The UK crucible

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North American lawyers have been fretting lately about the effects of this recession and what it means for their future. But the recession is only an amplifier or accelerator of change, not its source, and it doesn’t tell us much about the shape of things to come. If you  really want to know what the future looks like, peer across the Atlantic at the revolution now firmly and irreversibly underway in the United Kingdom. But be prepared before you look — otherwise, you might feel like the valedictorian in Say Anything: “I’ve glimpsed our future. And all I can say is … go back.”

* Last month, the Legal Services Board (the new overall regulator of all UK legal services providers) issued a discussion paper asking for lawyers’ input on what Alternative Business Structures (ABSs) should look like. An ABS allows traditional legal services to be delivered through a vehicle other than the traditional partnership of lawyers — most famously by non-lawyer financing or ownership — and constitutes the keystone change to law firm structure envisioned by the Clementi Report and subsequent Legal Services Act. Responses to the paper are due within two months; ABSs themselves are scheduled to be unleashed in just two years. This excerpt from the paper’s executive summary should make the Board’s mandate and outlook very clear:

For centuries, legislation and professional regulatory rules have tightly restricted the management, ownership and financing of organisations that are permitted to offer legal services. Although the UK’s legal services sector is internationally competitive and highly regarded, these regulatory restrictions have stopped it from realising its full potential. Regulation has limited innovation and competition in the way that legal services are delivered. It has constrained consumer choice and restrained normal market pressures on law practices to deliver their services efficiently and effectively. Regulation has gone beyond what is rightly necessary to protect citizens from the unethical practices of a tiny minority to a framework which has restricted businesses and consumers alike. At the heart of the new regulatory environment for legal services is a process for scaling back these restrictions.

* Earlier this month, the Solicitors Regulation Authority (the lawyer governance body spun off from the Law Society earlier this decade) issued its own complementary consultation paper on ABSs. Here’s a summary posted by leading UK consultant Nick Jarrett-Kerr at Linkedin’s Legal Innovation Group:

“[T]he SRA lists 11 possible models for [ABSs] and asks for comment. They include the current [Legal Disciplinary Practice] model (mainly lawyers, but with some non-lawyer managers), two models of totally externally-owned law firm, the [Multi-Disciplinary Practice], the co-op model (externally owned, providing funeral services, etc., as well as legal), PE investment model, floated company, “hub & spoke” (where a non-licensed hub such as an administration company provides back- and middle-office services to law firms who make up the spoke), the Australian Integrated Legal Holdings model of consolidated ring-fenced firms, not-for-profit firms, and in-house teams.”

* Small-firm and sole-practice lawyers are not taking these developments lightly. The introduction of the ABS model “demonstrates utter contempt for the consumer of legal services,” QualitySolicitors.Com CEO Craig Holt told the BBC. “The solicitor profession faces being all but wiped out by a government seemingly intent on robbing the public of access to good quality, local legal advice.” Mr. Holt’s organization pressed its point at a protest last week outside a UK supermarket chain that, as the current saying goes, could soon be selling legal services along with tins of beans.

* Whatever the merits of their position, lawyers opposed to these changes have legitimate reasons to be anxious. More than 16,000 legal jobs disappeared from the UK in 2008 and 10,000 more are expected to go within the next two years. The prognosis for these unemployed practitioners is ugly: Lawyers who fall out of work have little hope of finding new jobs, with vacancies for associate solicitors down by 95 per cent this year, recruiters said. “It’s the worst year ever, by some margin,” Nick Root, founding partner of Taylor Root, a leading recruitment agency, said. “Those people who are being let go will not get another job.”

And there’s more. Linklaters’ managing partner Simon Davies: “[B]ecause of the changes brought about by the developments of the past year or so, much of that work will never come back – or at least not in the foreseeable future.” Stikeman Elliott’s London managing partner Derek Linfield: “This is like nothing any of us have seen, and no one has any idea how this is going to end up.”

* North Americans might not realize that the recession is hitting the UK and Europe harder than the US and Canada. But the changes to legal practice prompted by the downturn will last well into the recovery. Here are two to get used to. First, the UK government is instituting a reserve auction system for criminal legal aid work that will essentially award legal aid contracts to the lowest bidder in the name of “efficiency,” with predictable effects on the defence bar. Meanwhile, putting a major scare into big firms, gigantic Anglo-Australian mining company Rio Tinto has announced it’s outsourcing large chunks of its legal work to a dozen lawyers with CPA Global in Delhi. Rio aims to cut $100 million from its annual legal budget in the process and free up its internal lawyers for more complex work — and it expects its outside counsel to play along. (More on this in a separate post next week.)

Not everything coming to pass in the UK will migrate to the New World — but a lot of it will, and the changes that do occur are likely to stick. Expect some form of regulatory reform in the US and Canada within the coming decade, law firms forced by regulators or clients to redefine themselves and their business models, more lawyers losing full-time jobs and fewer full-time lawyers hired to replace them, lawyers figuring less and less prominently in the provision of publicly funded legal services, and nastier competition between remaining lawyers for fewer client dollars. Love it, like it, fear it or hate it, but don’t ignore it or pretend it couldn’t happen here — there’s not much here so unique to the UK that it can’t be exported worldwide.

The UK legal profession is entering a trial by fire, a crucible from which it should emerge smaller, leaner, more entrepreneurial by necessity and more captive to the demands of the client marketplace. Take a good look at that crucible, because it’s coming soon to a law practice near you.

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