half the equity is a bit like selling the family silver or

the crown jewels.”Quentin Poole, Wragge & Co

OverviewSo what might ABSs look like? The LSB paperenvisages new types of practice such as those witha majority of non-lawyer managers; high streetfirms offering accountancy services alongsidetraditional legal services; large corporate firmsoffering private client advice alongside large-scalevolume work capable of commoditisation; or lawfirms floating on the stock exchange.

Consumer groups, market players, and academicspredict a number of market-changing trends such as‘the emergence of “one-stop shop” multidisciplinarypractices in the high street; franchising modelscombining national brands with local management;increased international outsourcing; and onlineand/or telephone delivery of commoditised basicadvisory services by big-name retailers’.

For those lawyers that hope the creation of theregulatory regime around ABSs that follows therecent consultation might provide an opportunityto slow down or halt the progress of liberalisation,the LSB has a clear message. We have ‘movedbeyond the debate about whether to open up themarket to ABSs’, that was ‘settled’ when thelegislation was passed, the LSB paper said. Theconsultation sets out plans for – its emphasis –‘when and how the market will be opened’.

Supermarket sweep…We began the questionnaire section on ABSs by askingif ‘Tesco Law’ would be ‘good for the consumer’.

Unsurprisingly, the consumer champion Which?was supportive of the legislative intent. ‘Anythingthat increases the ability of the consumer tointeract with the law and enforce their rights is animprovement,’ replied Steve Coyle, the group’shead of legal.

In its response to the LSB consultation on ABSs,Which? argued that liberalisation was ‘firmly in theinterests of the consumer’. ‘We would anticipatethat ABSs will lead to many opportunities forgreater efficiencies by, for example, enablingsolicitors to join an accountancy practice or afinancial adviser. There may also be businessmodels that involve greater provision of advice bytelephone and less reliance on face-to-facemeetings in a similar vein to the way the NHSDirect has flourished.’

If the reforms were to be judged a success, Which?argued, liberalisation of the market ‘must lead togreater transparency and understanding of legalservices’ which in turn must lead ‘to improvedaccess to justice, especially for individuals asopposed to large corporate clients’.

QualitySolicitors.com is a network of more than 100firms and solicitors which is trying to establish a legalbrand in the public consciousness before the adventof ABSs. ‘My prediction is that there will besomething like ‘Halifax’ solicitor branches in shoppingcentres up and down the country,’ reckoned chiefexecutive Craig Holt - see interview page 24.

The Legal Services Board closed its consultation on alternative businessstructures on August 14th 2009.16 Alternative business structures (ABSs),the most revolutionary aspect of the Legal Services Act 2007, will allowlawyers to form multidisciplinary practices offering legal services inconjunction with non-legal services. They will also allow non-lawyers,including external investors as well as the likes of Tesco, AA, banks andinsurers to have a stake in firms.

Chapter 3: A legal services revolution

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16 Wider Access, Better Value, Stronger Protection: Discussion paper on developing a regulatory regime for alternative businessstructures, Legal Services Board, 2009

14

He argued that that ‘Tesco Law’ was ‘interpretedvery narrowly’ by lawyers. ‘I speak to firms all thetime who take the view that they don’t need toworry about the Legal Services Act because “TescoLaw” clients are very different to their clients.’ Butlawyers were wrong to dismiss the threat as more‘cheap conveyor belt conveyancing services’, hecontended. ‘There will be a whole range of brands,both premium and cheap, both specialist andgeneralist – and they won’t just be the nightmare“Tesco Law” scenario of a legal big factory in a call-centre where nobody sees their lawyers.’

Holt argued that “Tesco Law” was ‘bad for theconsumer’. Though, he contended that, in a worldin which legal aid was ‘evaporating on an almostdaily basis’, the Legal Services Act might ‘almost bea necessary evil’. ‘My own cynical view is that theLegal Services Act has come at a time when thegovernment is denigrating legal aid at pretty muchevery step and “Tesco Law” might be all about cut-price, commoditised work being done by the leastqualified person but it might be the only way thata number of consumers will be able to access legalservices.’ Holt was ‘confident’ that the reformswould ‘cause a huge number of classic high streetfirms to go out of business’. A ‘big upside’ thoughwas that it would ‘cause solicitors to up their gamein terms of their approach to consumers’. The‘stereotypical image’ of the lawyer as ‘aloof andnot particularly customer-driven’ and ‘the almostintimidation’ that people felt entering a solicitor’soffice was ‘not without some basis in reality’.

Practitioner responses varied largely according tothe nature of lawyers’ businesses and their clients.‘If you were the owner of the law firm equivalentof the corner shop, then you might see theprospect of Tesco opening a store as very badnews,’ began Paul Gilbert, in-house lawyer andchief executive of LBC Wise Counsel. ‘Theconsumer would probably feel the benefit, theowner-manager not.’ That ‘dichotomy of view’ waslikely to grow as the reforms increased pace, headded.

However, Gilbert’s principle point about Tesco Lawwas that he was ‘very firmly of the view’ that it

would be ‘good for lawyers’. ‘I think it provides adifferent career path and a structured career pathfor many,’ he said. Large businesses ‘operate verycomfortably in the arena of family-friendlypolicies’. It was ‘an attractive model for manylawyers who don’t want to climb the greasypartnership pole,’ he added.

The only way that ‘Tesco Law’ was going to begood for the consumer was that legal serviceswere going to be cheaper ‘but cheaper doesn’tnecessarily mean good’, argued Ian Lithman, a solepractitioner in London and former chair of the SolePractitioners Group. He argued that ‘the wholeconcept’ of the ABS was ‘wrong’. That view wasechoed in the Solicitors Sole Practitioners Group’sresponse to the LSB Consultation.17 The ‘almostunanimous view’ of sole practitioners was thatABSs were ‘wrong in principle’. ‘[Our] majorconcern is the fact of the complete and irrevocablechange of the legal landscape by the introduction ofcommercial interest into the provision of legalservices thereby creating another dimension whichhas every prospect of prejudicing the independenceof the provision of legal services without anyapparent benefit.’

In Ian Lithman’s view the decision to exclude solepractitioners from the merged Britannia BuildingSociety/Co-operative Financial Servicesconveyancing panel amounted to a first blow in awar between the retailer sector and smaller, locallegal practices like his own.18 ‘The Co-op has twomillion members. They have shops in small villagesand small towns and they have struck out 3,600members from their panel which takes out all thesole practitioners,’ Lithman explained. ‘In effect,they have started the war.’ He predicted the Co-opwould take their work in-house. ‘They will wipeout every activity of solicitors, except for legal aidwhich is in decline and litigation. It will leave themin a totally controlling position, certainly in thecountryside. There will be no access to justice forthose that cannot afford to pay for access to justice.’

Unsurprisingly, the Co-Op wasn’t happy that theirrival’s name has been adopted for a movementthat Tesco has so far demonstrated little enthusiasm

17 Solicitors Sole Practitioners Group response to the LSB discussion paper on developing a regulatory regime for alternative businessstructures, Solicitors Sole Practitioners Group, Summer 2009

18 The Law Society Gazette, 8 October 2009 (Sole practitioners removed from Co-Op panel as no deal reached)

for. (One of the Co-Op’s press releases on legalservices rather hopefully noted the store has longbeen interested in what ‘has already been dubbed“Co-op Law” by some commentators’). ‘Theprovision of legal services is a really good fit withthe Co-Op’s principles and ethos,’ explained EddieRyan, managing director of the Co-Operative LegalServices (see case study). ‘Our members certainlyfeel a warmth and allegiance to the brand.’ Thereare currently more than three million Co-Opmembers and Ryan reckoned ‘about 15 millionpeople walk through the stores every week’. ‘Theycan join the Co-Op very quickly and availthemselves of those services.’

No exit?We asked law firm respondents if they wereinterested in external sources of investment to fundthe growth of their firms. Whilst many in theprofession took the view that if ABSs were never tohappen that would be too soon, some City firmsappeared reluctant to wait the 18 months or so fornew style ABSs to come into force and the possibilityof a new source of capital. Such firms have beenlobbying, through the City of London Law Societyand the Solicitors Regulation Authority to bring thenew regime in ahead of its likely 2011 start date.

So how active were law firm advisers? Theaccountancy firm Baker Tilly has around 360 lawfirm clients. George Bull, head of its professionalpractices group, said: ‘For retail services we foresee areal revolution in the marketplace - whether a firmwants to take on board external equity, become partof an ABS or find itself consolidated. The market willchange and so even non-participants at the high-end firms are going to find the market changing.’

However for those struggling firms who might seeexternal investment as a lifeline, Bull feared ‘toomany firms think that they will be attractiverecipients of external equity. Many will bedisappointed.’ Private equity would be looking for‘an exit within five years’, he reckoned. ‘They won’tbe looking at a good return on their capital interms of dividend every year. They will be lookingfor a capital gain on exit. The period during whichprivate equity is in a business is going to be verybracing for the management of the firm.’

Bull claimed to have had ‘more meetings withprivate equity’ in the two months up to thepublication of this report ‘than in any comparableperiod since David Clementi was first mentioned’.That said, he predicted no more than five law firmslisting in the five years post-2011, principallyconsolidations - in other words, listed companiesacquiring small practices and homogenising theoffering. ‘You could perhaps see them hooveringup 20 to 30 high street firms,’ he added.

