Weekly round-up: ABSs, ABSs and more ABSs

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26 September 2010


Stock market: Flotation? Not for us, says Allen & Overy

As alternative business structures (ABSs) loom ever larger, expect to see them move higher and higher up the news agenda.

For example, The Lawyer reported earlier this week on a solicitor who has set up his own practice with support from a financial services player, paving the way for it to become an ABS.

The magazine said Anthony Rose, who has worked for various well-known firms, has established Hampden Law to focus on company and commercial work for financial institutions and insurance brokers. In the past he has worked for insurance services provider Hampden Group.

Mr Rose told The Lawyer that the similar name was not a coincidence. His new firm receives secretarial, IT and accounting services at a competitive rate from Hampden Chambers, owned by Hampden Group. “It may be that when and if ABSs become permissible, that Hampden Law could become part of Hampden Group. Were we to get [to a situation] where non-lawyers can own firms, then that could work for us both.” Click here.

The Financial Times ran a lengthy article introducing its readers to ABSs, featuring many of the usual suspects when it comes to discussing the issue, such as Jeremy Hand, managing partner of mid-market buy-out company Lyceum Capital. “There’s a nasty storm brewing for traditional law firms,” he told the paper. “The downturn, smart­er customers, low-cost outsourcers and IT are major challenges and of course the new laws will open up the market to a host of competitors. Private equity brings both capital and expertise, so we expect to see deals done with well-placed firms looking to take advantage of the changes as well as new entrants with a fresh approach.”

Alistair Rose, leader of the professional partnership advisory group at PricewaterhouseCoopers, said: “If you asked me in 10 years’ time, would there be a publicly quoted law firm, I’d say there probably will.”

However, Law Society president Linda Lee said she was not expecting “a huge rush of outside investment in law firms next October although there might be some”. The paper found little evidence that the City’s biggest firms will be among them. David Morley, senior partner at Allen & Overy, said: “We don’t need the money. People say there must be a price at which the partners would be willing to sell out, but I am not sure any valuations within the range of the plausible would yield value on such a scale that partners would want to give up control.”

However, Mr Morley said the Legal Services Act will have a big impact on the sector. “I certainly wouldn’t subscribe to the view that the magic circle wouldn’t be affected by any of these changes. They are pretty profound … They will spark ideas. But flotation? No – not for us.”

Stuart Popham, Clifford Chance senior partner, said it too has no plans to take advantage of the changes. “There is no shortage of people prepared to make investments. We have been approached by a number of people.” But he adds: “I don’t think we see it as a way of attracting further business or further partners into the firm.”

The article concluded: “The pace of change is likely to be slow in this most conservative profession. But judging by what happened following the 1980s Big Bang in the financial sector, some observers believe there may yet be a flurry of mergers among law firms or even a stock market listing.” Click here (registration required).

Meanwhile, midlands business coach Bernie DeSouza has urged solicitors to develop new skills to help them build trust and rapport with clients – or face “drastic consequences” once ABSs come on stream, according to Midlands Business News. Mr DeSouza of Leamington Spa-based Global Coaching Company has been working with solicitors and said it is crucial they improve their customer service skills or risk losing clients to new players in the market.

He said: “Solicitors, more than any other profession, need to develop trust and rapport with clients and there is a big problem there at the moment. If you can’t engage immediately with your client then you are going to struggle. It is vital that solicitors at all levels, not just partners, develop the skills they need in order to read people, interact and help both solicitor and client relax and relate in what are often very stressful situations. That will help them to build trust and rapport which are vital if you are to develop a successful, lasting business relationship with that client.” Click here.

As we reported recently, one way for brands to enter the legal market will be through CPP’s pre-paid advice and assistance scheme (see story). Solicitor Michael Scutt, who writes the legal services deregulation blog There May Be Trouble Ahead, was at the same seminar at which this was unveiled and mused about whether subscription-type services are the way forward for law firms too.

“I can see subscription pricing working for very small law firms – perhaps virtual law firms with very low overheads – and for very large ones, such as Irwin Mitchell [which is involved with CPP]. But what about the in-betweens? How could you fix a level of price that would provide an economic income? Is this why more firms don’t do it?” Click here.

One response to ABSs has been to seek to build a nationwide legal brand. First there was QualitySolicitors and now HighStreetLawyer.com, which according to the Law Society Gazette is backed by private equity. The network, aimed at firms of up to six partners, is being piloted by six firms offering fixed-price legal products. HSL will also provide back-office support and a range of other services. The story also kicked off an amusingly juvenile string of comments on the Gazette’s website. Click here.

Scotland is in the midst of its own ABS debate as legislation to permit them passes through Holyrood, and the Gazette’s equivalent north of the border, the Journal, reported on the Law Society of Scotland’s special general meeting, which finally agreed the society’s policy on ABSs. In May, members voted in favour of two motions that supported ABSs with no more than 49% and 25% of non-lawyer ownership respectively. Last week’s meeting settled on the former. Click here.

Evidence that you don’t need the shadow of ABSs to drive innovation comes in an article in the National, the Canadian Bar Association’s magazine. Law firm consultant and blogger Jordan Furlong highlighted four firms delivering legal services in a non-traditional way, including nZone, a business that is looking to practise “common sourcing”. The model involves a common online legal information resource which provides a subscription revenue stream, with access to lawyers if more bespoke advice is required. Click here and go to ‘Leading the way’ on page 20.

But ABSs are slowly making their presence felt across the Atlantic, and well-known American academic Deborah Rhode wrote this week about the need for the US to rethink its approach to legal ethics, especially given globalisation. Reporting on Stanford Law School’s International Legal Ethics Conference, Ms Rhode said argued that faced with growing competition from ABSs in the future, “the American bar needs systematic research on their performance, and may do well to revisit its own prohibitions on lay investment and partnerships”. Click here. Those interested in US perspectives on many of these issues may also like to take a look at the The Law Firm Risk Management Blog. Click here.

A few other things worth noting this week. The old law firm model is still cranking out decent results, according to the latest Quarterly Legal Sector Survey from Deloitte. Providing “further evidence of a recovery in the legal sector”, it said the UK’s top 100 law firms have enjoyed a good start to the new financial year with Q1 financial year results showing fee income up 5% and chargeable hours per fee-earner up 4.4%. Click here.

Some of Europe’s most senior general counsel have warned law firms to expect a lasting shake-up in how they are retained and paid, Legal Week reported this week via its US affiliate The Am Law Daily.

It said that at a breakfast roundtable at the College of Law, legal heads from major corporations including Shell, Nokia and British Airways emphasised their intention to drive further changes in billing methods, as the balance of power between clients and their advisers continues to shift.

“Like many other companies, we face a lot of pressure with costs. We realise that they are too high and that they have to come down,” said Beat Hess, legal director and group executive committee member at Shell. “I’ve been saying that for years, but it’s felt like I’ve been preaching at a graveyard: There are plenty of people down there, but nobody’s listening. Law firms have had Christmas every day for decades now, but the party is over.” Click here.

And finally, the Law Society has issued a practice note on the new duties and responsibilities facing law firms as a result of the Equality Act. Click here.

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