U.K. Law Society Pressures ABA to Allow Alternative Business Structures
I have blogged on several occasions about the implications of the U.K.’s Legal Services Act on the legal profession on both sides of the Atlantic, and also the wider repercussions on the legal outsourcing and offshoring industry. To recap, the Legal Services Act permits through the formation of Alternative Business Structures, external investment in law firms. The House of Commons website review of the key benefits of the Legal Services Act defines Alternative Business Structures:
“Alternative Business Structures (ABS) …….. enable lawyers and non-lawyers to work together on an equal footing to deliver legal and other services in ways that better meet the needs of consumers. External investment will be possible, and new business structures will give legal providers greater flexibility to respond to market demands.”
Almost a year ago to the day, I asked the question, Are Magic Circle Firms Set for outside Investment? I wrote at the time;
“I have been convinced for a number of years now that the profit margins routinely enjoyed by the world's leading law firms would prove to be extremely enticing to the private equity market and that once the legislative restrictions on external investment were lifted, it was inevitable what would follow.”
Eight months earlier, in my November 2007 piece, The Legal Services Bill and its Impact on the Legal Process Outsourcing Industry, I discussed the passing of the bill in tandem with an overview of an article written by Tony Jomati, former Clifford Chance Managing Partner. He wrote at the time about a number of trends impacting on the U.K. legal profession.
Trend number 6 stated: “High Street legal services will be fundamentally transformed by the Legal Services Act. A number of major brands will dominate the provision of retail legal services. Will that be law firms, or outsiders such as supermarkets or banks? It is too soon to tell whether existing law firms will be able to develop strong enough retail brands.”
At trend number 7, he went on to say that, “If the Clementi reforms (the forerunner to the Legal Services Bill) are broadly successful, one can expect firms higher up the chain to take in outside capital and float on the market.”
To the best of my knowledge this concept of external investment in law firms remained firmly entrenched within the UK’s legal borders, that is until I came across the following Law Society Gazette article dated June 25th - New-Model Law Firms Face Barriers in the U.S.
On the surface, the article appears to reaffirm the position that the U.S. has some distance to go before the concept of alternative business structures could ever take off over here. However, this is the first occasion of which I am aware that senior figures from within the ABA have publicly acknowledged the concept and its implications on the practice of law here in the U.S.
Tommy Wells, ABA President is quoted as saying that the concept of ABSs raises,
“important regulatory and ethical issues that must be examined and addressed”.
The article goes on to state that if the ABA does not change its stance by the time ABSs are permitted in 2011, U.K. law firms that choose to become ABSs will be barred from practicing in the U.S. From a practical perspective, this stance is clearly operationally unworkable for any of the U.K. magic and silver circle firms, with a U.S. presence, contemplating external investment.
What is perhaps even more illuminating is the public stance displayed by the U.K. Law Society who will “work hard” to persuade the ABA and the U.S. regulatory authorities that ABSs are viable business models. Bob Heslett, Law Society vice-president, said:
“We will work hard to seek to persuade the Americans on this, but we will only be likely to succeed if we can demonstrate that ABSs are just another law firm, subject to the same requirements and regulated by the same regulators as existing law firms, and in particular that client confidentiality is fully preserved and protected.”
My personal belief is that the pace of change within the legal professions on both sides of the Atlantic has picked up dramatically over the course of the last couple of years. The financial crisis is acting as a further catalyst of change across numerous sectors of the profession. Clearly, if one reads between the lines, the U.K. Law Society believes that the ABA position is not a static, immovable one. Although the first step may be a modification of the relevant rules to permit U.K. firms with external investment to practice in the U.S., I predict that it is only a matter of time before external investment in U.S. law firms is also permitted. Once such investment is common place within both the U.K. and U.S. legal professions, this in turn will only spur the growth towards legal outsourcing and alternative and more efficient law firm operating models.
[read more...]
“Alternative Business Structures (ABS) …….. enable lawyers and non-lawyers to work together on an equal footing to deliver legal and other services in ways that better meet the needs of consumers. External investment will be possible, and new business structures will give legal providers greater flexibility to respond to market demands.”
Almost a year ago to the day, I asked the question, Are Magic Circle Firms Set for outside Investment? I wrote at the time;
“I have been convinced for a number of years now that the profit margins routinely enjoyed by the world's leading law firms would prove to be extremely enticing to the private equity market and that once the legislative restrictions on external investment were lifted, it was inevitable what would follow.”
Eight months earlier, in my November 2007 piece, The Legal Services Bill and its Impact on the Legal Process Outsourcing Industry, I discussed the passing of the bill in tandem with an overview of an article written by Tony Jomati, former Clifford Chance Managing Partner. He wrote at the time about a number of trends impacting on the U.K. legal profession.
Trend number 6 stated: “High Street legal services will be fundamentally transformed by the Legal Services Act. A number of major brands will dominate the provision of retail legal services. Will that be law firms, or outsiders such as supermarkets or banks? It is too soon to tell whether existing law firms will be able to develop strong enough retail brands.”
At trend number 7, he went on to say that, “If the Clementi reforms (the forerunner to the Legal Services Bill) are broadly successful, one can expect firms higher up the chain to take in outside capital and float on the market.”
To the best of my knowledge this concept of external investment in law firms remained firmly entrenched within the UK’s legal borders, that is until I came across the following Law Society Gazette article dated June 25th - New-Model Law Firms Face Barriers in the U.S.
On the surface, the article appears to reaffirm the position that the U.S. has some distance to go before the concept of alternative business structures could ever take off over here. However, this is the first occasion of which I am aware that senior figures from within the ABA have publicly acknowledged the concept and its implications on the practice of law here in the U.S.
Tommy Wells, ABA President is quoted as saying that the concept of ABSs raises,
“important regulatory and ethical issues that must be examined and addressed”.
The article goes on to state that if the ABA does not change its stance by the time ABSs are permitted in 2011, U.K. law firms that choose to become ABSs will be barred from practicing in the U.S. From a practical perspective, this stance is clearly operationally unworkable for any of the U.K. magic and silver circle firms, with a U.S. presence, contemplating external investment.
What is perhaps even more illuminating is the public stance displayed by the U.K. Law Society who will “work hard” to persuade the ABA and the U.S. regulatory authorities that ABSs are viable business models. Bob Heslett, Law Society vice-president, said:
“We will work hard to seek to persuade the Americans on this, but we will only be likely to succeed if we can demonstrate that ABSs are just another law firm, subject to the same requirements and regulated by the same regulators as existing law firms, and in particular that client confidentiality is fully preserved and protected.”
My personal belief is that the pace of change within the legal professions on both sides of the Atlantic has picked up dramatically over the course of the last couple of years. The financial crisis is acting as a further catalyst of change across numerous sectors of the profession. Clearly, if one reads between the lines, the U.K. Law Society believes that the ABA position is not a static, immovable one. Although the first step may be a modification of the relevant rules to permit U.K. firms with external investment to practice in the U.S., I predict that it is only a matter of time before external investment in U.S. law firms is also permitted. Once such investment is common place within both the U.K. and U.S. legal professions, this in turn will only spur the growth towards legal outsourcing and alternative and more efficient law firm operating models.
[read more...]
posted by Mark Ross at
4:03 PM
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