'Events, dear boy' will define the legal revolution
The question I'm probably most often asked these days by senior people in the profession is what I believe will happen when law firms are allowed to take external investment or utilise new business models. It's a timely debate in the month that Irwin Mitchell and Plexus Law both confirmed their intention to be in the first round of alternative business structures (ABS) when the regime goes live (probably) in October this year.
April 21, 2011 at 07:27 AM
4 minute read
The question I'm probably most often asked these days by senior people in the profession is what I believe will happen when law firms are allowed to take external investment or utilise new business models. It's a timely debate in the month that Irwin Mitchell and Plexus Law both confirmed their intention to be in the first round of alternative business structures (ABS) when the regime goes live (probably) in October this year.
It has been well known for several years now that half a dozen top 75 firms are aiming to take advantage of the Legal Services Act on some substantive level. In the case of Irwin Mitchell, it was believed by many that the hire of a large property team from SJ Berwin in September last year was achieved partly as a result of the lure that top performers would have the chance to benefit from valuable equity stakes in the business if Irwin Mitchell pressed ahead with its intention to seek outside investment. By the time, it was reported in February that the firm had called in accountants to advise on restructuring its business to allow it to seek outside investment, it was seen as a foregone conclusion.
With large operations like Plexus and Irwin Mitchell – which between them represent businesses with annual revenues of over £250m – committing to ABS, does that mean we are already near some kind of critical mass that will allow new business models to revolutionise law?
The short answer is: 'No, not yet'. Because if there is one thing you can count on, it's what you can't count on. The future of the UK legal market won't be defined by theory or whether external investment is a 'good' idea. It will be shaped far more by what Harold Macmillan famously summed up as the greatest challenge to organisational leadership: "Events, dear boy. Events." In other words, the impact of the Legal Services Act to a huge extent will be decided by the success or failure of its pioneering early adopters.
One of the strengths of the UK legal market is that there is a free flow of ideas, which generally fosters innovation and rapid sharing of best practice. The negative to that positive is that law firms can at times make the average sheep look independently-minded. If a few firms at key sections of the market pull it off and get a good 18 months under their belts post-ABS, a rush will follow. Conversely, if a few pioneers falter badly, the revolution could well be cancelled, for the institutional market at least (the forces pushing for major upheaval in high street law look so overwhelming it's hard to imagine anything turning back that tide).
Not sure? Consider the profession in the 1990s. You had the rise of commoditisation, the creation of process-driven volume legal businesses, a tough economic climate and, most ominously, the competitive threat of large non-legal businesses entering the market. It seems eerily familiar as the Legal Services Act moves into view.
And what happened? The accountants were expected to rapidly become major – perhaps dominant – forces in corporate law. Instead Arthur Andersen jilted Wilde Sapte at the last minute in 1998, seriously slowing the juggernaut, before the Enron-related indictment and subsequent break-up of Andersen in 2002 finished the job of putting the accountants out of the running in law for the foreseeable future. You could make a decent case that these two events are the two defining moments of the global legal market over the last 20 years, choking off one revolution and pushing the City's top law firms to radically remake themselves as international businesses (which in itself sent reverberations around the global market for legal services).
And yet – annoyingly for pundits like me – such developments were largely driven by events not carefully-laid plans. In the case of Irwin Mitchell, you have to give the firm credit for genuinely embracing change and being ready to take a calculated risk. That's what business – as opposed to a profession – is all about. The firm has obviously put years of thought into how it can utilise the volume side of its business while seizing on outside investment to achieve a major expansion in its high-end commercial practice, and so does look one of the best-placed firms to make this work. But this will be decided on the ground. Anyone who tells you they are sure how law's big bang will play out is either lying or living in a dream world.
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