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What the UK Legal Services Act 2007 may change
John, in the eyes of many of us one of the latest events with the potential of enormous impact on both the UK and the global market for legal services is the “UK Legal Services Act 2007”. Do you share this opinion?
I certainly do! After the UK Legal Services Act came into effect two things happened: On the one hand the regulation of the legal services market in the UK was restructured. For the law firms it meant that they could recapture self-regulation. This was very much welcomed by the country’s big law firms. However – and this is probably what your question is focusing on – law firms can now choose what kind of organization they want to be. There are basically two options: You can be a traditional law firm operated by lawyers and provide legal advice to companies and individuals. Instead, you can choose to be an “Alternative Business Structure“ (ABS) offering not only legal but also other services to your clients and therefore employing lawyers and non-legal professionals as well. Consequently ABS can even be governed by non-lawyers and are permitted to seek funding of their operations on the capital markets. It does not take much imagination to see that this could eventually change the face of the market for legal services.
I can see that the legal groundwork for major developments is done. But what happens in reality?
As a matter of fact, we have not seen a “big bang” so far. Large firms especially still seem to be reluctant to use ABSs. This may be a generation issue. Law firm partners, having had a successful career in the traditional way, do not necessarily look out for fundamental changes. When market conditions tighten younger partners may tend to think more commercially though. That could lead to restructuring even of well- established law firms. What we see today are smaller and middle sized law firms which discover the opportunities of being an ABS. Recently, interesting examples were created by firms having so far led a life as personal injury boutiques which newly added managed care services or insurance consultancy services to their traditional legal services offers. Also there are law firms with a focus on media law in the past that lately have expanded their services by adding general media or even software services.
What are your notions on the opportunity of using the potentials of the capital markets in order to foster law firm growth?
Just look at the Australian market with a legal framework for ABS quite similar to the one the UK Legal Services Act has created! There are Australian law firms listed at the stock exchange which use their newly gained access to the capital market in order to fund growth. Slater & Gordon, for example, of Melbourne, has bought into UK providers of legal and non-legal services by forming an ABS. I am quite sure that in the near future we will see non-law firms merging with law firms, even in the UK. Especially in the 2nd tier law firm market size and territory could become crucial elements for success. If this happens growth might become a necessity. One possibility could be to turn your practice into an ABS and get listed at the stock exchange; another option could be to look for a partner to take you over. The Legal Services Act provides such law firms with the opportunity to combine aiming for growth with the need to differentiate in an ever more competitive market, the latter by acquiring new (non-legal) skills.
You were among the first experts to point out that the Legal Services Act might help to compensate the impact of the legal aid cut back in the UK. Has your outlook proven to be realistic?
Very much so! Look at the newly founded venture of Co-op Legal Services. Co-op, a retail grocery company, over the decades having gradually integrated other services like banking and insurance, has recently stepped into the market for legal services. Last year, Co-op Legal Services announced plans to employ 3000 legal consultants within the next five years. They offer legal services, among others, in the fields of family law, estate law, or labor law for individuals. Co-op Legal Services charges fixed fees and aims to allow access to legal advice to all of their clients, many of them people who otherwise could not afford to hire a lawyer. As a consequence the market for legal services as a whole could grow. But then Co-op Legal Services being successfully established could also mean going out of business for numerous small law firms. The market segment for legal services to individuals would almost certainly experience consolidations.
John Flood is a McCann FitzGerald Professor of International Law and Business at Sutherland School of Law, University College Dublin. He studied law and socio-legal studies at the London School of Economics, Warwick, and Yale Law School, then took his PhD in sociology at Northwestern University in Chicago. John was or is a visiting professor at the University College London Faculty of Laws, at the University of Miami School of Law, and at the University of Bremen. John is a renowned scholar on topics of the legal profession and the globalization of law. In 2012 he was awarded a Leverhulme Research Fellowship for two years to study the new legal services market in the global context. John is strongly engaged in the Miami Law School’s program called LawWithoutWalls, a venture involving 18 law and business schools around the globe. He was interviewed by Leo Staub.Read more interviews