The LSA and the three ‘C’s

To the consumer, the image of the legal profession remains a stuffy one, reflecting how the profession has not changed in any significant way in recent times.

However, the present structure of the legal industry in the UK is quite possibly facing the biggest challenge that it has ever been presented with, and the way that many existing law firms meet the challenge could well be a defining moment for them.

The driving force in that change in England and Wales is of course the Legal Services Act 2007 (LSA), which is due to be fully implemented in the next two years or less. In addition, there is likely to be similar change in Scotland, where the Legal Services Bill has recently been introduced by the Scottish government

What do these pieces of legislation mean for lawyers in England, Wales and Scotland and, perhaps most importantly, for consumers looking to buy legal services?

The changes were first dubbed ‘Tesco Law’ a few years ago. That was a reference to the view that the government expected to see the greater commoditisation of legal services in order to meet the changing demand from consumers – in the same way that supermarkets have commoditised the grocery market (and moved into other areas too).

 As a result, many believe that we could well see some of the UK’s biggest brands (such as banks, supermarkets and insurance companies) entering the legal marketplace for the delivery of legal services to the consumer for the first time.

In England and Wales, the LSA will allow the creation of alternative business structures (ABSs) alongside the traditional, lawyer-owned and controlled model of a law firm. ABSs range from legal disciplinary partnerships (permitting non-solicitor lawyers and non-lawyers – up to 25 per cent of the partnership – to be taken into partnership) through to multi-disciplinary practices. Shareholdings in law firms might range from minority holdings, which would facilitate the introduction of capital into law firms for expansion, right through to possible public listings on the stock exchange (many commentators pointing to such a move by Slater and Gordon in Australia). Outside investors will be subject to a fitness-to-own test.

In Scotland, there will be “licensed legal services providers” and outside investors will be required to demonstrate “fitness for involvement”, with their financial and business record, probity and character all assessed.

These structural changes will present real challenges for all law firms and, because of the benefits that they will bring for consumers, they are welcomed by Irwin Mitchell. Without a doubt, the proposed reforms will change the legal landscape north and south of the border to the benefit of consumers, and will improve access to justice for thousands of people every year. That has to be a good thing.

Meeting the challenge

Under the Legal Services Board (an independent and publically accountable body) in England and Wales, the task of beginning to implement the LSA is well underway. It has set a clear timetable for full implementation of the Act in 2011.

In Scotland, the Scottish Government intends that the Legal Services Bill should become the Legal Services (Scotland) Act 2010, again with implementation in 2011. In many respects, the proposed Scottish legislation mirrors its counterpart in England and Wales.

A major difference from the English legislation, however, is that the Scottish government does not favour the introduction of a legal services board in Scotland. Instead, there will be “approved regulators”. These will be approved by Scottish Ministers. Should an existing or new business seek to provide deregulated legal services, it will need to apply to become a licensed legal services provider.

However, although 2011 may seem to some to be still a good way off, this is no time for any law firm to be putting its head in the sand. The market will change and that means all law firms will have to change with it if they intend to thrive, meet the challenge from any new entrants and take advantage of the numerous opportunities that will arise.

The most important thing now for all law firms is to ensure that they develop a clear strategy in response to the changing legal services market place as soon as possible. Strategies will, of course, differ from law firm to law firm, but there are a number of areas that may need to be considered:

• Does the law firm wish to adopt an ABS and, if so, what structure fits them best?
• In considering the above, to what extent are they willing to take external ownership, and thereby external capital, into their business?
• Do they need to improve the customer journey in order to remain competitive?
• Do they need to bring complementary skills into their business, for example, project managers, operations managers, business analysts, and so on? (Such consideration will also involve matters of ownership for those individuals in the business.)
• Do they have any gaps in their portfolio of services and, if so, how are they going to respond to those gaps?
• What further investment in systems, processes, training and recruitment is required?
• Is the gearing correct?

Similarly, this is an interesting time for businesses to take a fresh look at their providers of legal services. For example:

• Does the current supplier have a forward-thinking approach to the forthcoming changes?
• If not, can business be confident they will be able to make the necessary investment in resource and central functions, such as disaster recovery planning?
• Are the business’ legal needs met by one supplier, such as to generate economy of scale, or is the supplier only able to service part of the business’ needs?
• And, most importantly, does the legal provider give the business’ customers, where they interface, and the best service they can possibly get?

