Law outsiders are on the inside

New ways of working and alternative business models are set to rock the legal world, as Neil Rose reports

It was not long ago that innovation in the law meant trying out a daring new type of biscuit for client meetings. No longer, however. The introduction of alternative business structures (ABSs), and the mood of innovation they have created, means change is gripping the £25-billion legal market like never before.

ABSs allow non-lawyers to own and manage law firms for the first time and, though they are still small in number – about 300 in total, as against 11,000 “traditional” law firms in England and Wales – their influence is far greater.

This is literally true in certain sectors – Legal Services Board research estimates that ABSs have around 20 per cent of the personal injury market, as several large insurance companies have launched legal businesses – and metaphorically by acting as a catalyst for new thinking around delivering legal services.

In the two years since ABSs started coming on-stream, the variety has been eye-opening.

Firms have brought in non-lawyer partners, accepted private equity investment, formed part of multi-disciplinary practices or been born out of in-house legal teams. The Co-op, AA, Saga, Direct Line, BT, Capita and the Stobart Group are some of the brands that own legal businesses.

Investors, such as ex-TV Dragon James Caan, Betfair co-founder Bert Black, Stagecoach chairman Sir Brian Souter and Adrian Fawcett, chairman of Silentnight Group, are also now players in the market.

And then, to highlight a few, there’s the Country Gentlemen’s Association, which has added legal to the financial advice it already offers its 15,000 well-off members; Red Square London, a family office for Russians relocating to the UK; the Transport Salaried Staffs’ Association investing in Leeds law firm Morrish Solicitors; a law centre in Leicester setting up a for-profit ABS to subsidise its not-for-profit activities; and specialist immigration set Richmond Chambers, finding a new way of being a barristers’ chambers.

Very few lawyers, if starting their firms again from scratch, would design what they have today

All we have not yet seen is stock market floatation. This is hardly surprising, given that listings have been tough generally even without the added complication of being the first law firm to undertake one, but it has not been lost on many observers that the spectacular growth through acquisition of consumer law firm Slater & Gordon – a listed Australian practice that entered the UK two years ago – has been fuelled by its access to capital.

So far, most of the ABS activity has been at the consumer end of the market and they have not had a direct impact on the largest commercial firms. A recent Thomson Reuters survey of finance directors at the top 100 law firms indicates that they have become increasingly sceptical about listing on the stock market or taking on private equity investment, while the attractiveness of bank lending has surged.

As if to prove the point, ABS enthusiast Irwin Mitchell announced last month that it had secured a £60-million, four-year facility from three banks to finance its growth plans, rather than seeking more novel forms of financing.

But there is an indirect impact, as what top legal futurologist Professor Richard Susskind calls the “more for less” challenge takes hold, and clients demand that the lawyers they use work in new and more efficient ways. So, an increasing number of City firms have set up lower-cost centres in other parts of the UK, staffed by paralegals to handle routine tasks that do not need a City lawyer with a City charge-out rate. They are also putting together pools of freelance lawyers as a flexible, cheaper resource for certain types of work.

This has also seen the rise of businesses, such as Axiom Law, an outsourcing operation employing senior lawyers, and Riverview Law, offering smaller business customers fixed-price annual contracts and larger companies a new model of outsourcing without the need for panels of law firms, again at a fixed fee; it already has FTSE 100 clients.

What marks out many of these new ventures has been the ability to start with a blank sheet of paper – no partners, no hourly rates, putting IT at the heart of what they do. Riverview has created roles such as project manager and data analyst. Very few lawyers, if starting their firms again from scratch, would design what they have today.

Alongside this is a greater focus on understanding and improving process. Global giant Clifford Chance has announced firm-wide training in Continuous Improvement methodologies, akin to Lean Six Sigma.

A white paper published by the firm says the key problem is that lawyers have not been trained to look at the work they do as a process. “Trainee lawyers learn by observing how more senior lawyers operate; the focus is on the acquisition of knowledge and expertise, rather than understanding the ‘how’ or ‘why’ of service delivery. The result is not a lack of process, but fewer fully standardised processes,” it says.

Some firms see what is on the horizon, notably the likes of Berwin Leighton Paisner, Eversheds and Addleshaw Goddard. The latter has a Law Rethought programme predicting that the legal market of 2020 will have 25 per cent fewer lawyers and 20 per cent fewer firms, with new business models and disruptive legal technologies sitting at the core of the provision of legal services.

And, as if all this was not enough for the big firms to worry about, now the accountants are coming to get them too. PwC recently gained an ABS licence that allows it to own and invest in what was previously the separate firm of PwC Legal, while EY announced last month that it is to build a “legal capability” in the UK.

Bill Gates once said that less happens in two years and more happens in ten years than you might think. Given what we have seen since 2012, the legal world of 2022 is going to be a very different place.

CASE STUDY 1

CRADLE-TO-GRAVE MERGER KO’S SILOS

Triton Global is one of the first truly multi-disciplinary alternative business structures (ABSs), bringing together three previously separate businesses – claims administrator DCS Global, specialist insurance law firm Robin Simon and loss adjuster Walsh PI+ – to provide a cradle-to-grave claims resolution service.

The company has 120 staff across five offices in the UK and a further 25 in five offices overseas. And, now the law firm is allowed to have non-lawyer owners, it has just become one of the first legal businesses to introduce employee ownership.

Staff were told last month that they are each to receive a free initial tranche of 145 shares, worth about £500. The employee share trust, which will hold 10 per cent of Triton’s issued share capital, will be able to nominate a director to sit on Triton’s board.

Chairman David Simon says: “I have always been an iconoclast and love upsetting the applecart.” Becoming an ABS has “knocked down the silos” between the three businesses and encouraged much greater collaboration; introducing employee ownership “is a way of cementing that feeling that we are one business”, he says.

It will also give retiring shareholders a market in which to sell their shares, overcoming succession issues that plague traditional firms, while research shows that employee ownership makes businesses more productive and improves staff retention.

In addition, Triton is adopting an innovative approach to charging in a move away from hourly billing. “We are saying to insurers: ‘Give us all your cases for X years. We’ll handle them from cradle to grave and charge you what it costs us plus a percentage’,” says Mr Simon.

CASE STUDY 2

SMALL LAW FIRMS IN STELLAR RISE?

According to research by LexisNexis, small firms may turn out to be the stars of the legal services revolution. It identified a group of “dynamic independent lawyers who are really shaking things up” and who share characteristics such as having previously worked in a large firm.

This well describes the founders of Radiant Law, who all previously worked at big City firms. The firm combines high-level legal advice and fixed fees with IT and legal process outsourcing. It specialises in technology, outsourcing and commercial contracts.

Chief executive Alex Hamilton says that, while in high-value matters Radiant’s main contribution is the experience of its seven UK lawyers, for high-volume commercial contract work, “the whole process is where we add the value”.

Radiant works with clients to automate contract creation – meaning the client can do this and send out the first draft – and it then works from “playbooks” containing standard responses and fall-back positions to speed up negotiations, providing partner-level support if required. The aim is to reduce the length and cost of the contract cycle.

The firm has just opened a five-lawyer office in Cape Town, South Africa to support this operation, having previously worked with an external legal process outsourcer.

Radiant is also applying for an ABS licence so that retailer Greg Tufnell, a former managing director of Mothercare and Burton, can become non-executive chairman.

Mr Hamilton says: “Greg brings a way of thinking that’s alien to the legal world – and the legal world needs more of that.”