A difficult economy combined with far-reaching changes in legal regulation has given the UK’s dominant legal market, England and Wales, the feel of a dramatic landscape heading into 2013. Commentators have taken to reaching for an impressive range of cliches and metaphors – from ‘perfect storm’ to ‘brave new world’, and even referring to ‘shifting tectonic plates’. The air of breathless expectation was such that one almost expected to see a mushroom cloud over the offices of the Solicitors Regulation Authority upon the advent of alternative business structures (ABSs) a year ago.
Attendees at the Gazette’s third roundtable discussion included a selection of those whose decisions and actions will likely shape the legal landscape of the future. Simon Allen is national practice group leader at Russell Jones & Walker – now part of stock exchange-listed Australian firm Slater & Gordon. Christina Blacklaws is director of The Co-operative Legal Services, an ABS with the ambition of adding 3,000 lawyers over the next few years.
David Jabbari was recently appointed chief executive of support and referral network Connect2Law. Mark Stobbs is the Law Society’s director of legal policy. The Legal Services Board’s chief executive Chris Kenny has oversight of the sector’s frontline regulators. And Bruce Macmillan, senior vice-president, senior commercial legal counsel at Visa Europe, provides the contrasting perspective of a corporate client with an in-house legal team.
For the most part, those present do not talk of the hype surrounding changes in the legal market. ‘It sounds a bit gloomy for the high street,’ Blacklaws ventures. ‘But I do think there is hope for businesses that are completely client-focused. We are a large organisation with large organisational costs. Smaller businesses which are able to be fleet of foot and still deliver great local services are in with a chance.’
The pressures on the legal market are, of course, acknowledged. The emergence of ABSs is on that list – but changes to civil litigation are equally prominent. Allen sees widespread consolidation in the PI market resulting from them: ‘At the moment there are multiple firms trying to grab a share of the market, many of them buying cases from claims management companies – and the effect of Jackson is that those smaller firms are going to diminish in number because they will not have the opportunity to buy the work.’ The outcome, he says, will be ‘a number of big players’ between whom ‘the competition will be more aggressive but more purposeful’.
Jabbari acknowledges the pressures here, but warns against ‘determinism’. ‘I don’t think we’ll know clearly the way the market is going until three or four years’ time,’ he says, noting that much discussed ‘new’ entrants, such as CLS, the QualitySolicitors franchise, and his own Connect2Law network, ‘will find that their own business models will need to evolve as the market evolves’.
A growing market
The perception of the legal market being of a fixed size that will be divided among players who increasingly compete on price is a commonly held one. On this view, profit margins will only be maintained by lowering service levels. Instead, Blacklaws argues, the market can, and should, grow – if unmet demand can be unlocked by changes in the legal community’s business practices. ‘There is a huge unmet legal need in this country and we haven’t as a profession found a way of offering services that are attractive to the "squeezed middle" – the coping classes – those who have legal needs and don’t perceive that they can afford legal services,’ she says, adding that fixed and transparent pricing, and better ‘public legal education’, will be central to tapping that larger market.
It is a point supported by Kenny, who is critical of the profession’s assumption that the Clementi reforms, culminating in the Legal Services Act 2007, are somehow ‘neoliberal or Thatcherite’. ‘You could,’ he argues, ‘say the reforms are essentially much more egalitarian in intent in making services more responsive and competitive. A third or more of the population don’t address problems that are "legal" because they don’t think they can afford it.’ Jabbari points to the way US internet providers unearthed a ‘secondary market’ that apparently was not there before.
Questions on quality
Allen starts to explore the relationship between quality of service and advice, and what are often labelled the ‘economies of scale’ – a thorny issue for larger providers who make their case under the shadow cast by those volume conveyancers (for example), which have attracted criticism for poor service on low-margin work.
Allen insists the issue can play out differently in different areas. ‘Think of a firm,’ he urges, ‘where you have only 100 PI cases a year. It might include problematic disease cases, a brain-injured person, a client with mesothelioma – I’m dubious about a practitioner being able to deal with that range of work.’ His analysis is based in part on having taken over ‘generalist’ practices where he felt mesothelioma clients were being let down.
Macmillan draws on parallel experience from the corporate environment. ‘I wouldn’t be happy with someone dealing with only five bits of litigation a year picking up a major case for me,’ he says. ‘And so you carry that thought-process through, and ask what the minimum competent scale is to be doing that work. I want to know that your team are handling the number of files or cases that relate to a specific type of legal activity or area of legal expertise that will ensure you can be a competent, efficient and effective practitioner team at all levels of seniority, in all aspects of that activity or area of expertise.’ To deal with road traffic accidents through the RTA Portal, significant investment in IT systems is needed, Allen notes – again pointing to a minimum ‘scale’ for a practice in some areas.
Stobbs highlights the role of insurers and lenders as intermediaries in the legal market, noting ‘it’s worth reflecting on how that is affecting client choice’. That may yet, Kenny believes, be a matter for the Financial Services Authority to investigate. ‘I’d be interested in how the FSA approached that,’ he says. ‘It probably depends on what you think you are buying from the insurer. If you think it is an end-to-end service, which is about the totality of handling your claim, it’s not wrong to say that every little bit of the bundle can be specified by the insurer. But if you’re saying you are buying the end result, that does argue for greater choice for individual elements of it.’
The challenge, he concludes, ‘may well be the insurer who turns around to the client and says "OK, but the cost will be that much greater. I can’t give you the same guarantees about timescale". And the challenge then for those non-panel lawyers is to communicate how what they offer will be more effective than the "vanilla" service would’.
