SMEs “deeply unhappy” with legal services as lawyers warned they risk going the way of HMV

Passmore: no oversupply of lawyers given latent demand

Just one in eight small businesses believe that lawyers provide a cost-effective solution to legal problems, new research has found.

The finding, from an as-yet unpublished Legal Services Board (LSB) survey of the legal needs of some 9,000 small businesses, suggests far larger unmet legal need among SMEs than among the general public.

In a keynote address yesterday to a conference on innovation in legal services, hosted by the Westminster Legal Policy Forum, LSB strategy director Crispin Passmore said the finding that just 12.6% of small businesses agreed “lawyers provide a cost effective means to resolve a legal issue” was “startling”.

Also yesterday, giving evidence before the House of Commons’ justice committee, LSB chief executive Chris Kenny revealed the same statistic in answer to a question from Labour MP Jeremy Corbyn. Mr Kenny said SMEs having access to legal advice – for instance in staffing, mergers, disputes, and intellectual property matters – was “almost as important as access to bank capital”.

“We are acutely aware of the importance of legal services to small businesses,” he added, and highlighted the advent of legal services by fixed-price subscription as a possible “way of ensuring that there isn’t the deterrent effect of ‘dare I pick up the ‘phone’ because the hourly rate clock will start spinning too quickly”.

Mr Passmore said the finding raised questions about the conventional wisdom that there is an oversupply of lawyers. “If there is oversupply, why is it that nearly one-third of individuals don’t get the advice that they need? How come the majority of SMEs don’t go near a lawyer to tackle their problems and disputes?

“I don’t see how there can be oversupply with this level of latent demand. In fact, coupled with other research that suggests that close to 30% of the general population don’t get their legal needs addressed for reasons of cost and approachability of the profession, then it suggests that while progress has been made in opening up the market, we still have a long, long way to go.”

He said legal services were “one very important aspect of a functioning economy” and “essential for SME growth and inward investment. It was important that regulation evolved “in a way that allows competition to flourish in order to support and enhance growth”, of which delivering alternative business structures and “liberalisation in education and training” was an example.

Mr Passmore described ABSs as “a game changer” that had encouraged innovation and are “challenging old orthodoxies and unleashing innovative thinking”. A welcome spin-off has been that traditional firms are themselves “beginning to think radical thoughts”.

He observed that lawyers were competing against a range of alternative advisers for the attention of business clients, including accountants, business consultants, financial advisers and banks.

“As Blockbuster, Jessops and HMV all discovered, you can argue your business is different because you offer expertise and personal service, but no part of this market is immune to change. I think that most lawyers now recognise this – but as those three once retail giants discovered, you have to respond to change to survive.”

He pointed out that two-thirds of the legal sector’s workers are not traditional lawyers and that legal education needs to “equip the legal sector workforce for the realities of the emerging diverse and innovative market” and “liberalise to keep pace”.

He made a number of recommendations to regulators on legal education and training. “The professional is no longer the sole legal service provider.  This is a fast-changing, diverse and innovative market – and lawyers are just one part of it”. Education and training should be liberalised “to secure a flexible workforce”.

He continued: “Regulators need to sweep away the restrictions that hold legal services back without offering appropriate consumer protection, focusing their regulatory resource on the real risks to consumers and the public interest.

“To do this, I think the amount of secondary legislation – and indeed some of the statutes – defining legal regulation will have to be reduced.”

Mr Passmore concluded that the LSB would be “absolutely ruthless in targeting risks and improving regulatory performance”, and admitted: “But we are still some way from having a regulatory system that is, in its entirety, fit for purpose: one which delivers growth by enabling greater innovation and competition whilst protecting the wider public and consumer interest to support access to justice and the rule of law.”


    Readers Comments

  • I have found this article very interesting. Whilst no disagreeing with the figure that only 1 in 8 SME’s believed that they got cost effective legal solutions, one must ask oneself whether cost effective, in the minds of those surveyed, means ‘too expensive’ ie in proportion of the profit they made off the back of the lawyers work, or whether it was ‘value for money’ ie service etc. In non-litigation work it important for lawyers to sell the value of the work to a potential client ie if I draft this share sale agreement for you and I charge X how much money is your business going to make off it over say Y years? – this is value based billing.
    When it comes to litigation its a whole different beast – non one, even if they win a court case, actually profits from their claim; they merely get back what should have been paid to them or uphold their rights which shouldn’t have to have been trampled on in the first place. However, where lawyers can sell this to clients is by finding where the value to that client lays Is it by way of ‘revenge’, ‘the principle’ or simply helping the maintain business continuity by getting that money owed back (of course we cant give guarantees on that which is where you may lose some clients perceived ‘value’) or allowing them to free up their time so they can get on with running their business as opposed to being tied up in litigation.

  • What a shock it must have been to the LSB to discover that in these cash strapped times businesses can’t afford lawyers fees! Mr Passmore seems to suggest that “expertise and personal service” are not what the legal services market wants. If so, then the government and the SRA may as well legislate solicitors out of existence and let us compete on a proper basis, without the vast financial burden of over regulation and professional indemnity costs. The problem is that we are now seeing “market forces” being reigned back in in the world of personal injury claims after it was decided to deregulate that area some years ago. I believe the same will happen again when everyone realises what the true extent of market forces really means. Believe it or not there are many solicitors out there who simply want to give a good service to their clients and to new ones as well but where everything is cost driven, there is no wonder that “SMEs” go unadvised.

  • Paula A. Argento, Esq. says:

    “legal education needs to “equip the legal sector workforce for the realities of the emerging diverse and innovative market”

    Amen, Mr. Passmore! See my “How To Avoid the Law School Trap and Achieve Lasting Success in the 21st Century” – I say law schools MUST teach alternative executive skills to law! Bravo for the UK’s Legal Services Board!

  • This week’s Social media Show has interviews with Riverview Law and BlackLetter PR (and Legal Futures gets a mention on the website).
    We’d love to hear of anyone else we should be interviewing on the topic of professional firms using social media to conduct more transparent business.

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