Futurology is, by definition, an inexact science. But in legal business the fortune-teller is also lumbered with a grubby crystal ball. After all, it is one thing to identify ‘drivers of change’, as the Law Society’s landmark report The Future of Legal Services acknowledges. It is often quite another to discern where we are going.
Leaving the ‘march of the robots’ to one side for a moment, what about public policy? Gazette readers hardly need to be reminded that this has been in a state of unprecedented flux for 15 years (and counting).
Legal aid; small claims; court fees and online dispute resolution; costs; training; regulation; liberalisation. One could go on. All of these continue to give the Gazette plenty to write about (happily for us) and solicitors plenty to be concerned about (less happily for you). ‘The wider political agenda’ identified as a key risk in the report is surely the biggest ‘known unknown’ of all.
Nevertheless, Chancery Lane’s ‘futures panels’ have come up with a very handy superstructure upon which firms can hang their medium-term strategies. If the direction of travel cannot always be foreseen with certainty, the Society can speculate boldly and usefully about what is most likely to come through the turnpike.
One prediction pertains to further market liberalisation, set to be given a further nudge by another antitrust review, this time by the Competition and Markets Authority.
The widely predicted shake-out of the ‘traditional’ high street by big-ticket brands has not really happened (yet at least) and, indeed, more than one self-styled ‘disrupter’ has come a cropper.
It is instructive too that one in four of the alternative business structures established so far is either a shell company or otherwise dormant. Not only that, but personal injury has by far the largest number of ABSs taking a market share, when that sector faces grievous consequences should the small claims limit rise.
But the pressure points are plain. Since 2012, there has been an increase in the number of all firms that derive over 30% of their income from PI and employment – two sectors in which the government has been busy taking away the solicitor’s lunch. Total turnover from PI work soared from £1.5bn to £2.5bn between 2012 and 2015.
The amount of outside investment flowing into ABSs and further penetration by new market entrants is one of two key uncertainties for small to medium-sized practices in both the business-to-business and business-to-consumer markets. The other – returning to robots for a second – is the pace of technology adoption by both firms and clients, including: more machines crunching documents; greater reliance on IT infrastructure and cybersecurity as more case information is exchanged online; and further automation of legal processes.
Legal services in 2020 – key predictions
- Gap between successful and struggling firms widens, leading to more and faster consolidation
- Emerging players such as China ‘shake up the game’ for the top-200
- Digital technology continues to pervade legal services
- Consumer market firms feel squeeze from a mix of funding cuts, process automation and cheaper volume providers
- Greater flexibility in work and employment contracts for all – from solicitors to paralegals
- ‘Hourglass’ employment market evolves, with middle of workforce hollowed out
- Number of diverse business models rises
- More SME retail firms face problems around closure/run-off cover as solicitor population ages
Among the top-200/City firms serving business buyers, the trend line is rather different. They have benefited from globalisation and are therefore ‘better placed to weather storms in the service delivery climate’.
Yet the fact that the number of top-200 firms undertaking mainly business work has fallen since 2010/11, while SME firms undertaking mainly business work has increased significantly, ‘supports the notion of consolidation into global elites at the top of the food chain [and] more second-tier firms servicing those business clients who prefer to send their work to firms that are just large enough to meet their needs’. There are other looming threats here: from the diversification of the Big Four accountancy firms into legal services to a ‘protective tendency’ that is developing in many overseas jurisdictions which manifests itself in a reluctance to see the spread of English/New York law.
There is much to read and digest, then. So for the purposes of brevity let me adhere to a time-honoured journalistic imperative and ‘follow the money’. What will be the major influences on firms’ profitability over the next three to five years?
First, changing buyer behaviours, such as ‘engaging with legal assistance through a computer screen’. Second, the threat of substitute suppliers/services. And finally, increasing rivalry among the top-200 and large corporate firms.
By 2020, there may be a significant reduction in viable traditional firms, the report suggests – but all is not lost: ‘If new entrants and other legal providers are more successful at unblocking demand and access to advice, this may result in more jobs for qualified lawyers within different corporate structures.’
That word ‘may’ is asked to bear a heavy load. Let us hope it withstands the strain should the report’s predictions prove to be accurate.
Commenting, Law Society chief executive Catherine Dixon said: ‘Individuals and businesses seek and depend on excellent, affordable legal advice at critical times. Solicitors are innovators and are responding to changes in a highly competitive legal services market.
‘With the upcoming [CMA] study and the government’s consultations on opening up the market to more alternative business structures and the separation of the legal services regulators from legal professional bodies, it is timely to look at the factors driving change to stimulate debate among solicitors as they plan and prepare for the future.’
She added: ‘Our report is part of the Law Society delivering its strategic aim of supporting solicitors so that they can make informed decisions.
‘As the government consults on the future of regulation and the market, we will call for a fair regulatory playing field for all legal services, and for the solicitor profession to set and work to professional standards which it sets for itself. This will set them apart from non-lawyer providers.’
A second article on the report will look at the in-house sector