The ABS Race is On!...Almost...

(thanks to Rocking Horse Works)

Today's the day the Solicitors Regulation Authority (SRA) belatedly began accepting applications from those who want to become Alternative Business Structures. It was meant to be last October 6, but the SRA hadn't quite got to the cantering stage then. Now it's trotting along.

According to Legal Week there have been 15 licence applications including Irwin Mitchell, which wants to take external investment, and Cooperative Legal Services which wants to integrate its legal practice under the Coop umbrella.

About 10 applicants are serious and although the process can take 6 months some applications will be processed earlier. The SRA says it will be rigorous

"For example, we'll be asking for the employment history of everyone going back five years - we need to have detailed information relating to those who want to be regulated by us."

Others for ABS conversion may be Claims Direct, a claims management firm on a no win-no fee basis, which is owned by Russell Jones & Walker.  And Solicitors Journal says

Other likely contenders include LEGAL365, the legal business set up by Freeserve founder Ajaz Ahmed with law firm Last Cawthra Feather, and In-Deed, the conveyancing service set up by Rightmove founder Harry Hill, who revealed last month that he would be buying up law firms.

Both LEGAL365 and In-Deed are online legal services providers and this form makes perfect sense. It will be interesting to see if other online providers, eg, Legal Zoom or Epoq Legal, move this way.

Well, it has been a slow start. Unlike the Big Bang of 1980s financial services, no equivalent explosion has occurred in legal services. In fact it has been rather a damp squib which has the potential to become a sparkler that might graduate to a firework bang in the future. 2012 should give us the picture.

What won't be clear is the effect on the delivery of legal services. Most analysis, for example that by Susskind, focuses on what lawyers will do or won't do. It doesn't say much about access to justice and whether we can look for an increase in legal services. One of the questions here is the carving out of the market with the potential that many might not get access to legal services, for example, those on benefits or unemployed.

I have not yet seen anything about say the pro bono commitments of ABS. Now there is a difference between corporate social responsibility and pro bono, although many lawyers confuse the two. But there is no reason why good CSR policies can't include commitments to pro bono. I hope so.

This is terrifically hard to do as the Kutak Commission on legal ethics in the US in the 1980s found when it proposed a mandatory 40 hour per year pro bono commitment. Outrage and uproar. It never happened.

Perhaps what we need is a pro bono index like a stock market index so we can track pro bono and share prices. Who knows, there could even be a healthy correlation, dare I even say causal link... OK, that's pushing it too far.

The ABS Race is On!...Almost...

...And Complaints Can Be Bad for You

In my previous post, I vainly hoped lawyers could learn from the complaints process they now have to follow. Unfortunately (h/t to Legal Futures) they haven't quite absorbed the lessons. This is definitely a case of being placed on the naughty step.

Two law firms refused to follow the Legal Ombudsman's orders to compensate clients. The result was the LeO went to court to get enforcement orders with the consequence that in addition to paying the compensation the firms had to pay the LeO's court costs.

Stupid? I think so. Law firms aren't going to get anywhere by being adversarial. As the LeO says:

“The cases are a reminder that ombudsman decisions, once accepted by complainants, are binding. Lawyers need to remember that our decisions are enforceable through the courts and that failure to comply promptly can mean an unnecessary expense.
“Those who don’t comply are likely to have to pay costs ordered by the courts, and risk being referred by us on conduct grounds to their regulatory body.”

I'm sure the legal profession must be thinking the world is conspiring against it. All we need is the next step to name the law firms. They should have warning stickers.

...And Complaints Can Be Bad for You

Complaints Can Be Good for You...

While people argue over Rick Kordowski's Solicitors from Hell, the complaints bandwagon rolls on and on. The Solicitors Regulation Authority has issued new requirements to law firms on how they are to collect information on complaints.

The SRA's starting point is clear

A perception of poor complaints handling by the legal profession was one of the drivers for the Legal Services Act 2007 (LSA). In response, a fundamental requirement of the LSA is that approved regulators must ensure legal service providers have effective procedures in place for the resolution of complaints. Section 112(1) of the Act also requires an approved regulator to make provision for the enforcement of those requirements.

This is the result of the Legal Services Board's YouGov research on complaints handling, which ought to be compulsory reading for all lawyers. So the SRA will now require law firms to collect data on first-tier complaints in a new way.

The complaints categories down the left hand side are those used by the Legal Ombudsman. The row across the top is self-explanatory and covers the previous 12 months. I will be curious to see what gets inserted into the box marked "other". I also wonder if the categories will capture the full extent of consumer satisfaction. The categories seem to me very much "lawyer-type" ones.

