Losses are disastrous for the ABS pioneer, which is now hamstrung by a toxic brand.
I suppose if you’ve posted overall losses of £2.5bn, the trifling sum of £22m is of little consequence.
Make no mistake, the bosses at the Co-op Group have bigger issues to worry about than the performance of their legal service division. In relative terms, the losses suffered by CLS are like noticing a stain on the carpet as your house is burning down. Nevertheless, these results are desperately bad for the pioneer of the Legal Services Act – the Tesco substitute in ‘Tesco Law’ – and will be greeted with schadenfreude by elements of the legal profession. Many have never forgiven CLS for suggesting that putting customers first was an ‘alien concept’ for solicitors, and will take delight in its continued struggles.
Anyone painting this as a defeat for alternative business structures would be wrong. Even if Co-op fails (and often the pioneers in any radical movement do) there are plenty of other threats from new entrants. The likes of BT, Admiral, AA and PwC will hardly be affected by the Co-op’s woes and remain very much a threat for the established profession.
But for CLS itself it is difficult to see how it can recover from this hammer blow.
The brand itself is increasingly toxic and CLS is undeniably damaged by that. Public trust in this most venerable of institutions – once its greatest asset – is now a weakness.
The bold rhetoric has disappeared – where once CLS talked of revolutionising the legal sector and establishing itself as a leading player in the market, now the talk is of plans to ‘consolidate and optimise’ the portfolio, which sounds worryingly like more cuts to me (the firm already made dozens of redundancies in its PI department last year).
It feels like the verve and endeavour have been sucked out of CLS – emphasised by the recent departure of high-profile director Christina Blacklaws. Her arrival felt like a landmark moment – a chance for CLS to show it meant business. Her departure, for whatever reason, naturally has the opposite effect.
Perhaps most of all CLS underestimated how tough the legal sector is. Its arrival coincided with government reforms restricting the profitability of law firms and key sectors such as PI have taken a hammering. Funnily enough, the threat from online rivals and clients demanding lower fees just isn’t the same in the funeral business.
CLS simply hasn’t made the splash it envisaged: revenue of £33m put it just below Clarke Wilmott in 75th place in the UK – yet CLS has almost double the headcount.
Now it talks of restructuring and forming a new consumer services division with funeral care and insurance. Possibly that will come to something. But in the meantime we have to ask a brutal question: has any law firm ever made such a big loss as a proportion of its turnover, and gone on to survive the experience?
John Hyde is a Gazette reporter