Bull reckoned firms with turnover of less than£25m might ‘fall below private equity’s radar’ andpredicted, perhaps, between ten and 20 firmsbeing recipients of private equity in the first phase.He also predicted a third category of angelinvestors, private investors backing start up firms,depending on how the ‘fitness to own test’ wasformulated in the final rules.

There was ‘big suspicion about private equity’,commented Tina Williams, senior partner at FoxWilliams and adviser to many law firms on a range ofissues including ABSs. ‘Private equity houses aren’tcharities and they generally look for a very significantrate of return,’ she said. ‘Often it is the case thatbank finance will be cheaper in the long run.’

Tina Williams reckoned that a downturn in theeconomy was encouraging firms to considerexternal investors. ‘The sort of practices that mightbe interested in private equity money are thosethat have decided that they want to expand rapidlyby acquiring teams or firms, or extendinggeographical reach,’ explained Williams. But shealso saw firms eyeing external investment partly forother reasons, such as a mechanism to ‘enablepartners to retire and take some capital out’. Shebelieved there was no possibility of external

15

18%18%

40%40%

42%42%

18%

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42%

Are you concerned about the marketingbudgets that big brand entrants

have at thier disposal?

investors agreeing to fund partners’ retirementsave as a very ancillary part of an attractiveinvestment in a firm with a good business strategyand strong team going forward.

In the CityMuch of the legal trade press coverage of the LegalServices Act has been around mid-ranking Cityfirms using ABSs as a means to fund a jump a fewrungs up the legal directory ladders, build apractice area, launch a foreign office or to helpthem weather the present economic hard times.

Taylor Wessing LLP was one of a small number oflarger firms to be openly receptive to outsideinvestment. It had established a five-partner‘change group’ looking at the LSA. There were‘two juggernauts heading towards the profession -one is competition arising from the upcoming LSAand the other one is opportunity’, commentedmanaging partner Tim Eyles.19

Eyles reported strong interest from private equityhouses although only ‘a very limited number areexamining the opportunity for direct investment’.There was also interest in backing outsourcing ofnon-legal services such as IT or infrastructure. As tothe precise nature of opportunities for a firm likeTaylor Wessing, Eyles was fairly guarded –understandably, given the long lead in time for thenew ABS regime. He said that ‘the visibility [was]fairly grey at the moment’ because of ‘the natureof the economy and the precise degree of changein the profession’. ‘I don’t doubt we’re in arevolution in the way that legal services areprovided though,’ he said. ‘I do not think that theprofession has fully understood that.’

Clint Evans, CEO at the defendant insurer firmBarlow Lyde & Gilbert, described his firm as being‘interested in talking to see what is available’. ‘It isalways useful to know what’s on offer, at whatprice and at what risk.’ He took the view that ‘themore interesting areas of the market are those thathave steady returns and a fairly predictable cycle ofbusiness. Low value transactions with reasonablevolumes and a diverse client base so as there aren’ttoo many eggs in one basket’. Most City law firmsdid ‘not fit that profile because their transaction

values [were] higher proportionally to thoseoutside of the City’.

The top rung of City firms have ruled ABSs out onthe grounds they are multi-jurisdictional. MichaelPretty, executive risk manager of DLA, said that hedidn’t ‘believe any firm worth its salt’ would‘dismiss out of hand the opportunities offered bythe ABS regime, the question is whether it can takeadvantage of those opportunities?’ As he pointedout, the regulatory regimes in many othercountries prohibited members from practisingthrough LDP/ABS structures. ‘Few internationalfirms, with memberships made up of a largenumber of different professions doing business ina large number of different jurisdictions andsubject to the local regulatory regimes, will be ableto take full advantage.’

As Chris Perrin, Clifford Chance’s general counsel,put it: ‘They don’t really interest us much. But weare in favour of them as a concept.’ Pretty arguedthat the regulatory regime for ABSs had not beendeveloped which created ‘uncertainly for firmsconsidering LDP’. ‘A firm converting to an LDP willeither have to become an ABS in 2010/11 subjectto this currently unknown regime, or risk having todisenfranchise the non-lawyer members it hasadmitted.’

On the production lineWe spoke to a number of volume practitioners ofthe model said to be most attractive to externalinvestors looking for a safe return. Southport-based Barnetts is a volume conveyancer with anational client base. ‘We’re an attractiveproposition for entrants into the market wantingto cover off conveyancing and looking to usingbulk suppliers rather than setting up in-house,’reckoned senior partner Richard Barnett. His firmwas in the top five best customers of the LandRegistry in 2008.

‘Banks and building societies want to offer aconveyancing service directly to the public - theyeither go in-house or they use us,’ reckonedBarnett; citing as a model Countrywide PropertyLawyers, the licensed conveyancers subsidiarywhich was formed by the estate agent giant

16

19 City AM, 2 September 2009 (Private Equity eyes up City law firms, Jon Robins)

Countrywide back in 1997. The solicitor also sawthe potential in legal expenses insurers. ‘Itwouldn’t be a great leap for them to offerconveyancing services,’ he added.

Barnett argued that state of the art conveyancingpractices were now technology-driven businesses.His firm has just launched its own iPhone applicationavailable free on iTunes and allowing clients to getan instant quote and follow the progress of theircase via their phone. ‘In some ways you needaccess to capital to do that,’ he reckoned.

Are the stakes high? Does a firm like Barnetts winmassively or simply get left behind? Barnett, alsochairman of the Law Society’s conveyancing andland law committee, argued that ‘there is not goingto be a big bang but a gradual build-up of noise’.

Amelans is a volume personal injury firm based inManchester. Partner Martin Cockx reported thatthey have had no approaches from potentialexternal investors so far. ‘But it’s not difficult to seethat an insurance company or a bank might beinterested in our business model,’ he said; addingthat that PI work lent itself to commoditisation.‘Something comes in at one end and in 12 monthstime it comes out at the other. In the meantime,the profit levels are fairly decent.’ However, Cockxalso made the point that pursuing accident claimsmight not be an attractive proposition toprospective partners. ‘To an organisation wherebrand is everything, do they really want to beconcerned with our type of market?’ he asked;drawing a distinction with ‘more cuddly legalservices’ such as conveyancing or Will-making.

Cockx argued that personal injury firms havealready gone through their own ‘Big Bang’styleshake up at the start of the decade when claimsmanagement companies stormed the accidentclaims market fuelled by the opportunity to makemoney from the introduction of new styleconditional fee agreements introduced by theAccess to Justice Act 1999.

The echoes of the new environment being created bythe Legal Services Act and that of the Access toJustice Act were detected by a number of personalinjury lawyer respondents. Claims Direct and The

Accident Group (TAG) became market leaders in ashort space of time at the beginning of the decadeon the back of saturation daytime televisioncampaigns and employing armies of reps in shoppingcentres. At its peak the old Claims Direct representeda litigation tidal wave signing up 5,000 new clients amonth and TAG claimed to be one of the UK fastestgrowing companies in 2002 claiming to haveconquered 25% of the market in two years.20

Both companies were widely attacked by consumergroups and the press for bringing a huge numberunmeritorious ‘slip and trip’ claims as well asleaving genuine accident victims penniless. Bothcompanies went bust.

It is now commonplace for PI firms to pay referralfees to non-lawyer claims companies for sourcingclaims and paying as much as £700 a claim –ironically, much larger than the fees that were paidto Claims Direct and TAG. Amelans was the drivingforce behind the solicitor-led Injury Lawyers 4Umarketing network established as a direct responseto claims farmers. It is currently down to 80members having previously had 220 members.Cockx saw the possibility of an injection of outsidecapital as a means of enabling lawyers to accessthe kind of marketing budgets to wrest controlback from the non-lawyer claims companies.

Are ABSs an opportunity or a threat? ‘I think we’rewell placed,’ says Cockx who describes himself ‘asa bit of a half glass full man’. ‘A company like ourswould be of interest to any number of potentialbuyers. From that point of view, I see it as anopportunity rather than a threat.’

Did Cockx fear that ABSs might drive down qualityin the kinds of services offered to accident victims?He rejected that line of argument. ‘At the end ofthe day we are all running businesses and anybodywho runs a law firm today like they were run 50years ago just isn’t going to be around for muchlonger.’ He quoted the director of the LegalServices Policy Institute, Professor StephenMayson’s estimate that as many as 3,000 firmscould go bust as a result of the Legal Services Act.‘I think that he’s spot on. Personal injury firms havehad a turbulent 10 years and I predict that the nextyears will be just as turbulent.’

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20 Justice Gap: Whatever happened to legal aid?, Legal Action Group, 2009, Steve Hynes and Jon Robins

Underwoods solicitors in Hemel Hempsteadspecialises in employment and personal injury.Senior partner Kerry Underwood argued that highvolume, low value services in the UK wereultimately ‘doomed’. He has been pioneering theoutsourcing of legal work to South Africa takingadvantage of cheaper labour costs (about onethird of UK costs). His plan for his firm was to‘build the practice so that it will survive happily asa law firm if needs be but that will also beattractive to an investor either as a vehicle or tobuy’. He flagged up reports that LloydsDevelopment Capital, a private equity firm, hasexpressed interested in buying CPA Global Limited,a legal outsourcing company for £400 million.21

Underwood set up Law Abroad in November 2009with his co-partner Robert Males as public limitedcompany. The solicitor described its PLC status as ‘amajor step forward as it means that we can sellshares to the public – except that at the momentwe can’t because of our need to obtain recognisedbody status from the SRA’.

