The impact of alternative business structures (ABSs) on organisations with in-house lawyers is likely to be felt most in the third sector, major new research has found – but hundreds of private companies and public authorities are looking at conversion too.
The findings came in a report on the role of in-house solicitors commissioned by the Solicitors Regulation Authority, which analysed existing data and also surveyed 2,013 in-house solicitors and 213 employers.
The research revealed that employers have “some appetite” to become an ABS, with around 5-10% of those surveyed at least considering the business case for conversion.
“Applying this proportion to the total number of firms known to employ in-house solicitors would suggest that somewhere between 300 and 700 firms are potentially considering applying to become an ABS,” the researchers calculated.
They said this could have “a significant impact on the market for external legal advice”, depending on the size and market position of the organisation involved, although the limited evidence thrown up by the survey was that it did not seem as though very large companies were eyeing up ABS status.
At the same time, 10% of in-house solicitors working in the private sector thought their employer did not understand their professional obligations.
The survey found stronger interest from the likes of law centres, saying the impact there “could be quite substantial”, with possibly a third looking to convert. This could become even more marked once SRA has developed a tailored ABS regime for non-profit organisations providing legal services to the public.
In a related finding, the survey said that a third of employers – particularly in the public sector – intended to charge third party clients for legal services should the SRA remove the restrictions that currently exist on this. Unsurprisingly this was mainly from those which already have external clients.
More broadly, the report, conducted by Oxera, recorded that between 2000 and 2012, the in-house solicitor population doubled, reaching 25,600 solicitors and increasing to 18% of the total solicitor population.
The majority of in-house solicitors (60%) work in the private sector – with most concentrated in the financial services sector – 37% in the public sector – and 3% in the third sector.
The data showed that 56% of in-house solicitors are women, higher than the 48% among all solicitors more generally. In general, public and third sector organisations employ a larger proportion of women in-house solicitors than the private sector.
While almost all respondents from private organisations expected their legal teams either not to change significantly or to increase in size, about one-third of respondents from public bodies predicted they would decrease.
Oxera found that those private employers reluctant to increase the size of their legal teams feared that “larger teams increased the demand for external legal advice and therefore total legal costs”.
Other findings included:
- The top three benefits of an in-house legal team cited by private sector employers were improving the efficiency of managing internal legal affairs, reducing overall costs and expenditures, and better managing risks facing the organisations;
- Across all types of organisation, specialist skills and cost were identified as the most important factors when commissioning external advisers;
- In-house solicitors in the private sector worked an average of 44 hours a week – with over a third saying it was more than 48 hours – compared to 38/39 hours in the public sector;
- Salaries at private companies were around twice the £50,000 earned on average in the public sector;
- Limited resources and tight external deadlines are substantial challenges that in-house solicitors across all sectors commonly face. Delayed involvement is also a common challenge;
- While the majority of respondents consider SRA regulation relevant to a certain degree, 20% did not consider it to be relevant at all. For most, SRA compliance is not considered a great burden, either in time or cost;
- Many in-house solicitors said their employer involves them in strategic decision-making rather than advising on compliance with the law.
- In 80% of organisations, the role of the legal team is to advise on legal matters, rather than make decisions. The SRA said: “In some circumstances, the lack of ultimate control of the in-house legal team in handling legal matters could be of regulatory concern.”
SRA executive director Richard Collins said: “The in-house sector continues to thrive, grow and develop and it is important to ensure that regulation in this sector remains relevant, effective and proportionate.
“Not least among these challenges is the indication that in-house solicitors are experiencing conflicts between their organisation’s decisions and their own professional obligations. Many in-house solicitors are in a role that also involves providing advice to third parties outside of their organisation, and potentially linked to that, it would seem that there is an appetite among some organisations to convert to an ABS.
“The research also confirms the need, if we are to deliver relevant, effective and proportionate regulation, not to treat the in-house sector as a single, undifferentiated, cohort to which we apply a single regulatory approach.”
To read the full report, click here.