The SRA, following the Financial Ombudsman Service approach, will use the data to construct waves and trends of complaints to allow it to see if there are systemic issues in complaints. The data will also inform the SRA that it has a problem with law firms that aren't handling their complaints properly. (You can see how the Financial Ombudsman Service analyzes its data here.)

This is all part of the risk-based approach to regulation now in train. My guess is that lawyers may well be in for a shock when they start seeing the results of the analyses.

My ever-eager curiosity also wonders how much--if any--of these data will be made public. Some redaction might be needed, but it should be there in the public domain, so at least we could see if things are improving.

Complaints Can Be Good for You...

Mea COLPa and the Lawyer's Gone Bust...

(thank you)

Two separate items in Legal Futures raise concerns about lawyers and their relationships within their own firms and with their clients. They tell different sides of the same story, from inside and outside the law firm.

The first is that many firms haven't begun to train their staff in risk and compliance for when outcomes focussed regulation begins October. Yes, three months.

The second is that there has been a steep rise in compensation claims against solicitors. The figure is now over £200 million.

New figures from the Solicitors Regulation Authority (SRA) said the value of the 1,952 open claims against the Solicitors Compensation Fund at the end of June was £205m, £76m more than at the same time in 2010, even though there were almost 1,000 more claims open then.

I wrote before that law firms are confused and perplexed by who should be their compliance officer for legal practice and what that officer ought to be doing. By October 2012 the COLP has to submit a report on the preceding year. That means having all the reporting and accounting systems in place now, or by October at the latest.

If law firms can't get their compliance act together then how are they going to respond to client complaints? How will they catch dishonest lawyers? Note that law firms have also to appoint a COFA (compliance officer for finance and administration) too. If these processes are fully functioning will clients have confidence?

Perhaps, instead of trying to kill off Rick Kordowski's Solicitors from Hell, the Law Society and Bar Council should be prompting their members to start thinking and acting to ensure clients are satisfied, well-served, and confident in the legal profession.

Adam Sampson, the Legal Ombudsman, wrote recently that customer service will be the key criterion

What is important here is the introduction of the concept of customer service as a basic standard against which barristerial actions are to be judged.  I know from my own experience that the vast majority of barristers take their responsibility to their client as their central, driving motivation.  However, there remain a small number of the profession who see customer service as something which is wholly the responsibility of the solicitor and therefore not a matter with which they need to concern themselves.  It is this small group who may struggle to adjust to the new reality.

Barristers, it seems, have not yet adjusted to a non-adversarial complaints system where they can "prove" their innocence. That will be only one part of the process.

Lawyers must realize that the new world of legal services won't wait for them to catch up from the 19th century to the 21st. We know other suppliers will jump in and begin to mop up. It might be Coop or it might be Quality Solicitors, but it won't be the lawyers who stand there with question marks over their heads. Whoever works out that consistently good service across all fronts to all clients improves business will win.

Mea COLPa and the Lawyer's Gone Bust...

Lawyers, the Comorra, and Dutch Auctions

(thanks to movieaddicts)

There's a scene in Gomorrah (about the Neopolitan Comorra) where dress-makers compete to win an haute couture contract for a major clothing designer. They are asked to bid for the work in money and time--the lowest amount for each. Pasquale pleads with his boss not to go below a certain number of days which of course he does to win the contract. It's a reverse auction. These are also known as Dutch auctions, in contrast to "normal" English auctions where the price ascends not declines (see Smith 1990: 120). Later in the film Pasquale sees Scarlett Johansson on TV wearing one of his dresses.

Dutch auctions are very desirable for buyers of services although not so good for the sellers. Lawyers are now finding out what it is like to be on the receiving end of a Dutch auction. With a hat tip to my friend, Peter Lederer, the Wall St Journal has run a fascinating article on the machinations of corporate counsel to impel lawyers and law firms to embrace reverse auctions. (Here's an alternative location if it's hiding behind Murdoch's paywall.)

Here's the opening:

Spurred on by budget pressures, companies' use of a controversial auction process to negotiate contracts with law firms has surged in recent years, a trend that could eventually reduce the revenue attorneys can expect to reap from clients.

Several big companies—including GlaxoSmithKline PLC, eBay Inc., Toyota Motor Corp. and Sun Microsystems—have used the tactic, known as reverse auctions or competitive bidding, to pressure law firms to lower prices, especially on high-volume work such as tax filings and intellectual-property transactions. Many lawyers now worry these auction-based pricing strategies are spreading to more complex projects.

"Is it making all of us uncomfortable? Yes. Especially when you start to move away from the more routine sort of work," says Toby Brown, the director of pricing at Vinson & Elkins LLP.