Underwood predicted that ‘the vast majority of thework’ from his firm would be done through thatcompany ‘with the idea being that it is a ready-made ABS which can come into effect on the daythat the Legal Services Act is implemented’. ‘Myfirm view - of course I may be wrong - is that it isalready all over for many firms of solicitors,’ hesaid. ‘Virtually all of Law Abroad’s work will bedone abroad.’

Underwood predicted ‘a split market’. Most‘routine work such as conveyancing, legal aidadvice, road traffic work’ would move abroadhowever niche firms would thrive in the UK ‘doingadvocacy and quite specialist work’ handled ‘bypeople who are at the top of their gamecommanding high fees and delivering goodprofits’. ‘The model that is absolutely doomed isparalegals with no particular qualifications earningthree times what a qualified lawyer would do anyin a firm in South Africa.’

Russell Jones & Walker (RJW) was recentlydescribed in the legal press as taking ‘a step closer

to realising its post-Legal Services Act ambitions’when it launched two new services 4ExpertProtectand 4ExecProtect and offering 24-hour access tospecialist advice on niche areas such as white-collarcrime.22 Those new operations are underwrittenby insurer Hiscox to offer ‘a Claims Direct-styleservice to a more specialised market’. It was reportedthat the announcement was ‘expected to kick-start ashift towards law firms commoditising theircommercial offerings in a bid to target new clients’.

Neil Kinsella, RJW chief executive, said itrepresented ‘a repositioning of the firm wherebythere will be two separate offerings, RJW and4Legal, so we're perceived in a new way – thelatter being more of a business-to-business brand.Routes to market are extremely competitive andthat's going to get more intense after the [LSA]comes in. This vehicle is one way of generating anew route to market.’

RJW bought the Claims Direct name as well as itscontact centre technology. New Claims Direct wasrelaunched in 2007 with a £5m advertisingcampaign. RJW also has 4 Legal, which is itscommoditised legal services business. What wasthe idea behind the new product lines? ‘We lookedat our practice to recognise which are the top-end,complex parts of our work offering customisedmade-to-measure solutions and we recognisedother elements which are much more capable ofbeing commoditised,’ explained Kinsella.

How important was ‘Claims Direct’ as a brand? ‘Ido not believe any brands exist in the law otherthan Claims Direct,’ Kinsella said; adding that ithad secured its own place in popular culturehaving been name-checked in the lyrics of a popsong and frequently lampooned by comedians.23

Was he concerned about the negativeconnotations of associations with the old ClaimsDirect? Kinsella said that the association might notnecessarily make him popular at ‘middle classdinner parties’. ‘But, jokes aside, for people whoare intimidated by solicitors there are very fewnegative connotations. Claims Direct does what itsays on the can. We have done everything that wecan to make sure that it operates ethically.’

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21 Financial Times, October 27 200922 The Lawyer, November 2 2009 (Speaking volumes)23 Goldie Looking Chain, Bad Boy Limp, and, for example, Armstrong and Miller’s Reconstruction Claims Direct spoof.

The Lawyer claimed the new RJW products were‘being talked about as potential post-Legal ServicesAct investment vehicles’. How exciting was theLSA? ‘It ought to put us on the same footing asother businesses,’ replied Kinsella. ‘Access tocapital can be important so that you can develop abusiness but it’s only important if you have adamned good business anyway.’ Most legal workwas ‘already unreserved and most of it couldalready be put into an organisation outside of thelaw firm’, he argued. ‘It would be wrong for thoseorganisations not to be as “regulated” as lawfirms.’

Hugh James describes itself as ‘the largestindependent Welsh practice’ and specialises inpersonal injury and group litigation. PartnerJonathan Rees argued that increased competitionmeant that firms would be looking to fund thegrowth of their practices. He said that the‘commercial reality’ of practicing law with‘relentless downward pressure on cost and timedemands that lawyers invest in all manner of areasof their practices’. Those factors would ‘onlymultiply when lawyers find themselvescompeting with new entrants’ to the sector oncebarriers to entry were removed. Rees wasn’tenamoured of the forces he saw ‘Tesco Law’representing. ‘At best it might be good for most,most of the time but the danger is that it is atthe same time worse for some, quite a lot of thetime. The legal profession’s foundations are to alarge extent built on acting in a client’s bestinterests and accessing justice. Many lawyers fearthat commoditisation of the law and thepotential conflict in interests or obligationswhere share values and financial issues are muchmore to the fore may erode the foundations onwhich their profession is built. That erosionwould outweigh the ‘good’ that might otherwisebe experienced by reform.’

Thompsons is the largest trade union firm in thecountry and provides legal advice for trade unionsranging from Unite and GMB to the Society ofChiropodists and Podiatrists. Tom Jones, head ofpolicy, played down the impact of the LegalServices Act on his firm. ‘In theory, the unionscould come in if they wanted to and buy out partof Thompsons but whether they are able or wouldindeed want to is another matter,’ he said.

Far more likely was the prospect of defendantinsurers bringing in firms in-house and ‘trying tocut costs’ which he argued was of far greaterconcern. ‘They then effectively end up owning,feeding and paying the law firms. I worry aboutthe independence of law firms to be able tooperate in those circumstances.’ Jones flagged upthe controversy around the advent of a newgeneration of claims management companies, thescandal over the miners’ compensation claims andconcerns about ‘scan vans’ screening dock workersfor asbestos-related pleural plaques. ‘I question theextent to which law firms are going to be able toresist, however robust they claim their systems are,the pressure, encouragement and subtle changesin a relationship that may inevitably result fromsomebody owning part of your business,’ he said.

Horwich Farrelly is a Manchester-based defendantinsurance firm. So was there client demand to takesuch a firm in-house? Anthony Hughes, who isalso president of the Forum of Insurance Lawyers,didn’t think so. It was a question he reported thathis firm has been asked by a number of companieswhen tendering for new work. ‘Our response hasalways been the same. The value of our businessand the value of it to one insurance company arevery different. If we were to be bought by oneinsurer, then one would assume that all the oldother insurance firms are likely to say they aren’tgoing to use us any more.’ The lawyer alsodoubted whether insurers would be interested.‘The capital ratios and operating ratios being whatthey are, the last thing they would want to do isgo out and spend a lot of money on what couldbe described as a complimentary business,’ headded.

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Will you be increasing your overall PRactivity as a result of the LSA?

Justice denied?Many of those lawyers committed to access tojustice and working in publicly-funded law fearedthat the arrival of ABSs would serve to compoundfunding problems and further destabilise acollapsing practitioner base. The argument ranthat big brand non-law companies would increasethe pressure on mixed economy firms to ditch lessremunerative publicly-funded areas of work.

‘The expectation is that big business will storm theaisles like a deranged contestant on SupermarketSweep throwing all the money-making stuff –personal injury, conveyancing etc – into its trolleyand leaving non-remunerative - publicly fundedlaw – unloved and gathering dust on the shelf,’argued the Legal Action Group in July 2008.24

Lord Phillips of Sudbury, the solicitor and Lib Dempeer, took the uncompromising view when thelegislation was going through Parliament that theBill should be ‘thrown into the deepest hole inhell’. ‘If this wretched Bill goes through you mayget the likes of Tesco, Barclays and the Wal-Martsdeciding that there is money to be made butthey’ll only be interested in the profitable bits suchas property, Wills and employment,’ he said.

Prospective market entrants have been careful notto upset lawyers, with the exception of Capita. At aLegal Aid Practitioners Group conference in 2006Max Pell, managing director for specialist servicesat the call centre giant Capita Insurance Services,told legal aid lawyers that his company was on itsway to becoming the largest provider ofremortgaging services and, as such, was easilycapable of undercutting firms on commoditisedwork. Pell argued that because of the cross-subsidyof legal aid by private paying work, there would be‘a culling’ of the high street.

The detriment to access to justice was one of themain themes of the Law Society’s response to aSolicitors Regulation Authority's consultation.25

‘Improving access to justice’ was one of theregulatory objectives binding all approvedregulators including the SRA, reminded ChanceryLane. There were ‘significant dangers’. Suchdangers arose from the possibility that the new

entrants would provide legal services ‘on a muchgreater scale than most existing law firms’endangering existing firms and, secondly, from thefact that new entrants were ‘unlikely to have thesame degree of commitment as many existingfirms to providing effective access to justice forindividuals’. The Law Society argued that ABSswere likely ‘to operate almost entirely forcommercial motives. We do not criticise potentialowners of ABSs for that - it is possible to operateprimarily for commercial motives and yet providean entirely professional service. But it is necessaryfor policymakers to guard against the possibledangers to the public interest arising from theapproach.’

Carolyn Regan, chief executive of the Legal ServicesCommission, was upbeat about the powers ofcompetition to reinvigorate publicly-funded workand introduce higher standards of customer servicefor legally-aided clients. ‘There should be realbenefits for clients in terms of better choice andgreater consumer focus and there should bebenefits for us as purchasers,’ Regan said (seeinterview). Although she reported that the privatesector was ‘a bit hesitant around publicly fundedopportunities. I think that they are there in droves.’Citizens Advice didn’t share the bleak view ofprivate practice either. ‘As a consumer organisationwe are more strongly in favour of ABSs than thelegal profession. We did think that the legalprofession was a little bit of a closed shop andactually competition wouldn’t do too much harm,’commented their chief executive David Harker. Hisgroup was concerned about the ‘big justice gap’between those eligible for legal aid and thoseeffectively disenfranchised from the legal system.‘It is our belief that the entry of other companies,subject to suitable safeguards, into themarketplace is no bad thing. It may benefitconsumers and the huge group of people abovelegal aid eligibility limits who are not well enoughoff to pay for a solicitor.’