With the significant change this will entail either side of the border, there is no doubt that firms will require strong leadership from their existing management structure during the development of the strategy and when that strategy starts to be implemented. They must keep a careful eye on how the market continues to change as we move towards 2011 to ensure opportunities are not missed. In addition, they must recognise the threat that is posed from new entrants into the legal marketplace.

Commoditised services

One of the main areas where opportunities could well arise is in an area where, for many years now, Irwin Mitchell has led the way. The firm has a strong track record in the delivery of commoditised legal services to business partners, including some of the biggest brand names around. That has meant moving way beyond the traditional approach of many law firms to a model that fully understands the needs of their business partners and their customers. It is a model that has invested in a sophisticated IT platform and its communication channels. By way of example, Irwin Mitchell has had a 24/7 Legal Advice Helpline since February 2004.

With the huge changes about to hit the legal industry due to the LSA and Legal Services Bill, all law firms will need to review their existing model and decide if it remains fit for purpose. As in other industries, the customer will be key. That means quick and easy access to their legal provider coupled with clear and transparent pricing.

Irwin Mitchell’s many years of experience in this area has enabled it to completely change the way it operates as a law firm within this sector of legal services. Clients are now offered a wide range of web-based contact solutions through to the 24/7 legal helpline, the aim being to provide business partners and their customers with access to legal and associated services at times that fit in with their expectations. In addition, for a number of organisations, the firm has developed outsourcing solutions and process driven systems that allow them to deliver volume commoditised legal services.

That is not the image that many people generally associate with a law firm, but it is one that clearly works.

Greater commoditisation of legal services will occur and firms will need to look to adapt if they want to meet the challenges that are now taking place and that will accelerate after 2011. As with all industries, once change begins, the expectations of the customer change with them, and quickly. No law firm can afford to be left behind and will need to move fast to keep up with its customers and their evolving demands.

Obviously there is speculation as to how a new entrant “non-legal brand” organisation might structure any new offering for consumers. Might they go down a route of having their own in-house law firm and look to build quickly by cross-selling legal services to existing customers? Supermarkets for example have done this successfully with selling financial services to customers.

Alternatively, they might look to existing law firms with the appropriate capabilities to “white label” the services for them. In addition might this be coupled with an associated investment in that firm?

In such situations, opportunities for growth may come for forward-thinking firms willing to meet the demands of the new market. In reality, the approach is fairly simple, with some key steps that all firms should always keep at the forefront of their thinking:

• Understand the business they will be dealing with and their brand;
• Provide the business partner and the customer with a service of the highest quality at a competitive price;
• Create a seamless service between the partner organisation and the legal provider; and,
• Offer a service to which businesses are confident enough to entrust their customers and their brand.

The feedback from business partners is that they value the flexibility of working in partnership with preferred suppliers coupled with a willingness to develop new products. But law firms will also have to accept that no two clients are the same and they must be willing to adapt as often as necessary. The ability to move with the market and to adapt the offering to the customer will be a key element in deciding which law firms thrive post-2011 – and those that do not.

Consumer as king

Both in England and Wales, and in Scotland, the driving force of the changes in the legal market have been to give greater power and choice to the consumer. The changes will increase their access to justice, which has to be a very positive thing. Benefits are likely to include much greater access to legal services for the consumer at times and in ways that best suit their lifestyle.

Without a doubt, the legal market post de-regulation will mean law firms have to meet the new challenges and become more forward thinking. This means that many law firms will need to formulate a much more consumer-focused strategy and be willing to learn lessons from other sectors. They must plan on the basis that new entrants, potentially including household names (with strong consumer brands), will enter the legal marketplace for the first time. Such new entrants will bring with them new models and strategies in customer delivery.

That means that existing law firms must move beyond the traditional image of lawyers to meet consumer expectations in a new era. The key will be to deliver a service that is up there with the very best in consumer services. That has been the aim of Irwin Mitchell for some time and will remain the case.

Other firms will need to review their operating models and make changes that they feel are appropriate. The aim for existing law firms is to ensure that they are as good as other industries in delivering a world class consumer service to the people who matter the most – the customers.