What is interesting is that this isn't being done through beauty parades and pitches but instead through websites where law firms bid against each other and against the clock. Sounds like a chess game, no?

Despite the tender feelings of law firms and lawyer that this might all be a bit infra dig--"not very professional is it, old chap?"--it's gathering pace and market share.

Ariba Inc., the maker of one of the main reverse-auction software tools, claims that around 40% of today's market for legal work—a threefold increase from just a few years ago—is contracted through electronic, online means, most of which involve a reverse auction, according to Sundar Kamakshisundaram, a marketing manager for the company.

And David Baumann, general counsel for TechNexxus LLC, which helps companies cut down on legal, technology and business-services costs, says more than a third of the work they do involves reverse auctions, about four times more than in 2008.

Lawyers will plead that their work is complex and varied and can't be priced like other products. It doesn't really wash when one sees investment banks pricing complicated deals every day. How many other suppliers are able to say, "I won't tell you the price now. Wait until I think I've done enough, then I'll let you know."
As one general counsel so aptly put it:

"Every lawyer will tell you that every piece of work they do is incredibly important and risky and has to be custom-made, and that's just nonsense," says Jeff Carr, FMC Technologies' general counsel. "No matter how legally brilliant you are, there is always an alternative."

What's the difference between a loaf of bread and a lawyer? You eat one and the other eats you.

*****************

Smith, Charles W. 1990, Auctions: The Social Construction of Value. California.

Lawyers, the Comorra, and Dutch Auctions

Proof It's Time to Teach Legal Ethics in the UK...

City law firms are ticked off because government legal procurement doesn't seem to be going their way. Legal Week reported on government's reliance on one or two firms for its banking crisis work, well, mostly one--Slaughter & May. During the Northern Rock crisis it billed government £20 million in fees.

The latest beneficiary is Freshfields, which isn't on the panel, and partner Barry O'Brien of Marks & Spencer conflicts of interest notoriety.

However, what really intrigues me are the comments following the article. They represent the polar extremes of formalism and professional responsibility. My take is that lawyers are superb at avoiding accountability but then their forensic training ensures they make these distinctions. For example, the way the SRA Code of Conduct is used to justify positions is rather like the way evangelical preachers on TV use quotations from the Bible. In a country where legal ethics is not properly taught, now is the time.

I've added the comments below:

Sick

I think that lawyers are the last people who should be moaning about this since they were partly responsible for causing the financial crisis and have never been punished for it. The law is not just something for partners to make money out of – it was designed as a system to govern and protect society. That includes lawyers involved in corporate and banking law.
In respect of the complex financial products and mechanisms that were created during boom times e.g. securitisation etc and the complex deals that took place, it was the responsibility of lawyers to advise their clients that these could end up in a financial crisis scenario. The lawyers should have been alert to the fact that, although operating in a soft law type environment, these deals were harmful to principles such as market confidence, protection of the consumer, as well as protecting the system as a whole. It was the lawyers' duty to deter the clients from conducting these deals and they should have reported their concerns to the Government, FSA and international bodies and refused to act for the client. A client may well think these deals are smart, but it is for the lawyer to consider the legalities – that does not just mean loyally making it happen for the client so they can bill and buy an Aston Martin, but also looking at the bigger picture.

So City lawyers are reaping what they have sown here. And if lawyers wish to argue that they could not anticipate the financial crisis then that is more reason to say they are responsible and should be brought to book because it would be negligent for any lawyer advising on finance deals to not have a firm grasp and understanding of economics related to the deal and how the deal fits into the economic system as a whole within that economic climate (e.g. a boom period).
And £20m is sick – why on earth don’t the government deal with this in-house, probably at 1/10 of the cost? And why are these firms on any kind of a panel in which they initially advised on the deals and the institutions that went belly up? This is another example of the David Cameron 'jobs for the boys' mentality that the current Government promote (i.e. work for the Eton and Westminster School alumni, stuff the rest). It is a total disgrace.

Megatron -16 Jun 2011 | 13:13

A few facts

Megatron

Clearly facts aren't your strong point, but the panel was created by your friends in the last government. Do you remember? The ones who set up the system of financial services regulation and who advocated "light-touch" regulation. The ones who virtually bankrupted the country. Do try to retain some grasp on reality.

Rant over -16 Jun 2011 | 14:59

Cleansing the Augean Stables

Megatron,

Let's get it all out in the open. Where were the lawyers when the Japanese earthquake struck, eh? Didn't they warn Tepco about the risks of water-cooled reactors?
What about Southern Cross? Shouldn't they have predicted the squeeze on local authority spending and refused to act for Blackstone on the freehold sales?
When Cardigan ordered the charge of the Light Brigade, shouldn't the lawyers have known what would happen and injuncted the Russian guns?
I'd be interested to hear your thoughts.