Scott-Moncrieff, Harbour & Sinclair is a legal aidpractice that eschews the traditional law firmmodel. It has 42 fee earners working in differentparts of the country mainly working as self-employed contractors in control of their own hours

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24 Legal Action, July 2008 (Will Tesco Law leave legal aid on the shelf?, Jon Robins)25 Law Society response to the SRA’s consultation on developing a regulatory regime for ABS, Law Society, September 1 2009

and levels of work. ‘When you do legal aid work orpoorly paid work, you have two choices,’ explainedsenior partner Lucy Scott-Moncrieff. ‘Keep youroverheads high and don’t pay people very much orkeep your overheads low and get good people todo the work and pay them a reasonable amount.’She reckoned fee earners usually needed ‘to earnthree times their salary: one for themselves; one forthe overheads that they generate; and one for thepartners’. ‘We have turned that model upsidedown and we say that the consultants get 70% ofwhat they earn,’ she said; adding that they haverejected the ‘factory paralegal style’.

Would her firm be interested in external forms ofinvestment? ‘I’d love alternative forms ofinvestment, but for some reason I do not thinkthey are going to be that interested,’ responded aclearly amused Scott-Moncrieff. ‘But seriously’, sheadded, ‘I don’t think that we need externalinvestment’.

Was the prospect of Tesco Law good for theconsumer? ‘If we’re talking about people whoneed legal advice in a particular area where “TescoLaw” operates, the likes of Tesco are pretty efficientand have high quality standards. It won’t be goodfor people who can’t get other advice because thefirms that used to give that other advice have goneout of business.’ As she saw it, if staple high streetwork, such as Wills and conveyancing, were takenaway from mixed economy firms because ‘Tesco isdoing them cheaper around the corner. The lastthing firms will do is more unprofitable legal aidwork – particularly, as in the current economicclimate rates are going to be cut even further.’

Despite the well-documented problems faced byprivate practice law firms and the not-for-profitsector, there has been interest from the privatesector in legal aid. The Sheffield-based companyA4e, through its partnership with the local firmHowells, won a series of tenders for CommunityLegal Advice where it’s the second biggestprovider, the Leicester CLAC (community legaladvice centre) and the Hull CLAC (see case study).‘Our view is that ABSs are a good thing,’ said Jon Trigg, the company’s project director. Hedenied the company had designs to takeover a lawfirm.

The Yorkshire firm Switalskis is one of the largest legalaid practices in the country. Was the firm interestedin following the Howells / A4e route? Managingpartner John Durkan said that his firm was ‘notinclined to do that’. What about ABSs? He said hewould ‘never rule anything out’. ‘But we’re making itwork in terms of legal aid - which isn’t to say therearen’t problems with legal aid. There are. But wehave a strong infrastructure and very good lawyers.We don’t want to structurally change and we haveresisted the factory paralegal model,’ he answered.

Tony Edwards, senior partner at the East Londonlegal aid firm TV Edwards also anticipated theLegal Services Act would not provide an immediateopportunity for a structural rethink at his firmbeyond enabling his practice to introduce barristersinto partnership. Over half of TV Edwards’ turnovercomes from defence work and 15 out of 40 feeearners have higher rights of audience, includingthree barristers, and 80% of advocacy work ishandled in-house.

Edwards, who was in charge of the criminal defenceportfolio at the Legal Services Commission until2007, reckoned that the ‘big push by governmentand particularly by the LSC’ was towards bigger firmsdelivering economies of scale (which was a centralidea of Lord Carter’s 2006 market-based proposals toreform legal procurement ).26 ‘What ministers andthe LSC really want is a Serco bidding for contractsfor one third of defence market across the country,’Edwards said; making the point the total legal aidbudget of £2 billion was ‘not unattractive’ to outsideinvestors. However the solicitor asked which bigbrand would want to go into defence work. ‘Youonly have to get an acquittal on a big case and you’redead... “Tesco gets murderer acquitted”.’

The Law Society has made the case that newproviders entering the market as ABSs should bemade ‘to offer financial support to existing lawfirms to safeguard access to justice’. In its responseto the Solicitors Regulation Authority’s consultationon ABSs, Chancery Lane argued through thelicensing regime conditions could be imposed upona licence so as any ABS would have to offer servicesin welfare law or financial help to current providerswhich become ‘imperilled’ by the new entrant.

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26 Legal aid: a market-based approach to reform, Ministry of Justice, July 2006

Lucy Scott-Moncrieff and Richard Barnett bothsupported section 106 ‘planning gain’arrangements for new providers. ‘You might wantto have rules whereby Tesco’s would have tocharge a profitable price so as not to undercutlocal competition by having a loss leader,’ Scott-Moncrieff argued.

Jonathan Gulliford, operations director of Co-Operative Legal Services, called the Law Societyproposals ‘protectionist’. ‘It’s trying to put theproblems of legal aid funded work into the courtsof ABSs. Nobody is asking Silverbeck Rymer orClifford Chance to subsidise legal aid work? To saythat the Co-op isn’t allowed a financial model tocompete with the likes of Silverbeck Rymer in thepersonal injury sector because it has to fund socialwelfare and immigration work is completelyridiculous.’ If there was not enough money in legalaid to make a profit then that ‘needs to beaddressed in a different forum than the LegalServices Act’, he argued.

There was little support elsewhere for the LawSociety proposals. ‘There are some people whobelieve that the current regime is the bastion ofconsumer interests,’ noted Tony Williams, founderof the Jomati consultancy. ‘You only have to lookat the coalminer compensation debacle to see thatwe’re in a profession that has let the consumerdown. We are not starting this from the greatmoral high ground.’ ‘Protectionist moves’ wouldact ‘only to delay rather than to prevent theinevitable changes’, Williams argued ‘Peoplealways say: “Isn't it awful the corner shop isgoing?” Hop in their cars and drive down to Tescoto do their weekly shop,’ he added. Carolyn Reganargued that any cost carried by the private sectormight ultimately be passed on to the Legal ServicesCommission. In the Legal Services Boardconsultation on ABSs it was said that the LSB was‘alert to any risk to our statutory responsibility toenhance access to justice'. ‘However it is not clearthat new entrants represent a real threat to efficientbusinesses or to consumers. It is arguable that thescope to innovate is potentially as great for smallpractices as for larger firms.’

Anybody out there?We also spoke to prospective investors and askedthem how appealing was the legal services market

and what particular areas of interest of legal workwere they interested in. ‘The legal services industryappeals to us because it’s big and fragmented withonly a few really well-managed firms - frankly notmany customers get great value for their spend,’said Jeremy Hand, co-founder and managingpartner at Lyceum Capital. His view was that‘traditional firms’ were ‘facing a fire-stormwhipped up by the recession, smarter customers,technology, outsourcing and legislation openingup the sector to outsiders’. ‘Major structuralchange is inevitable with well-positioned playerstaking market share away from those firms whichcan’t or won’t adapt,’ he said. Private equity had ‘avaluable role to play in supporting the winners -providing capital, expertise and acting as a catalystfor change’. ‘Our approach is to work closely withmanagement teams to establish strong platforms to fully realise the market’s potential -generating significant returns for all stakeholders.’

Lyceum has hired the founder of the Jomaticonsultancy Tony Williams as an adviser. Williamsreported that much of the interest from outsidefinance tailed off in 2009 as a result not only ofthe credit crunch but guidance from the SolicitorsRegulation Authority earlier in the year whicheffectively killed off talks. The SRA has made clearthat a private equity company ‘can’t buy into thefirm until ABSs are permitted’ and LDPs cannotinclude non-lawyer corporate membership. ‘As toan option to buy, firms are warned to take greatcare,’ the SRA added. ‘It could well give rise toproblems under the rules.’

Williams flagged up as the two main areas ofinterest the ‘retail end of the legal market whereboth consolidation and systemisation - IT, callcentres, the Internet etc – would help drive downcosts but also give an opportunity to increasebranding awareness’ and middle-level City firms.As for the former, he pointed to firms ‘in the £10mspace’ that might want to expand their geographic coverage and depth by adding‘another three or four firms to that so that theybecome a £25 to £30 million business’. Williams drew the analogy with the opticians’market when, in the mid-1980s, restrictions onadvertising and the supply of spectacles werelifted.

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The Wider Access, Better Value, StrongerProtection report referenced the same example.The market in glasses had remained pretty muchthe same since 1948 however in the 1980s thegovernment introduced a scheme allowing eligiblepeople NHS vouchers which could be used to buyspectacles of their choice. Deregulation allowedunqualified and unregistered sellers to supplyspectacles. In 2004 a government commissionedpaper on the benefits of competition found themarket for optical services had changedsubstantially: advertising had grown significantlyand the consumer had more choice although itwas ‘inconclusive’ as to whether the glass-wearerswere getting a better deal for their money.27

As the LSB report noted a small number of largeretail players now covered 70% of the marketthough there was ‘still a substantial number ofindependent opticians some of whom offer nicheor specialised services’. The joint venture businessmodel of Specsavers was ‘worth noting’ andthrough its network each practice was anindependent business owned jointly by Specsaversand the practitioners. ‘Specsavers offer economiesof scale in product purchasing, training, supportservices and marketing but the practitioners areresponsible for delivering eye care services and theday-to-day running of the business and areresponsible for meeting regulatory standards,’ theLSB noted. This model combined ‘the commercialincentives’ with ‘incentives to maintain and enhanceprofessional standards’ plus ‘a smoother service tothe consumer while ensuring proper control of thecontribution of individual professionals.’

