Editor's note: This article is a companion to The American Lawyer's March cover story, on the fight over the future of law firm ownership in the United States.

Upon securing a landslide victory to become U.K. prime minister in 1997, Tony Blair chimed, "A new dawn has broken, has it not?" He was brimming with promises of fairer business practices and more consumer power.

In that spirit, Blair's government in 2001 launched the first of several executive-led assaults on what it called an "outdated, inflexible, over-complex, insufficiently accountable or transparent" legal market. It marked the end of what the Blair administration saw as a failing philosophy—that only lawyers, trained and trussed up in reams of regulation as they were, could be the owners and ethical arbiters of the industry.

An ensuing investigation into the U.K.'s professional services produced a clutch of key findings that proved too unpalatable for the centrist Labour government of the time: ­soaring prices; too few new entrants; too many restrictions on who could advocate; and an absolute prohibition on multidisciplinary partnerships, whereby assorted professionals—lawyers, mediators, accountants, surveyors, consultants—could combine and deliver services as one.

In a word: anti-competitive.

Galvanized by its conclusions, the government in 2003 appointed former Bank of England deputy governor David Clementi to lead an inquiry into what regulatory framework "would best promote competition, innovation and the public and consumer interest" in legal services. His flagship recommendation was the establishment of alternative business structures that would allow lawyers and nonlawyers alike to manage and own legal practices.

Clementi's recommendations were the seeds for what became a concerted—albeit cautious and occasionally unwelcome—liberalization of the U.K. legal market, which came fully to life through the Legal Services Act of 2007. It was a pivotal piece of legislation that sought to raze the barriers that had for centuries restricted entry to all but lawyers. It heralded a more open and competitive market in which law firms could deliver more than just legal services, and have nonlawyers as owners. With healthier competition driving down prices, it came with the promise of greater access to justice.

But change in the market was more tentative than rapturous.

In 2012, with the underpinning legislation now in full swing, only a handful of businesses made purposeful strides into the new, liberalized world. The most notable of these was Irwin Mitchell, an established top 50 firm in the U.K. that, following its ABS conversion, raised tens of millions in external funds, brought in nonlawyers as equity partners, and bolted on insurance businesses.

But the new-look legal sector became a breeding ground for skepticism. Among the market's puritans, the changes were routinely derided. "Tesco law"—Tesco being the Walmart of the U.K.—was a common witticism used to illustrate the fear that deregulation would see businesses of all sorts wander off the nation's main streets and into the orthodox, change-wary legal market.

In a sense, it wasn't far off the mark.

U.K. supermarket chain The Co-Operative leveraged its considerable brand power to offer consumers the kind of legal services that would unnerve Main Street players: family law, conveyancing, personal injury, probate.

For London's corporate advisers, there was little to worry about. Chuckles were heard around the city. "Fancy some beans with your legal advice," quipped one well-known legal website at the time. But the contemptuous sneers quickly subsided in 2014, when Big Four accountancy PwC applied for its ABS license.

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The Big Four Offensive

Cloaked in awesome power, a reach that the most expansive global firms couldn't match and revenue that dwarfed the U.K.'s top 20 law firms combined, PwC's legal debut shook the market.

"It got people talking," says a former Magic Circle partner. "And partners are lying if they say it didn't make them ponder on it for at least a few minutes."

The remainder of the Big Four soon followed. KPMG and EY secured their ABS licenses that same year, and the biggest of the bunch, Deloitte, ambled into the market in 2018. PwC's legal offering remains the largest among the quartet, wading into both old and new legal domains with impunity across 90 countries, flexing its growing lawyer head count of more than 3,500.

With cavernous pockets, household brand recognition and multidisciplinary offerings from tax and audit to risk advisory and, now, law, the Big Four have bullied their way onto that hallowed ground, offering companies top commercial services at cut-rate prices.

But, the former Magic Circle partner says, the Big Four wave has yet to cause ripples among the U.K.'s top tier. They "have yet to show they have the sophistication, the technical expertise and, frankly, the ability to pay top dollar for their talent" in order to compete with the Big Law establishment, he says.

"But it's early days," the partner concedes.

