Freedom of choice

Major reforms to the style of practice are looming.

Jeremy Fleming asks whether supermarket law shops, legal plcs and mdps are imminent, and whether lawyers will welcome the prospect

The accountancy and corporate sectors are currently wrestling with the blows of Enron, Worldcom et al, licking their wounds and wondering where scandal-driven reforms will leave their management structures.

But legal practice is also on the verge of momentous changes.

Some of these potential reforms come in response to the Office of Fair Trading (OFT) report in 2001 on competition in the professions.

Earlier this year, the OFT praised the Law Society for its progress in meeting competition concerns - notably the Society's decision in principle to allow employed solicitors to offer their services direct to the public, subject to proper consumer protection being in place.

Meanwhile, the multi-disciplinary partnership (MDP) issue remains live.

The Society will consider fee-sharing arrangements later this year.

And a recent consultation paper from the Lord Chancellor's Department (LCD) has raised questions about MDPs that will determine whether the government welcomes them at all, and - if it does - what form of legislation might be required in order to regulate the structure.

Prospects of reform have prophets of a new age of law claiming that the big City firms should become public companies, and the high street make way for 'supermarket' law shopping.

Chris Davis, joint chief executive officer of the legal consultancy practice, Lexfutura, formerly an adviser at McKenna & Co (now CMS Cameron McKenna), estimates that employed solicitors will be offering direct services by 2004.

He says: 'Now that the genie is out of the bottle we can expect the next phase of entrants into the rapidly expanding legal marketplace to comprise heavyweight brand names from other industrial sectors.

'They will include retail and affinity organisations with diverse brand associations.

Indeed, any enterprise with sufficient brand loyalty and the potential for flexible brand association can unlock new revenue streams from legal services.'

Insurance company Royal & SunAlliance has already entered this putative market, launching an on-line legal site with a staff of 50.

Giles Rubens, a director with legal consultancy Hildebrandt International, says that although the likes of Tesco and Sainsbury's will probably enter the market, they will require strong technological alliances with established computer companies: 'At this end of the market, it will be technology that drives the market, not people.'

On the issue of law firms going public, no one is as well placed to judge the potential as partners with Harrogate-based Davidson Webber plc, one of the first firms set up with a public company structure last year.

Andrew Chappell, the chairman of Davidsons and formerly a partner with DLA, says there is a world of difference between sitting on the board of a law firm (which he formerly did), and sitting on the board of a plc.

'Here we are very aware that there is a separation between our power as a board and the interests of the company at large, and its shareholders.'

This structure eliminates narrow self-interest among executives, Mr Chappell says, adding: 'It enables you to take a more objective view of the structure when in every board meeting you are approaching the firm as a company.'

Graeme Webber, another former partner with DLA who is now Davidsons' managing director, says that the company's needs take first place over those of individual lawyers, and 'one member cannot put hurdles in the way of, or obstruct the company's direction, unlike with partnership.'

But the secondary benefits of plc status - being able to raise external capital in the free market - are not yet fully enjoyed by firms such as Davidsons.

Mr Chappell maintains solicitors have nothing to fear from dropping the current ban on fee-sharing.

He says: 'There are worries about confidentiality and conflicts, but these already affect firms.

Besides under the plc structure, firms would be obliged to follow the Cadbury Code for directors' conduct.'

And what reaction have the partners at Davidsons noticed in the firm's clients since its inception? Mr Webber says: 'Our clients are very comfortable with the idea of us being a plc, especially as most of them have an incorporated structure so that it feels very natural to them.'

Mr Chappell adds: 'We are a very small organisation compared to most law firms, yet we're competing with the best commercial firms in the north of England and share many of our clients with the bigger Manchester and Leeds firms.'

Alison Crawley, set to assume the title of director of regulation/policy at the Law Society this week, says: 'The question of reforms is based on how far solicitors themselves want to go.

On investment from external players into firms, this development could give smaller and mid-sized firms a chance to compete with the larger firms in investing in IT systems and the like.'

Ms Crawley says the LCD review suggests that the government will take a further rain check in November, when the consultation period ends, to gauge how much support there is within the profession for changes on the MDP and fee-sharing issue.

'One of the main issues that they will have to consider is how much legislation is required in order to effect these changes.

Another important factor they must consider is whether a firm structure which catered for external shareholder interests would need to be regulated by the Financial Services Authority, or whether the Law Society could regulate the structure, without responsibility for the shareholders.'

Ms Crawley predicts that the firms most interested in change designed to enable external investment will be those - such as midlands and south-east firm Shoosmiths - which have already begun to establish high-turnover conveyancing practices.

But there is interest in the City at large as well, as CMS Cameron McKenna managing partner Richard Price recently demonstrated.

Speaking at a Society forum on the future of the profession, Mr Price said law firms were only afraid to follow in the footsteps of bankers, stockbrokers, architects, and estate agents in leaving partnership behind and going public.

Although he said Camerons has no specific plans to float, he maintained there is an appetite among City firms to float to raise capital for investment.

Mr Price explains: 'It would also give firms the chance to dismiss under-performing partners without overhanging equity repayments, and attract the brightest City players - currently being lured away by banks and brokers.'

Mr Price said the free market would ensure that clients' interests remained paramount.

Not everyone in the City is enamoured of the idea of firms turning to public company models to raise external capital.

Nigel Boardman, head of corporate with Slaughter and May, says: 'We have no intention of so doing.

We believe that partnership is a feature that makes the firm good, giving the lawyers the motivation that comes from being owners.

That correlation of workers and owners works best for us.'

He says that Slaughters does not have a significant need for capital expenditure, and forecasts that those firms that would want external investments might not be the ones that such investors would be interested in.

'I don't see it as attractive.

There is a danger that law partnerships going public would be receiving a one-off payment for future earnings,' Mr Boardman says.

Mr Rubens says: 'It's important to recognise that within the current partnership structure there is scope for imaginative lawyers to enter joint venture agreements and the like with external investors, even if they are not directly selling debt for equity.'

The wide diversity of solicitors' areas and style of work is often used as ammunition to fire at the idea of a unified profession.

But liberalisation unites all strands in the face of an uncertain future - the high-street practitioners staring at the threat of the 'factory' suppliers, the City firms facing the challenge of publicly-funded MDPs, with their potential for a massive global reach.

That is the pessimistic view.

The optimists would say solicitors should react and anticipate the changes so that they can exploit them themselves, rather than letting others take control.

The only response that is guaranteed to fail is a blind resolve to remain the same and ignore the factors - social and technological - which are forcing change.

The tighter you grip, the more sand trickles between your fingers.