‘One of the issues that we have not had in the lawup until now is the relevance of the brand,’ saidWilliams. ‘If you start moving towards a brand andthe ability to advertise that brand that costs seriousmoney.’ The ‘Specsavers’ comparison drew an ill-tempered response from the Solicitors SolePractitioners Group. It was ‘facile’ to compare ‘such animportant issue and the English legal system, whichconstitutes one leg of the constitutional separation ofpowers, with the provision of spectacles’.

Aside from the retail end of legal services, TonyWilliams pointed to the middle-level City firms that

were ‘well-run and well-focused that have a clearbusiness plan whether it is to enable them to growor give them a war chest to get the talent in’.Another possible area of interest was enablingexternal investment to facilitate the generationalchange or, as he puts it, ‘ease out the babyboomers’.

A Bloomberg report in August 2009 identified anumber of private equity funds including Lyceum,Fleming Family & Partners Ltd, Phoenix EquityPartners Ltd as actively looking at the UK legalmarket.28 It was also reported that at least oneinvestor, the 133-year-old U.K. stockbrokerPanmure Gordon & Co., decided against investingin law firms after reviewing the possibility whenthe Legal Services Bill was passed two years ago.One funder manager spoke to us off the record.He pointed out that low value, high-volume legalwork was ‘the most sensible approach for privateequity to take’ – for example, claims processing,conveyancing handled on ‘a very mechanised andalmost industrial basis where it is all about IT. Youcan even have outsourcing to India’.

‘But we like to be contrary,’ the banker continued.His interest was in high value City law practicewhich he saw as ‘a strong international brand’.‘UK lawyers are good lawyers and, moreimportantly, UK law is good law and not too costly– well, not as costly as the US,’ he said. ‘It’s agrowth sector and our firms would like to haveaccess to that long-term earning power.’ His firmwas looking to put together a portfolio comprising‘upwards of five firms’ - so as not to be‘overexposed’ to just one firm.

His firm was looking at ‘minority stakes in bigfirms’ with an aim to becoming ‘a long-termsource of capital - quite different to the normalprivate equity model’. He didn’t want outsideinvestment to ‘destabilise firms’. ‘We don’t believein the IPO model where all the old boys gets lots ofmoney and the younger chaps coming can’t seewhat’s in it for them.’ Also, he pointed out thatthere was no ‘exit market’ for law firm investors.‘Who are you going to sell a law firm to? Anotherlaw firm?’ he asked. ‘What is in it for thepartners? It’s an incredibly complex area.’

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27 The benefits from competition: some illustrative UK cases, DTI Economics Paper No 9 (2004)28 Bloomberg, August 3 2009 (Private Equity Considers Investing in U.K. Law Firms)

Interview 3:Craig Holt

Craig Holt is chief executive ofQualitySolicitors.com.

A network of more than 100 law firms which, inits words, was ‘formed as the legal profession’sanswer to the growing threat posed bysupermarkets and banks as a result reforms of theLegal Services Act 2007, widely known as “Tescolaw”’. Membership fees range depending on thesize of firm from £5,000 to £25,000 and firmsrange from sole practitioners to firms likePannones in Manchester which has 100 partners.

How will the legal landscape change post LegalServices Act? The profession is going to be‘brand-dominated’, predicts Craig Holt, a familylaw barrister by background. ‘In a short timebetween now and the full impact of the reformsbeing felt, our idea is to develop a legal brand,’he said.

There has never been a hugely successful law firmbrand in the marketplace. Why is that? Holtclaims to have looked at ‘hundreds of law firmwebsites and brochures over the last fewmonths’. ‘It’s almost impossible as a consumer tobe able to differentiate one law firm fromanother. I can’t tell you the number of websitesI’ve looked at which describe the firm as “modernwith traditional values, forward-thinking with afocus on customer service…” .’ That sort of stockphase was ‘repeated ad infinitum’. ‘If you’re amember of the public it’s almost impossible tochoose between firms and that is why they startthinking: “If I can’t tell the difference, I might aswell just get the cheapest.”’

So how do lawyers create a brand to rival thenew entrants? Holt argues that ‘individually lawfirms have a terrible time trying to develop abrand’ with the exception of the very biggestfirms such as a Russell Jones & Walker or IrwinMitchell. ‘When I spoke to solicitors the picture Igot was a very gloomy, a very pessimistic attitudetowards the future. It was very much: “We’regetting screwed on legal aid, the little bit ofprofitable work that we do is going to go andhow could we possibly compete with any ofthese brand names”,’ he says. The approach offirms was ‘all very individual’ with firms askingthemselves how they could compete.‘Individually, they cannot but the legal professionas a whole is a very powerful body. If you takeeven a reasonable number of solicitor firmsworking together they can have a pretty powerfuleffect between them, especially if can get enoughof a good size and good quality.’

So what message are you trying to communicate? The whole purpose is to developthe legal brand, Holt replies. ‘We have pitchedthe service as having a quality mark aspect,’ hesays. He points to quality marks run by the LawSociety such as Lexcel or membership of thevarious panels ‘however none of which have beenpicked up upon by the public’ because of ‘a lackof marketing and a degree of scepticism by thepublic at quality marks given by other lawyers’.QualitySolicitors.com claims to assess memberfirms and has a selection committee (‘but we donot pretend that we have the resources toconduct a big audit’). Member firms have toenjoy an ‘over 95% positive feedback frommembers of the public’. ‘The focus of themarketing is that these are a group of lawyerschosen by you, the public,’ Holt says.

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“At the end of the day we are all running businesses and anybody who runs a law firmtoday like they were run 50 years ago just isn’t going to be around for much longer.”

Martin Cockx, Amelans

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“There are some people who believe thatthe current regime is the bastion of

consumer interests. You only have to lookat the coalminer compensation debacle tosee that we’re in a profession that has letthe consumer down. We are not startingthis from the great moral high ground.”

Tony Williams, Jomati Consultancy

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Is the prospect of ‘Tesco Law’ goodfor the consumer?

So, what might the post-Legal Services Act worldlook like? ‘My prediction is that there will besomething like ‘Halifax’-solicitor branches inshopping centres up and down the country,’ hesays; arguing that the Tesco Law model is‘interpreted very narrowly’. ‘I speak to firms allthe time who take the view that they don’t needto worry about the Legal Services Act becauseTesco Law clients are a very different clients totheir clients.’ Lawyers are wrong to dismiss thethreat as more ‘cheap conveyor beltconveyancing services’. ‘There will be a wholerange of brands, both premium and cheap and

both specialist and generalist – and it won’t justbe the nightmare Tesco Law scenario of a bigfactory in a call centre where nobody sees theirlawyers.’

Does the word ‘solicitor’ have a positiveconnotation? Why use it? Holt said they were‘trying to break down a negative profilethrough the marketing’. ‘It has a good profile interms of being a profession, offering qualityadvice but overall I’d say “No” it doesn’t have agood profile. I do not think that perceptionreflects the reality though.’

OverviewIn October 2009 Lord Hunt of Wirral delivered aLaw Society-commissioned report into the newregulatory regime.29 The Tory peer came up withno less than 88 recommendations, includingcalling for a greater degree of regulatoryautonomy for firms with strong governancemechanisms to some more surprisingrecommendations, such as a Hippocratic Oath forsolicitors. The sheer number and range of therecommendations illustrates the breadth of thedebate to be had about the new regulatoryarchitecture needed to be constructed on what thesolicitor-peer called this ‘radically new andunfamiliar landscape’.

Lord Hunt considered at some length how topreserve in a meaningful way the brand of‘solicitor’ in a homogenised post-Legal Services Actworld. ‘We must not be snobbish or arrogant onthe subject of professionalism,’ he wrote. ‘Anyonecan do his or her job, or discharge any kind ofresponsibility, in a “professional” or “unprofessional”manner. Street cleaners, sound engineers, busdrivers, shop cashiers and anyone else in any walkof life can be “professional” or not - dependingupon whether or not they perform their tasks tothe best of their abilities, prove to be reliable and

honest, conduct themselves in a timely and courteousfashion and so on. That does not however make whatthey do a profession. A profession is defined bycertain shared qualifications, values and principles.’

Lord Hunt, who described himself in his report’sintroduction as an ABS ‘sceptic’, went on to arguethat in a ‘more open market’ solicitors would haveto ‘justify’ the high level of service they want toprovide. He argued that professionalism mattered‘as much in the 21st century as it did in the 16thcentury’ because it codified ‘the idea that lawyers’responsibilities [went] beyond the mere contract ofemployment’. ‘The combination of ingrainedintegrity and ethical policies unites the entireprofession and helps to give us our distinctiveidentity,’ he said. Solicitors, he urged, should‘vigorously reassert their professional standards’.

Slipping standards?We began this section on regulation by askingrespondents whether ‘standards ofprofessionalism’ would slip in the wake of theLegal Services Act. We also inquired whether theSolicitors Regulation Authority (SRA) was the rightmodel of regulation for the solicitors’ professionand whether the profession would benefit fromsector-specific regulation.

The last substantive section of the Big Bang questionnaire considered issuesto do with the new regulatory framework and the handling of complaintsby the profession. The Legal Services Act created the new Legal ServicesBoard as arch regulator ‘with the power to enforce high standards in thelegal sector’ and which would replace the ‘maze of regulators’ with their‘overlapping powers’ to deliver a clear set of regulatory objectives.