What's less in doubt is the threat the Big Four pose to London's midmarket. Michael Chissick, managing partner at rapidly growing top 30 firm Fieldfisher, concedes that the Big Four are "aggressively attacking" his firm's space.

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London Listing

As the Big Four continue to glide and plunder, one further area of intrigue has emerged on the back of the ABS.

An offshoot to enabling nonlawyers to own law firms was the ability to bring in passive investors. Capitalizing, in the most literal sense, on the introduction of nonlawyer owners, Birmingham-based Gateley in 2015 listed on the London Stock Exchange's secondary market, the AIM, becoming the U.K.'s first legal PLC, raising £30 million on a £100 million market capitalization. Gateley's success story has continued: The firm's revenues passed the £100 million ($130 million) barrier last year for the first time.

Gateley has since been followed onto the AIM by five more firms: Gordon Dadds (now called The Ince Group), Keystone Law, Rosenblatt, Knights and DWF. While Ince's entry has been complicated, most of the debuts have proved fruitful, generating in the process incredible wealth for those lucky majority shareholders.

But more than the chance at an IPO, James Knight, CEO at Keystone, says the main benefit of the ABS was the sector's newfound "acceptance of different." It allowed his firm the flexibility to do what it wanted to do, he says. The firm gave up nothing, but gained plenty.

"The whole journey of having private equity, [nonlawyer] individuals, and doing the IPO, has been extremely good for our brand, for our know-how, for acceptance by the market, and for our ability to engage more sophisticated clients," he says. "And it all evolved from the ABS."

The most closely watched firm since the changes, however, has been Liverpool-born DWF, the first to have an IPO on London's premier market. Many speculated at the time that the move was intended as a quick fix to raise capital to offset burdensome bank debts, a theory supported only by the fact that the float took place in March 2019, the same month Brexit was meant to go ahead. But a year later, things appear to be going smoothly. The firm continues to stack up new acquisitions and international tie-ups (including with 250-lawyer, Los Angeles-based Wood, Smith, Henning & Berman), and now sits on a market cap just shy of £400 million ($520 million). On the back of this success, others are expected to follow.

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Here to Stay

It's been a hot and cold run for the ABS so far. Sarah Goulbourne, co-founder of successful London ABS Gunnercooke, says that because it's been run the same way for centuries, law has been slower to adapt than other professions. But slow or not, alternative business structures are here to stay.

"People didn't believe that legal services could be delivered in a different way," Goulbourne says. "As a younger generation of more entrepreneurially minded lawyers are entering the profession, they are much more open to different types of structures for their practices. They are bold enough to take risks, hungry for growth and much more open to accepting that law firms can be made stronger with thinking, skills and investment from other sectors."

In November 2019, Reed Smith became the first U.S. firm to have its ABS application accepted. At the time, the firm's Europe and Middle East managing partner, Tamara Box, echoed Clementi's ­underpinning philosophy. "In this era of digital transformation, [clients] are looking for a strategic service ­provider that can go beyond just providing advice on the black letter law," she said.

It's still early for Reed Smith, but Keystone's Knight suggests the firm's fortunes will provide a litmus test for other U.S. firms operating in the U.K., and possibly even for the U.S. itself.

"The U.S. is watching quite carefully," he says, "and it might even sway the [regulatory] changes there."

Like Reed Smith and the 200 or so firms that came before it, law firm insolvency specialist Andrew Hosking of Quantuma also believes the introduction of the ABS has been a success. He suggests that the ability to have other "proper professionals" among a law firm's leaders is essential in increasingly difficult, uncertain times.

"Accountants and business growth leaders have their own skill sets, which can work in concert with those of solicitors," he says. "A solicitor who is fantastic at dealing with client needs and being commercial is not necessarily able to transfer it to running a 2,000-employee law firm with HR needs and all sorts of data issues."

So far, the industry has witnessed, more than anything, a series of test cases. First, the Tesco test; then the Gateley test; the Big Four test; the DWF test; and, now, the Reed Smith test. Most have begun producing results.

Back in 2012, the existential threat that alternative business structures posed to traditional law firms seemed relevant only to those focused on relatively mundane work. But that's changed.

Even for the largest London firms—those most skeptical of the new and cleaving to the old—the Big Four's continuing encroachment and the rise of the listed lot are becoming increasingly hard to ignore.