This article was first featured in New Law Journal.

The headline figures—just eight licensed alternative business structures (ABSs) to date—suggest a somewhat shaky start undermining the hyperbolic “Big Bang” billing, often accorded to the introduction of competition under the Legal Services Act 2007.

Strategic manoeuvres

However, the findings from a new report ABSolutely fabulous: a study of ABSs and their role in a changing legal market (Jures, June 2012) tell a different story. In a survey of more than 100 commercial firms, almost four out of 10 respondents (39%) had already changed their management strategy as a result of the LSA; over one third (36%) had reviewed their management strategy as a result in the last six months; and half of respondent firms (50%) were aware of their “business rivals” considering applying for ABS status.

“It smacks of panic or paranoia,” said Tina Williams, senior partner at Fox Williams LLP, at the report’s launch last week of that final finding. “It reveals the deep anxiety on the part of legal service providers that maybe they haven’t got their strategies in place to ensure the long-term future. They are concerned that their rivals know something that they don’t.”

The research sought to identify the factors driving ABS conversion in the legal services marketplace. Over half of the respondents (54%) described as either “compelling” or “very compelling” accessing private equity (or other third-party investment) to finance their firm’s growth as a reason for ABS conversion. Nearly eight out of 10 respondents (77%) identified access to finance (not available from partners or traditional bank borrowing) as either “important” or “very important” when considering an ABS conversion.

More than six out of 10 respondents (62%) cited allowing partners to retire with capital profit as an important or very important consideration. “It shows a huge naïveté,” reflected Tina Williams. “If they believe that any private equity house is going to throw significant capital at partners and watch them ride off into the sunset, they need to reconsider.”

Tail wagging the dog

One theme of the launch was that structural innovation counts for nought without clear-headed strategic thinking. There was a danger of the “ABS tail wagging the strategy dog”, Neil Kinsella, chief executive of Russell Jones & Walker (RJW), warned. The Solicitors Regulation Authority, of course, cleared the takeover of RJW by the Australian personal injury giant Slater & Gordon, thus creating both the first foreign-owned ABS and the first to be part of a stock exchange listed company.

I interviewed Slater’s MD Andrew Grech last year. He shrugged off what he called the “natural fascination” of UK commentators with Slater & Gordon’s status as a listed company. “It somewhat misses the point,” he said. “For me, the start is the company and its strategy.”

A similar point was made by co-panelist Adam Shutkever, chief operating officer at Riverview Law, which has been described as “the boldest-ever post-Legal Services Act move involving the Bar”.

“It’s not necessarily all about ABSs,” said Shutkever. “Amazingly, while the rest of the world has been conducting itself along conventional business lines for whatever reason, the legal world hasn’t.” As discussed in this column before, the idea behind Riverview (not an ABS) is to offer annual contracts for unlimited legal advice for every type of corporate client from SMEs to FTSE 100 companies. The initiative has the Bar at its heart and out of a team of some 75 lawyers, there are 43 barristers including 12 QCs.

Not rocket science

“We started with a clean sheet of paper and said: ‘What is it the market wants? What do clients want?’”, Shutkever said. “What matters, first and foremost, is getting a top quality service at a certain fixed price and that is what we are looking for. It is not rocket science.”

Nor, frankly, are the ideas behind Rocket Law or LegalZoom, two innovative US online legal documentation services reckoned to be heading towards these shores soon. It was revealed last month that LegalZoom’s international ambitions were going to be funded with a public listing in New York aiming to raise $120m (£75m). “We believe that our online legal platform represents a compelling value proposition to small businesses and consumers globally,” claimed its prospectus. “We plan to partner with legal services providers outside of the US to expand our operations internationally.”

Tina Williams cited LegalZoom as evidence of the innovation that can be expected in the UK market. According to the American Bar Association Journal, LegalZoom served more than one million customers online in 10 years. It is impressive progress—and that despite the fact that the company has faced numerous challenges from local Bars and a potential class action for “unlawfully charging consumers for the preparation of legal documents”.

“Interesting processes are coming to the fore in the legal services marketplace which make the LSA not only a transition but a transition that will be irreversible,” Williams said. LegalZoom’s business is “disintermediation”, she added—an unlovely word that means in this context unpicking the lawyer-client relationship by selling access to personalised legal documents directly to individuals and businesses. In other words cutting out the middleman: the lawyer.

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