It also created the independent Office for Legal Complaints ‘to removecomplaints handling from the legal professions and restore consumerconfidence’ and which would act as an independent ombudsman service forall consumer complaints about legal services whoever has provided them.

Chapter 4: The fall-out

27

29 The Hunt Review of the Regulation of Legal Services, Law Society, 2009

Sole practitioner Ian Lithman complained of ‘animmense growth in terms of the amount ofregulation’. However, the solicitor acknowledgedthere were ‘certain aspects which have helpedenormously in reducing clients complaints’. ‘Goingback 20 years, solicitors never bothered telling theclients what the service was going to cost andnever tried to guess even. The client got upset.’The advent of client care letters had ‘stopped a lotof complaints’, he added. ‘Clients have become farmore aware of what’s been going on as we’vemodernised. They’re getting much moreinformation.’ However the sole practitioner’s viewwas that the volume of regulation was now‘overbearing’.

Most would agree that the highest standards mustbe observed and monitored but how that wastackled was ‘a difficult issue’, began JonathanRees, a partner at Hugh James. ‘Some would saythat the regulator working with the profession tosee obligations are observed, working on deliveringa consistency of approach, and collaborativeworking together rather than seeking to catch outerrant practitioners and similar initiatives mightbring about improvement,’ he argued. Insofar asstandards of professionalism being further eroded,Rees argued that ‘by removing barriers to entry [it]could bring about “a cutting corners” culture’which might be ‘further fuelled by the inevitableperiod in which a new regime would be said to bebedding in’. ‘The phrase “kids with headsets” hasbeen overheard disparagingly in this regard and isa troubling vision of the future for many,’ he said.

Was the SRA the correct model of regulation? IanLithman acknowledged a consensus view from theCity (that sophisticated corporate clients neededless protection than the relatively less wellinformed clients of high street lawyers) butreckoned that the SRA had ‘got its act together toa great extent and, provided it had time to sortitself out, yes, it will be able to do the job’.

As to whether standards would slip, RichardBarnett, senior partner at national volumeconveyancing firm Barnetts, was unsure (‘Nobodyknows. Probably.’) The solicitor made the case for‘silos’ with regulation attuned to law firm typeallowing, for example, for conveyancing to beregulated differently from personal injury (‘referral

fees, for example, work very well in conveyancingwhereas they might not elsewhere… ’). ‘If you areover-regulating conveyancing then it doesn’t bringany added value to the consumer. … There shouldbe a level playing field so I should not be penalisedas a volume conveyancer being regulated by theSRA as against a volume conveyancer regulated bythe Council for Licensed Conveyancers (CLC).’ Heargued that the issue would come to a head when,for example, under the ABSs regime ‘a blue-chipcommercial organisation’ opted for CLC regulationwhich, in his view, would be ‘an incredible slap inthe face to the solicitors’ brand and the SRA’.

Sector specific regulation seemed ‘superfluous’ toJon Rees. ‘Yes, the practices of high street and Citylawyers differ in many ways but they share muchmore when it comes to professional principles andthe matters making up the main body of theregulatory code,’ he argued. ‘Split sectorregulation could lead to a split profession. It couldcause chaos for the vast majority of practitionerswho do not fit squarely into a single sector andcould lead to some less lucrative areas of the lawbeing abandoned or under provided for creatingits own social and economic costs.’

No light touchRespondents were also asked if consumers weregoing to be better or worse protected post-LegalServices Act and whether the profession’s ability todeal with complaints effectively and speedily wasstill critical in terms of protecting the profession’sreputation.

Ian Lithman agreed that the situation overcomplaints-handling had ‘improved enormously’.He pointed to the common misconception thatsole practitioners were responsible for the majorityof complaints (in fact, 44% of firms are solepractitioners but only generate 8% of complaintsreceived by the Legal Complaints Service). ‘Thesituation is improving all the time and consumershave no real cause for complaint,’ he added.

In July 2009 the Legal Services ComplaintsCommissioner, Zahida Manzoor, who has proved afierce critic of the Law Society, said that the legalprofession was ‘now a world away from theproblems in complaints handling’ that led to herappointment five years before. The Legal

28

Complaints Service and SRA had hit 12 of 14targets imposed by Manzoor and she reported thatcomplaints were generally concluded within 12months. This represented ‘a sound platform’ fromwhich to launch the new Office for LegalComplaints (OLC) which replaces the LegalComplaints Service next year. However there wasnot much room for complacency. Manzoorreckoned the ‘year on year’ increase in complaintsabout solicitors ‘must be a warning sign’ for theOLC. ‘The Legal Services Act places an onus onfirms to get it right first time,’ she said.

Maintaining standards was ‘vital otherwise ourreputation with the public will just deteriorate’,began Anthony Hughes, chief executive of thedefendant insurance firm Horwich Farrelly. Heargued that the demystification of the law that‘Tesco Law’ was supposed to deliver might actuallyplay against the interests of the lawyers. ‘Thisperception of us being in our ivory towers clearlyisn’t great. But also it’s not too bad if, because ofthat perception, clients feel that they are going toget a good service going to a solicitor.’ Theprofession didn’t want ‘situations akin to the PPI(Payment Protection Insurance) mis-selling’because of, for example, supermarket retailersmoving into volume services. Hughes felt it was‘too early’ to decide whether the SRA was thecorrect model of regulation. ‘The only thing I’d sayis I’d like to see them adopt a “can-do” attitude toassist the profession,’ he added. ‘They have areputation for having a “can’t do” attitude.’

Regulatory holeNick Smedley, the senior civil servant commissionedby the Law Society to look at the regulation ofcorporate legal work, took a fairly bleak view ofthe profession’s ability to look after City clients. Hereckoned that next major scandal in regulatoryfailure could strike in the legal profession, sofailing was the SRA at policing commercial work.Smedley argued that regulation under the SRA did‘not address the true risks adequately’ while‘perhaps trying to address all sorts of non-risks’ byfocusing on ‘minor, routine matters’.30

The gap between the SRA’s skills and the complexwork of business lawyers was ‘too wide to enablethe SRA to act with confidence and competence’.Nor did the regulator pay its staff enough and itsbase (in Redditch and Leamington) inhibited ‘activeengagement and contact’ with firms based in thesquare mile. ‘The SRA has entered this sphere ofactivity with inadequate understanding and limitedtime to plan, prepare and gear up,’ the reportconcluded.

Smedley, who used to work in the Ministry ofJustice, proposed the creation of a ‘corporateregulation group’ within the SRA headed ideally bya ‘very senior and highly experienced lawyer’.Smedley denied any suggestion of light touchregulation for the City arguing, instead, thatpresently there was ‘virtually an absence ofregulation’ in the City with the exception of ‘highprofile long drawn out investigations’ into theconduct of a couple of firms (which he called ‘arather over-engineered response to a couple ofsituations after the event’.)

According to Hunt, many lawyers he spoke to werecritical of the Smedley proposals ‘for fear theymight divide the profession. I would not like to seethis profession divided because I strongly believe inthe old maxim about the benefits of standingunited.’

29

18%18%

14%14%

68%68%

18%

14%

68%

Will firms come under more mediascrutiny as a result of the regulatory

changes taking place?

30 Review of the regulation of corporate legal work, Law Society, 31 March 2009

“The phrase “kids with headsets” hasbeen overheard disparagingly in this

regard and is a troubling vision of thefuture for many.”

Jonathan Rees, Hugh James

However that wasn’t the view from the largest Cityfirms. Inevitably, they were disappointed withHunt’s apparent retreat from Smedley proposals. ‘Ido not think that standards of professionalism willslip, if anything they are going to improve,’ saidChris Perrin, Clifford Chance’s general counsel. Heargued that the effect of the Legal Services Actwould be to make front-line regulators and inparticular the SRA ‘ratchet up what law firms haveto do to run in a good and professional manner’.

Michael Pretty, executive risk manager of DLAPiper, rejected sector-specific regulation on thegrounds that it ‘would result in a fragmentedprofession’ which ‘would be counter productive’.‘Nevertheless, a one size fits all model, like thecurrent SRA, is not a solution either. A singleregulator can regulate the full spectrum of theprofession if, one, it has resources the teams whichsupport each sector with personnel with the rightbackground and skill set and, two, the supervisorymethodology applied is tailored to each sector.’

Chris Perrin believed that the Smedley report‘addressed and answered pretty much all of thepoints’ raised by the biggest City firms. Hunt’sproposal was for ‘authorised internal regulation’,self-governance for those firms that demonstraterobust compliance and governance standards. Thepeer argued that ‘the first wave of AIR firms shouldconsists largely of larger, corporate firms’. Perrin,chairman of the City of London Law Society’sregulation committee, argued that Hunt had‘rather missed the point’ of Smedley and ‘got thenuances wrong’.

The City firms were ‘trying to address a glaringhole in relation to the way that the big firms wereregulated’, said Perrin. What did he think ofauthorised internal regulation? ‘We are not seekingto regulate ourselves. If that is what Hunt is really

suggesting he’s barking up the wrong tree,’ hesaid. ‘What we envisaged is that under theSmedley model you’d have a small number ofregulators who are experienced in City work andwould understand what the large firms are doingand have regular contact with those firms andpeople like me in those firms.’ A level of expertiseand greater contact would create ‘an opendialogue between firms and regulators’ leading to‘a general increase in standards for all firms’.