At the table were:
Chris Kenny, Legal Services Board; Eduardo Reyes, Law Society Gazette; Simon Allen, Russell Jones & Walker; Mark Stobbs, The Law Society; Bruce Macmillan, Visa Europe; Christina Blacklaws, Co-operative Legal Services; David Jabbari, Connect2Law; Catherine Baksi, Gazette
Do demands for consistency and transparency always point to scale alone? Jabbari believes not: ‘Just because one is attached to the traditional independent law firm model, that doesn’t mean you can’t have behind that quite a high level of process and technology.’ That process and technology, however, ‘doesn’t need to be there on the high street’, even if the practice in question is.
The challenge posed by Macmillan is for law firms of all sizes to become better at defining their proposition. ‘Show me what features define competent performance in your areas of expertise and then show me what you offer over and above competence,’ he urges. ‘Then I can decide whether and, if so, how much to pay extra for your extra service quality features over and above what I need to pay anyone for competent performance. What the profession tends to do is to blur those distinctions but, in an increasingly commoditised legal services world, this failure to show that the value you add supports your prices merely offers opportunities for new players to make you look too expensive.’
Level playing field
A complicating feature of a more open market is the existence of multiple regulators. There is a risk that each may apply not more suitable regulations and conditions, but instead ones that compete on cost and supervision for the regulated entities and individuals. ‘It’s difficult to see how you can have a level playing field when different regulators are regulating different methods of providing exactly the same services,’ Stobbs says.
Blacklaws adds: ‘There are real issues around regulators popping up offering differing regulations for different areas with different hurdles and different standards.’ And, Jabbari weighs in, ‘if there isn’t a convergence of behaviour between the SRA and those regulating the claims management companies, for example, it will cause all sorts of irritation’.
‘The danger of "regulatory arbitrage" is not a new one,’ Kenny ventures. ‘But is it a problem? Theoretically it has to be.’ Responding to that, he makes clear, is a work in progress: ‘The challenge the LSB has got is to make the statute work in a way that allows the regulatory diversity which clearly was the will of parliament to work, while ensuring that firms can’t shop around to find the doziest and cheapest regulator who will give them the easiest ride. You can’t do that. Whether there is scope for more convergence – only time will tell.’
Kenny admits: ‘Right now all regulators need to raise their game to catch up with where the market is. But they almost need to do that individually, before they can begin to talk about shared decision-making or merger.’ For providers of legal services, Macmillan notes, regulatory arbitrage is increasingly providing legitimate choices around qualification, training and development. ‘Do I want to put someone through the trainee lawyership route these days? Or to take them through a paralegal structure towards potential future qualification, that meets their and our professional development needs (in particular providing legal advice in a hands-on way within a business context), but which doesn’t have the same overheads and risks about being committed to an expensive trainee head with little demonstration of practical ability available to us at the time of hiring? Part of the arbitrage is to make sure the regulation of training and qualifications does the job in terms of outcomes (providing competent staff) and isn’t in excess.’
With the prominence given to concerns around the ethics of external investment in advance of ABSs being allowed, the low priority given to raising funds by the vast majority is perhaps a surprise. Blacklaws says it was never a consideration for CLS: ‘I understand why other jurisdictions might be concerned about influence and client interests from external investment. But, while it has many other advantages, we didn’t apply for ABS to bring in external investment.’
For Slater & Gordon, Allen relates, the business listed ‘because it did not want to be owned by an insurance company. Like RJW, the firm didn’t want short-term venture capital coming in – they would be thinking about a return in six months, and what would you do to secure that return?’ He adds: ‘We all wanted client care and services to clients to be delivered well and profitably, to be at the core.’
There is, he notes, a substantial risk to an entity that seeks to create a legal business model that departs from that ‘core’, pointing to the example of those who invested in systems to handle volume RTA claims – only to have their margins drastically reduced by recent reforms to civil justice. The discussion turns to the linked issue of building a ‘brand’. More than one attendee retains doubts about brands that are ostensibly no more than a ‘marketing exercise’.
Instead, Jabbari says, a focus on ‘brand’ has much to do with consistent, known service levels – the ability, in a positive sense, to ‘standardise’ a service. ‘The client needs confidence in uniform charging structures and quality,’ he argues; ‘uniform response in terms of communications, that lawyers are operating off a consistent single system’. But beyond that, ‘a degree of diversity is good, and underlines the message that this is a human service’.
Finally, there are acknowledged risks for large brands – arguably surmountable, but never absent. For legal services linked to larger consumer brands, Stobbs asks about the impact of having negative associations as a brand for the ‘other side’ in a family case. Kenny also notes: ‘Brand is both powerful and vulnerable. If a legal adviser in Worcester has a bad day, the whole brand is vulnerable.’
‘We can’t compromise on quality,’ Blacklaws counters. ‘We are a small business within the Co-operative Group, and we could not risk anything that could lead to brand damage. That is an important check and balance within our model.’ She insists the result is a focus on quality service, delivered in a consistent way. ‘It entirely depends on your approach and attitude. In our family law team, we want to help clients to achieve resolution of their problems with the least possible damage to them and their family. If we achieve this, we achieve a "halo effect". An entire family who are grateful we were part of the solution.’
The message from this group for those concerned that the future of legal services is faceless, systemised and scripted, is that such an approach is not what is currently driving their plans. As Jabbari reflects: ‘There is a higher incidence of mistakes when you move to an entirely process-driven system. It is in the nature of law to always resist out-and-out commodification. I’m sceptical about the argument that we improve quality with a total move to process.’
- Discussion kindly hosted by TLT Solicitors
Eduardo Reyes is Gazette features editor