To see how the Legal Services Act will affect law firms, we should look outside the legal world, and even the country, says James Tuke


Recent media coverage of October's Legal Services Act (LSA) has been more of a trickle of possible developments, rather than a stream of definite alternative business structure (ABS) deals between firms and non-legal organisations. The overwhelming mood is one of caution, of pausing for others to show their hand first and of waiting for the working regulatory framework to be clarified.



Yet developments in Australia - where similar legal services reforms have recently been implemented - give us an insight into the possible effects of outside investment. Last May, Slater & Gordon became the first law firm to float on the Australian Stock Exchange, raising A$35m (£14.67m) from its listing. This cash injection has driven an aggressive acquisition plan, which has seen the firm continue to expand nationally. External investment, whether in the form of stockmarket flotation or a part-ownership scheme, would clearly be more suited to smaller firms with plans to expand their capabilities.



The potential for non-legal organisations of the deregulation created by the LSA is in the opportunity to tap into a market that has always been closed. At the moment, all the movement is at the lower end of the legal spectrum, with services such as conveyancing and will-writing the most likely to be supplied because they can be commoditised, packaged and offered over the Internet. The AA now offers some basic legal services in this way, having teamed up with national firm Irwin Mitchell, adding expertise and credibility to their operations. These co-operative initiatives may fall some way short of being ABSs, but their progress will be carefully monitored. Irwin Mitchell is one of the few firms to have welcomed the LSA openly, and to have stated publicly an intention to work with it rather than against it. Success may trigger a stampede for market share, and it is the high street firms that are most likely to suffer the consequences of this combination of outside brand power, law firm expertise and superior IT systems in the race to deliver fast, cheap legal solutions.





Fitness first

In order to protect the consumer from unscrupulous operators, all organisations wishing to form ABSs must pass the necessary 'fitness to own' test. At the moment these are to be applied across the board, but certain professional services providers are unhappy with this arrangement. Those with stringent, exacting operating standards, such as chartered accountants, understandably feel that there should be recognition and credit given for their existing obligations, which require high levels of ethical and professional behaviour. The Institute of Chartered Accountants in England and Wales (ICAEW) has therefore urged the Solicitors Regulation Authority (SRA) to give due consideration to the 'fit and proper' status achieved by other professionals, and called on the SRA to press for earlier introduction of LDPs and ABSs.



Caron Bradshaw, business law manager of the ICAEW, summed up the position: 'We want to see the burden on firms kept to the absolute minimum. We believe that the regime introduced should reflect the lower risk presented by appropriately qualified professionals - such as our members - who are subject to rigorous standards which are equivalent to those of the legal profession. Credit should be given for that.'



Over-regulation was a specific point of debate that arose from a major piece of research into the likely effects of the LSA - the joint Intendance/Sweet & Maxwell Brave New World: Impact of Legal Services Act report - insofar as it could hinder some outside investors. It is feared that just as the FSA succeeded in allowing a certain level of latitude in the post-Big Bang shake-up, its legal equivalent, the Legal Services Board (LSB), will stifle competitive ownership by following a more stringent path, thereby failing to achieve the LSA's main goal of opening up the legal market for the benefit of the consumer. Of course, the LSB also has a duty to protect consumers by retaining fundamental ethical standards, but if the FSA can find a compromise, so can the LSB.





Court of PR

Parallels with the Big Bang and the widespread reforms of the financial markets in 1986 are inevitable because many details are similar. So will the changes to the legal sector follow a similar path? Only time will tell, but there are definitely lessons to be learned from events in the City over the past 20 years.



A recent survey by Penrose, a leading financial PR company, illustrates how previously peripheral activities such as marketing and PR became more important to City institutions as the effects of increased competition took hold. The survey found that nine out of ten respondents believed a strong and positive media image was more important to the growth and success of their company now than it was 20 years ago. This is reflected in significantly higher PR budgets and a financial PR industry that has boomed. In a more dynamic legal market, it is reasonable to assume that PR and marketing campaigns will play a major part in helping to secure future business and attract outside investment.



In the same survey, 89% also said that chief executives are involved in their companies' PR activity, highlighting the importance attached to reputation management at the highest level. While specialist management structures are nothing new in law firms and barristers' chambers, they are likely to become key areas in the quest to strengthen brand and remain competitive. Equity from outside investment could be used as leverage to attract high quality management staff. With 20 years of restructuring in the City very apparent, it is almost certain that firms and chambers will have to invest in their futures, with or without outside help, rather than simply relying on past glories.



James Tuke is head of Intendance Research