‘We aren’t expecting to get off lightly at all,’ Perrinsaid. ‘The effect of Smedley would be that thelarger firms are getting much closer attention thanthey have been having and we are certainly notasking for light regulation.’ How would such amodel be funded? Smedley reckoned that the newunit could cost ‘£3 to £4 million extra’, mainlybecause of staff salaries (including, Smedleyrecommended, a salary of around £700,000 forthe director) and relocation costs. That issue had‘yet to be addressed’, said Perrin. ‘My view is thatthe larger firms already subsidise the regulation ofthe profession. We’re paying far more than whatwe get back from the regulator. The ten biggestfirms pay about £11 million a year. A huge amountof money.’ If the SRA implements the sort ofregulator that those firms think necessary ‘then weaccept we might have to pay a bit more’ but theywould not be willing to pay ‘what we are payingnow plus the cost of putting this right’.

The Legal Service Board’s David Edmonds offered a ‘slightly guarded’ response to Hunt’s call for authorised internal regulation. ‘A regulatorwhether it’s me or the SRA has powers, duties andresponsibilities,’ he said. ‘You have to be absolutelysure that the standards applied are consistent withgood regulation. You do not get off easier becauseyou are a City firm, that’s not what regulation isabout at all.’

30

“My firm view - of course I may be wrong- is that it is already all over for many firms

of solicitors.”Kerry Underwood, Underwoods

Case Studies

Case study 1: The Co-Op

Eddie Ryan, managing director of the Co-Operative Legal Services, and Jonathan Gulliford, operationsdirector, discuss where legal services fit with the Co-Op’s brand.

How important is legal services to the Co-Op brand? The provision of legal services is ‘a really good fitwith the Co-Op’s principles and ethos’, reckons Eddie Ryan. ‘Members feel warmth and an allegianceto the brand. The provision of legal services isn’t something that the Co-Op has played to in the past.There is an awareness-building exercise needed. We are hoping those brand values translate to legalpractice and into a trust that members will place with us.’

How many Co-Op customers might be interested in legal services? At the moment there are morethan three million Co-Op members who have access to legal advice as part of that membership plusone million Co-Operative Insurance policyholders who also have access to the legal services. ‘We’relooking to the provision of legal services as an inducement to come and join the Co-Op,’ says Ryan.The retailer viewed the provision of legal services ‘as one of those potential opportunities to provide aunique service to members at a time of difficulty, distress or need and to be seen to be addingsomething back to the community’.

What legal services are available to members? ‘Members have access to free legal advice through ourtelephone-based service – and that is open to all members on any consumer-related matter. It doesnot cover business-related matters,’ replies Gulliford.

Gulliford says that the ‘basic entry point’ to all members is that they have access to free legal advice.‘That’s a benefit of their membership, they do not pay for it and it could be for as long or as short asthey want it to be on the telephone’.

‘Co-Op members tend to be in the C2/D social class grouping,’ he says. ‘They aren’t the sort of peoplewho have a couple of hundred quid in their pocket to get hours of legal advice and they are not thesort of people who feel comfortable in solicitors’ offices.’

Many people might be Co-Op members but are they aware of its legal services? It takes time to buildrecognition in the membership, Gulliford answers. Over summer 2009 the retailer began a mediacampaign featuring in-store radio, till screen displays and door-to-door leafleting. ‘About 15 millionpeople walk through the stores every week,’ Gulliford says. ‘The proposition is that they can join theCo-Op very quickly and avail themselves of those services.’

What is the promise of the Legal Services Act for the retailer? ‘We want to be on equal footing withthe high street as to who can do the work and how they do it,’ says Gulliford. What about a physicalpresence? ‘Most legal services you don’t need to walk in and see a lawyer,’ he answers. ‘Where it’smost necessary we will visit people in their own homes, particularly for areas of law like probate orpersonal injury and we will go out and make it convenient for our customers.’ Gulliford says that theCo-Op plans to build its own in-house legal capacity retaining a panel of firms only to the extent thatit needs ‘a release valve’.

Case study 2: the Halifax

Joel Ripley, head of Halifax Legal Solutions, talks about the bank and legal services.

Over the summer of 2009 Halifax expanded its legal services by launching an online ‘pay as you go’legal document production and advice service called Halifax Legal Express which was described in theLaw Society’s Gazette as ‘the first move from the big brand organisations since the recession hit andthe banking sector fell over’* . Halifax Legal Express offers three levels of service: ‘self-serve’, customerscan use one of 150 DIY legal documents; ‘lawyer review’, oversight by their legal team; and ‘lawyerservice’, bespoke input from a lawyer. A will for a married couple is priced at £48, £74 or £99depending on which level is chosen.

How long has the Halifax been involved in the legal services market? Joel Ripley calls Halifax LegalExpress ‘our second dawning of a more formal market entry’. At the end of 2006 Halifax LegalSolutions was launched and the new service compliments that annual subscription service (availablefrom £9.99 a month). However Ripley points out such services are ‘nothing new in terms of ourinvolvement in this market’. The Halifax has been offering Will-writing services to high net worthclients for a decade as well as conveyancing services to mortgage customers, and probate advice forthe last four years.

How many customers does the Halifax have? Halifax has ‘at least 20 million ’ and with the mergerwith Lloyds TSB ‘going on for 30 million customers’, Ripley says.

Will the Halifax use the Legal Services Act to develop an in-house capability? No, Ripley replies. ‘Wehave always said we had no intention to buy a law firm or to create a law firm in-house. What weneed to do and what we strive to do every day is to serve our customers’ needs as well as possible atan everyday price. Nothing will change as a result of the Act.’

Why not buy a law firm? ‘We’re a bank, not a law firm,’ replied Ripley. ‘Our specialism is banking andwe are focused upon offering the very best service in banking. If our customers have legal needs welike to be able to offer them a solution but we are not lawyers.’

Does Halifax’s interest in the legal sector amount to a threat to the high street? ‘We’re not offeringanything that should be seen as a threat [to them]’, he says. ‘High-street lawyers generally provide anexcellent customer service to their client-base and those that continue to offer an excellent service totheir customer base will continue to survive and thrive’, says Ripley. ‘The customers we’re trying toserve are those who are nervous around legal services or who have the perception that it will costthem an absolute fortune. We are trying to address those needs by saying we are a brand name thatyou can trust, one that you're familiar with and one that you’re quite comfortable disclosing all yourpersonal financial information to each day, everyday. You can trust us. Our brand is all about trust andwe can help you get the very best legal services at a transparent price.’

Ripley argues that the Halifax is ‘trying to activate that part of the market that is dormant’. ‘There is agenuine legal need from people who will not even look at lawyers because they are too scared of theprice.’ He described Halifax Legal Express as ‘a marketing channel for customers into the legal servicesmarket’. ‘We don’t intend to be a product provider.’

* The Law Society Gazette, 23 July 2009 (Halifax Legal Express and the fierce urgency of now)

Case study 3: A4e

Liton Ullah, senior business development manager at A4e talks about the company’s developmentinto the legal services market.

A4e is the Sheffield-based ‘welfare-to-work’ business run by the multimillionaire business womanEmma Harrison. The company was set up in Sheffield in 1987 as the steel industry was laying offworkers in their tens of thousands. Its founder Emma Harrison prides herself on the social benefits ofher business – ‘finding people jobs, tackling social injustice’, as she puts it.

Why is A4e qualified to provide legal advice? ‘If you go back to why we entered the legal aid market itwas part of a natural process and evolution for the business,’ says Ullah. He points to the company’scommitment to its client group. ‘We have been a welfare-to-work provider for over 20 years and workwith people who are the furthest removed from the labour market, the most socially excluded andvulnerable and who have a need for our welfare services whether it’s legal aid, health, education, orfinancial inclusion advice services.’ The company, together with the legal aid firm Howells, hassuccessfully won contracts to run Community Legal Advice Centres in Leicester and Hull in partnershipwith the local councils and the Legal Services Commission. Howells provides ‘70% of headcount’ andA4e provides the management and back office services. A4e / Howells is also the largest nationalprovider of Community Legal Advice, the telephone advice line, providing advice to people on debt,housing, employment and welfare benefits issues.

Is the Legal Services Act an opportunity for A4e to develop into legal services? ‘Yes, but not just for us.It is an opportunity for the whole market,’ says Ullah. ‘In terms of our ambition, there isn't a masterplan to take over the legal aid world.’ A4e’s ‘firm commitment’ is the legal aid market place, repliesUllah. ‘You have to be in it for the long term to genuinely make an impact.’

Is there enough money in legal aid to satisfy a commercial organisation like A4e? Ullah replies bysaying that A4e is ‘acutely aware from delivering our service that the margins aren’t massively high’.‘There has to be a genuine passion and commitment,’ he says. ‘Legal aid is classed as an essentialwelfare service but if you compare it against the likes of health and other essential services the £2billion budget for legal aid wouldn’t keep the NHS going for a matter of weeks.’

Some legal aid lawyers have taken the view that A4e is a threat to their practices. What does A4e sayto them? ‘We do not accept it; but at the same time we can understand it.’ Ullah points to theirrelationship with Howells, which provides 95% of its work in legally aided areas of law and its‘exponential growth’ in the last two and a half years. ‘Instead of being a threat that should be areassurance to the marketplace that things can actually improve,’ he says. Ullah argues that, with theprospect of ABSs and the changes in the procurement of legally aided work, many firms will not becapable of investing the resources into ‘bidding for contracts and raising capital to take on all theprocurement challenges that the market is throwing at them’. ‘How are they going to cope withthat?’ he asks.

Case study 4: Which?

Steve Coyle, head of Which? Legal Services, discusses their legal offering.

