When Kenneth Clarke told members of the Birmingham Law Society that alternative business structures (ABSs) would herald a ‘whole new world’ for lawyers, he said that 3,000 high street firms would disappear. The experience of the member companies of the Legal Software Suppliers Association (LSSA) paints a very different picture from the legal armageddon forecast by the then justice secretary.
It appears that although a substantial number of firms have consolidated, merged or ceased trading, there is an increasing number of legal start-ups, many of these started by partners of larger firms wanting to branch out on their own. Barriers to entry to the legal market have been lowered in recent years, largely due to advances in technology, for example using Cloud-based IT systems. There are more solicitors than ever before; figures from the Law Society show that for the 10-year period up to April 2011, there were 118,000 practising solicitors in England and Wales, a figure up 36% from 2001.
In response to a request for comment by the LSSA for this article, a Ministry of Justice spokesperson said: 'The licensing regime for ABSs was introduced in October 2011 and has opened up the legal services market, encouraging collaborative working between lawyers and other professionals. ABSs allows them to explore a wider range of commercial opportunities, develop their businesses and increase competition by delivering a cost effective, efficient service which drives up standards.
'A diverse group of bodies are already licensed and operating as an ABS and the Solicitors Regulation Authority are currently processing a large number of applications from a range of bodies seeking authorisation. We anticipate the numbers to grow over the coming months and the benefits for providers and consumers of legal services to continue improving.'
Darren Gower, marketing manager of LSSA member Eclipse Legal Systems, believes the legal market is expanding. He is seeing many new business start-ups, some of which are niche players, and some are standard practices, dealing in conveyancing, litigation etc. Darren says there are more small firms starting up and many are people leaving established practices to start-up because they can see fresh opportunities. He comments, 'It's much easier to set up now than ever before, the barriers to entry are lower and there is less red tape.'
Legal software is much more straightforward nowadays, and doesn’t necessarily require the expertise and support of an IT manager. As well as being less complex to install and run, it is less expensive. 'The days of having to spend £50,000 to set up an IT system are long gone,' Darren says.
John Donigan, head of sales and marketing at Quill Pinpoint, another LSSA member company, claims the monetary value of the legal services market remains as buoyant as ever, clearly evidenced by the number of new entrants fighting for market share. According to John, the legal profession is lucrative, stimulating fierce competition which, with the introduction of ABSs, comprises traditional law firms as well as retail giants and big brands such as Tesco, the Co-operative and BT.
He comments: 'As a survival strategy, joining forces to increase geographical coverage and expand legal expertise enhances practices’ abilities to compete with their commercially-minded rivals who bring financial investment backing and business experience to the boardroom.' John believes that these are changing times for the legal sector and practices mustn’t forget the important role of IT and outsourced service support in improving operational efficiencies, providing real business intelligence and freeing up time and resources for practices to concentrate on the vital task of fee earning.
KGW Law, one new Surrey firm, is a niche family law firm established earlier this year by Karin Walker, who was previously head of the family law team at TWM Solicitors in Guildford. Karin says, 'I often thought about setting up on my own, but didn't previously have the confidence, finance or experience'. Karin wanted the flexibility that a small firm gives, and to avoid large firm constraints such as having to be involved in partners’ meetings discussing topics that are not directly relevant to her area of expertise. She wanted to put her stamp on her new firm, to shape its culture and to spend more time with her clients. This approach has resulted in a marked improvement in her quality of life and work/life balance.
Before setting up, she researched into IT and chose a cloud-based system. 'The cloud system we now have is fabulous, it didn't have scary set up costs and the monthly rental of software makes it easy and very cost effective,' she says. Karin believes that in future law firms will either have to be big or have a specialist area of expertise.
Legal analyst David Johnston of RBP summarises: 'In recessionary times there are many more refugees from large firms setting up on their own or establishing boutiques, and the future for boutique specialists is bright. Certainly the success of specialist legal IT suppliers for smaller law firms since 2008 confirms most are tooling up; this sector has seen growth throughout the recession(s)."
The view from the legal software market as a whole seems to agree with Karin Walker's 'get big or get niche' theory. The market is changing, and Ken Clarke might have been right in that ABSs have put some smaller firms out of business, but the entrepreneurial spirit is booming in the legal market, with many solicitors taking advantage of newly discovered technological and ownership freedoms to take the leap of faith to branch out on their own.
That, with the recent consolidation and the increase in law students, tends to paint a rather more optimistic picture for the future of the English legal market that was propounded by the justice secretary back in 2010. When asked for an update on the minister's 2010 prediction, the MoJ spokesperson said: 'We wouldn't want to speculate how many legal firms would alter their way of working as a result of ABSs.'
Ian Wimbush is chair of the Legal Software Suppliers Association