Guest post by Dana Denis-Smith, chief executive of Obelisk Support
The Legal Services Act 2007 freed lawyers not only from outdated restrictions but also from outdated thinking. There has been significant progress since.
But it has taken longer than some hoped for and in truth there remains a considerable way to go before the whole profession recognises that inherent in providing legal services is delivering a service.
There are various reasons for this but the difficulty of changing the law’s culture is probably the biggest.
Cultural evolution – the need for a mindset change
In our report, Liberalisation – Reflections on the future of legal service delivery, Professor Stephen Mayson says: “It’s lawyers and law firms still not thinking like businesses truly would in a market that is still ripe for innovation, development and expansion.”
Arlene Adams, the founder of Peppermint Technology, has had a front-row seat throughout this period of change.
“Certainly, at the top end and the upper mid-market, firms are starting to operate much more commercially and take longer-term views and make longer-term investments, with professionally qualified people in their expertise to run the business, as opposed to legal experts who traditionally did both,” she says.
For a few in-house lawyers, this has been less of a problem. BT obtained an alternative business structure licence (ABS) in 2013 and BT Law used an in-house team of over 70 legal and support staff to provide services to external clients, particularly those with large vehicle fleets. It disposed of BT Law to DWF in 2019.
There have been precious few other examples of other large businesses taking advantage of the ability to own law firms, however.
Where it has happened is in local government, often with councils joining forces to spin their legal teams into standalone law firms and, in addition to handling their own work, compete for instructions from other public authorities.
At a time of extremely tight finances, the idea of turning a cost centre into a profit centre is very attractive.
Crispin Passmore, the former Solicitors Regulation Authority policy director who now runs Passmore Consulting, suggests those in commerce and industry could be similarly imaginative: “The GC of a big company could float off their legal services in partnership with an alternative provider as a joint venture not only to meet their own needs but to compete for work elsewhere.”
Entrepreneur Karl Chapman, now CEO of Kim Technologies, was one of the first people from outside the legal profession to see the opportunities that the Legal Services Act presented, launching Riverview Law as an ABS in 2012.
Its business model quickly evolved to focus on fixed-price managed services for in-house teams and, such was its success, it was bought by EY in 2018.
He reckons that, if the law worked like other industries and sectors, the pace of change “would have been much faster”. But the direction of travel is “inevitable”. Like any other sector, “it will start using the best of people, technology and process to deliver value, serve customers, and so on”.
I agree. When budgets are placed under greater pressure and as work demands increase, having the choice to select legal service providers that have both the advantage of thinking as businesses do and take into account the wider business demands within which the legal function operates, is beneficial.
A more sophisticated buyer demands choice
There has been well-documented growth with legal teams of legal operations specialists, legal engineers, design thinking experts and data analysts to name a few.
One impact of this transformation according to Jenifer Swallow, a former general counsel, then head of LawtechUK and now a business and legal consultant to high-growth companies, is that “the sophistication of the in-house environment has made them a more sophisticated buyer, so the way that they are now thinking about procuring legal services is changing, and changing at a faster rate than before”.
Where swathes of work have been traditionally given to law firms, there is more scrutiny around whether there is an alternative way to do the work, for better value and in a more efficient way.
For Jenifer, the central problem remains the way law firms are incentivised and the focus on maximising billing revenues short term – whereas alternative legal services providers (ALSPs) and ABSs have had to be so much more focused on aligning with what their clients want.
When running a legal department like a business in its own right – something general counsel are increasingly needing to do – “general counsel realise that certain things don’t make sense, that you need to procure and think about legal services in a different way. That then means you have to shop around and the ALSPs, as well as tech solutions, are a really obvious option”.
This has led law firms to try and offer a wider range of services. Flexible resourcing was the first wave of initiatives, followed by technology solutions and complementary services. This is similarly infusing law firms with people who have different, more commercial mindsets.
Nonetheless, Karl Chapman observes how “although not impossible, it is very hard, structurally, to operate a new business model inside a law firm”.
He explains: “Take a managed, fixed-price business with lower margins and a long-term annuity stream against an hourly billing, transactional model where the risk is with the client and the margins are very high.
“It’s difficult to accommodate those two models in a single organisation, given the way people are rewarded – by the number of hours billed.”
The firms that can do this are the exceptions, says Chris Fowler, former general counsel for BT’s technology division. The problem among law firms is that most still look at alternative solutions as just offering up bodies and cannibalising their own work.
It should perhaps be no surprise that change has taken longer than perhaps some expected, particularly among the larger law firms. In-house lawyers themselves need to be pressing their external counsel and it is heartening to see progress led by future-focused legal teams.
Legal service providers like Obelisk Support have relished stepping up to bring the type of fresh thinking and client-centric solutions that have, for the first time, given general counsel genuine options when allocating their spend.