Which? is an independent not-for-profit consumer group with around 44,500 members. It employs15 lawyers and the legal helpline took approximately 42,000 calls last year.

So what does ‘Which? Legal’ comprise? According to Steve Coyle it is ‘a telephone legal advice serviceoffering independent, affordable expert advice’ manned by lawyers. The service has changed frombeing a benefit for members to being a service open to the general public over the last two years.Coyle describes the areas of law that it covers as including: ‘consumer law; problems with goods andservices; employment advice to all UK employees; appealing clamping and parking fines; holidayproblems; labour disputes’ plus an online Will creation service. The price for the general public is £51a year and ‘for that you can make as many phone calls as you want to’. ‘Some people use it as a formof “peace of mind” insurance and don’t ring often but it’s there when they want it to,’ he says. Formembers it costs £39 a year.

How do you want members to perceive this service, as an additional membership benefit or analternative to high street legal advice? ‘Possibly a bit of both,’ Coyle replies. ‘Consumers are saying Idon’t want to see a solicitor on this but I want to know what my rights are.’ Coyle (a non-lawyer) hadrecently had his own case concerning a wooden shelf worth £30. ‘I’d never have dreamt of going to ahigh street solicitor to have talked about that. It would have been a complete waste of my time and acomplete waste of their time, however, talking to one of my colleagues here within two minutes I canfind out what my rights are.’ He points to a ‘large volume of low value cases which are still criticallyimportant to the consumer’ which otherwise would not be pursued.

What are your ambitions for the service? ‘It’s not a case of wanting to be a one-stop-shop foreverything,’ Coyle replies. ‘Our ambition is to continue to aggressively grow both the membershipbase and the services within membership price.’

Is the Legal Services Act an opportunity or threat? It is ‘a great opportunity’, Coyle replies. ‘I'm lookingforward to not being so restricted.’ Which? is in the ‘fairly unique position’ of being a charity offeringlegal advice and is constrained by Law Society rules so that they can only offer telephone legal advice.He is looking forward to members being able to e-mail them with documents for review.

Any plans to take over a law firm and rebrand it under the Which? banner? ‘No current plans. We arefocused on helping the consumer and looking at consumer detriment and campaigning for thatconsumer detriment to be rectified. Our legal services help consumers. We don’t want to move awayfrom that core niche.’

How important is brand? Which? has ‘an incredibly strong ethical presence in the consumer’s mind’,Coyle says. ‘The name stands for a lot and that’s one thing that we look to protect as much aspossible as well. Our mantra is that we exist to make individuals as powerful as the organisations thatthey have to deal with in their daily lives.’

Case study 5: DAS

Kathryn Mortimer, head of legal services at DAS Legal Expenses Insurance, talks about the impact ofthe Legal Services Act. DAS handles 30,000 claims a year through motor insurance and householdinsurance policies sold by intermediaries. It has 15 to 20 law firms on its panel.

The Legal Services Act, opportunity or threat? ‘For us it presents a fantastic opportunity to open uplegal services directly under a DAS banner to policyholders,’ Mortimer replies. She argues that‘provided that issues of conflict and regulation can be properly addressed, and I am sure they can’DAS would see it as doing ‘exactly what Clementi intended’. ‘It’s all about opening up of the legalservices market to as many people as possible at as little cost as possible.’

What would DAS like to achieve? ‘For us, it’s one step at a time,’ Mortimer said. The ‘immediateproposal would be for at least a proportion of claims that arise under the insurance policies to gothrough a law firm which we have either ownership of or a working relationship with where we canhave control over costs’.

Such a firm might be ‘a fully owned subsidiary of DAS’. ‘It would operate independently because Ithink the Legal Services Board wouldn’t want to see the independence of the law firm and the lawyerscompromised by the referrer’. Is that frustrating? ‘No, not at all; as a lawyer myself I think that’sabsolutely right. That would give comfort to the clients and to the regulators that there was nocomprising the quality of service or independence.’ However the arrangement would mean ‘we coulddrive down costs even further because as a large insurer we will be able to invest in systems, staff andeverything that volume related businesses requires’.

Is there a connection between DAS’s aspirations and those of Lord Justice Jackson’s review of costs?Absolutely, says Mortimer. ‘His remit is access to justice at a proportionate cost; as a legal expensesinsurer we are waving that flag very clearly. For a very small premium we’re meeting up to £50,000worth of legal fees but that could go a great deal further and do a lot more if we had closer control ofcosts.’

What are your ambitions under the Legal Services Act? ‘As well as being ‘regarded as a leading legalexpenses insurer (LEI) in the UK we would also be a leading provider of legal services’, Mortimer said.‘We aren’t proposing to be a Linklaters but we are proposing to provide legal services to people andindividuals who might otherwise not be able to get access to justice.’ The criticism of legal expensesinsurance is many people have it – although they aren’t aware of it and don’t rely on it. Will LEI takeoff? ‘It already has,’ replied Mortimer. ‘We are underwriting 10 million policies at the moment.’

Life after the Big Bang is a research project by legalPR specialists the Byfield Consultancy. It is beingrun by freelance journalist Jon Robins.

We are grateful for your support in this surveywhich concerns the impact of the Legal ServicesAct 2007 on the legal profession.

We would be grateful if you could complete thefollowing questionnaire by Friday, August 7th. Theaim of the project is be the most comprehensivesurvey of the legal profession in relation to how itresponds to the Legal Services Act (LSA) and, inparticular, its communications challenges. We will becanvassing the views of legal practices from the City tothe high street including solicitors, barristers, licensedconveyancers, legal executives as well as non-lawyerbusinesses. We will be talking to senior partners, PR/ marketing directors, and chief executives.

The report will be published in November 2009.

Thee questions ask for ‘yes’ or ‘no’ answers. Pleaseanswer all questions - and include reasons forthose questions which have a particular concernfor you. The research will be based on both theresults of the questionnaire and follow-uptelephone interviews over the next few weeks.

General1 Do you believe that the legal profession has a

good public profile? Yes / No / Not sure… please state reasons…

2 Will the liberalisation of the legal servicesmarket give the profession a better publicprofile? Yes / No / Not sure… please statereasons…

3 Does the importance of a good profile increasewith the implementation of the LSA? Yes / No / Not sure

Legal disciplinary partnerships4 Have you or do you intend to apply for LDP

status? Yes / No / Not sure5 Do clients want non-lawyers in top

management positions? Yes / No / Not sure6 Do lawyers want non-lawyers in top

management positions? Yes / No / Not sure…please state reasons…

7 Do non-lawyer partners dilute the law firmmodel (i.e., through the sharing of equity)?Yes / No / Not sure… please state reasons…

8 Is there PR value in having a non-lawyer at thehead of a law firm? Yes / No / Not sure

9 Is there PR value in being an early adopter? Yes / No / Not sure

10 Is being a non-lawyer partner more of aresponsibility than a privilege, especially in aneconomic downturn? Yes / No / Not sure…please state reasons…

11 Does your firm already have non-lawyersinvolved in its management? If so, doespartnership status make a difference? Yes / No /Not sure… please state reasons…

Alternative Business Structures12 Is the prospect of ‘Tesco Law’ good for the

consumer? Yes / No / Not sure… please statereasons…

13 Will the present economic conditions acceleratethe take up of ABSs? Yes / No / Not sure

14 Are you interested in external sources ofinvestment to fund the growth of your firm?Yes / No / Not sure… please state reasons…

Appendix 1:

Big Bang questionnaire

Life after the Big Bang: opportunities and threats

15 Are private equity houses interested in investingin firms? Yes / No / Not sure… please state reasons…

16 Is public / client perception a factor indetermining law firm model? Yes/ No / Not sure… please state reasons…

17 Do conflicts of interest present problems forABSs? Yes / No / Not sure

18 Will the ABS regime (coming into force in2010/11) conflict with the LDP regime? Yes / No / Not sure

Legal Services Board19 Will regulatory standards of professionalism slip

post-LSA? Yes / No/ Not sure… please state reasons…

20 Is the SRA the right model of regulation for thesolicitors’ profession? Yes / No / Not sure

21 Does the profession need sector-specificregulators – separate for City, high street etc?Yes / No / Not sure… please state reasons…

22 Will firms come under more media scrutiny as aresult of the regulatory changes taking place –i.e. a more transparent and accountableprofession. Yes / No / Not sure

Office for Legal Complaints23 Are consumers going to be better or worse

protected post-LSA? Yes / No / Not sure24 Is the profession’s ability to deal with

complaints effectively and speedily critical interms of protecting the profession’sreputation? Yes / No / Not sure

Reputation… and challenges of the LSA25 Are you thinking about the communications

challenges that the LSA brings? Yes / No / Notsure… please state reasons…

26 Will you be increasing your overall PR spend asa result of the LSA? Yes / No / Not sure

27 Are you concerned about the marketingbudgets that big brand entrants have at theirdisposal? Yes / No / Not sure

The Byfield Consultancy(www.byfieldconsultancy.com) is a specialist PRagency dedicated to the legal profession headedby directors, Gus Sellitto and Richard Elsen. Withmore than 20 years experience of working withlaw firms, barristers' sets and legal associations,Byfield offers specialist expertise in profile buildingPR services, crisis management and litigation PR.

Jon Robins (www.jonrobins.info) is a freelancejournalist and author. He has been writing aboutthe law and legal issues for the national andspecialist legal press for over a decade. His latestbook The Justice Gap: Whatever happened to legalaid? (Legal Action Group, May 2009) looks at thestate of access to justice.