Legal Services: corporate structures best for services such as conveyancing, says academic

The partnership structure is 'inefficient' because it leads to 'excessively high service', a leading academic said last week - and he warned that certain fields of practice are 'ripe for transformation' away from the partnership model.


London Business School economist Professor James Dow told delegates at the Law Society's law management section annual conference it would be more efficient for 'simpler' services such as conveyancing, basic criminal cases and non-contentious divorces to be handled by a corporation rather than a partnership.


Prof Dow, co-author of one of six academic papers commissioned by the government to guide its reform of the legal profession (see [2005] Gazette, 22 September, 1), said: 'Partners are rewarded according to a flat share of profits... If you are splitting the funds equally, you will be very fussy about who you admit to the partnership. You will only want those who produce more money than the average partner, because if their profitability is lower than average, everybody's share of the profit goes down. So partnerships seek out those who are above average, and the consequence is that partnerships tend to be small, and of very high quality.'


He went on: 'A corporation, which is paying everybody a salary, will hire someone who is profitable. If they are not so good, you just pay them less. In a partnership, you find restriction and excessive process. Such high quality can be inefficient. Not everyone should be forced to go to Saville Row every time they need to buy a pair of trousers.'


Prof Dow said the legal services sector was not unique, and some services could be commoditised through the use of IT in the same way as has happened to personal banking, insurance and mortgages. He said: 'Some of the simpler legal services are ripe for transformation, such as conveyancing, simple criminal cases and non-contentious divorces. These are the types of service where partnerships should be inherently less efficient than corporations.


'Moreover, partnerships cannot easily raise the necessary funds to transform legal services with IT, because the risks are too high for individual partners. The big City firms could invest large amounts in IT to provide commoditised legal services, but that could have a negative impact on their brand.'


He added: 'In the conveyancing market, one of the people I spoke to said that registration of title could be handled by one lawyer for the whole country with a large computer.'