Scattergun -16 Jun 2011 | 15:34

@Megatron
I can only assume that you are not a lawyer. If you are a lawyer then you clearly weren't listening in your conduct classes. Rule 1.04 "You must act in the best interests of each client." Not in the interests of the country. Nor of the government. Nor of Mrs Miggins.
Your duty as a solicitor is to help your client achieve its aims within the law. It is not and never has been a professional duty of a solicitor to second guess his client's commercial decisions and aspirations or to place his own value judgments about a transaction's social utility above the interests of his client. Those are the responsibility of financial regulators, not solicitors in private practice.
Your position is just a commercial law version of the old canard put to criminal lawyers: "How on earth can you defend rapists/paedophiles/armed robbers etc?" And the response is just the same: they are entitled to legal representation and their lawyers are bound to act to the best of their abilities in the client's interests (and not society's at large). It's a fundamental premise of the rule of law.

Vercingetorix -16 Jun 2011 | 18:17

Maths

@ Vercingetorix

I don’t think you are a lawyer either to be honest based on what I just read. Lawyers are not allowed to represent rapists and paedophiles if they are guilty and then try to claim they are innocent. I think you are missing the point. FSMA said that financial institutions had to act in the interests of market confidence, protection of the consumer, as well as protecting the system as a whole. Therefore, law firms had to assess whether the deals breached those rules and if they did (which clearly they did) they should have refused to act for the client and reported to the FSA and Treasury that financial institutions were conducting deals and activities with huge systemic risk implications. So, these deals were not "within the law" (as you claim) otherwise there would not have been a financial crisis would there?
As for quoting the code of conduct by the SRA to justify City firms' oversights in regard to those deals. Please! The SRA is protectionist toward large City firms – They wouldn't dare invent a Code that might in any way, shape or form offend a City firm.
Also @ Vercingetorix - I think it was stated that the law was "not designed" in the interests of City firms and partners. I don’t think people like Plato really put much though into creating a legal system designed to help partners get a good PEP every year!
The incompetence of the lawyers point is interesting too. How could these lawyers spot systemic risk dangers? Many of the clients (i.e. employees of these banks) have very technical and high level economics and mathematics degrees. There is no way the majority of lawyers working on those deals have anywhere near those intelligence levels. There is an argument that the lawyers were not trained properly to work on those deals (from an economics perspective) and that their knowledge was limited to working with precedents and writing board minutes. This should fall at both the door of the advising partners and the SRA / Law Society for allowing lawyers to act on deals that they don’t have the technical expertise to understand.

Maths -17 Jun 2011 | 10:13

@Maths
Where in my post did I say lawyers could assert innocence on behalf of clients they know to be guilty? I didn't.
But even if they do know of a client's guilt, they still defend their client. It is quite possible to test the prosecution's evidence and find it wanting such that a client is acquitted without ever asserting a client's innocence. It happens every day in criminal courts up and down the country.
You really were asleep in your ethics classes weren't you?
As to the rest, you seem to be completely confused as to the difference between a City solicitor and a financial regulator. One is not the other.

Vercingetorix -17 Jun 2011 | 12:39

Maths

Time to re-read FSMA, Maths. The FSA has those obligations ("objectives" in fact), but financial institutions do not.

Sarpedon -17 Jun 2011 | 12:46

reality check

Reality check: the regulators should have regulated. Or worst case the banks should have seen what was coming. Legal advisers advise on, shock horror, legal issues. Financial institutions advise on, shock horror, financial issues. Admittedly there is some crossover, but to assert that lawyers shouldn't be working on deals that they don't 100% understand from an economic perspective is frankly absurd and highlights a 'bash the banker/lawyer' attitude promulgated by a government that fundamentally failed to protect the economy.

People are out for themselves. It is the responsibility of the government to check this, unless something is actually unlawful (which everything referred to above was not, it was merely inadvisable). If it were unlawful, only the government could have made it so.

reality -17 Jun 2011 | 14:56

-------------------------------------------------

A friend sent me another picture of a lawyer at work which I thought I'd include here. Indeed, it's quite accurate....

Proof It's Time to Teach Legal Ethics in the UK...

Culpable COLPs?

(thanks to toonpool.com)

Following on from my previous post on general counsel and compliance officers, it's worth reading Michelle Garlick's post on what can happen to compliance officers when things go horribly wrong...as they will.

In the case she describes a brokerage firm, ActivTrades plc, failed to put into place proper client money protection procedures. The Financial Services Authority (or if you prefer Private Eye's name: the Fundamentally Supine Authority) fined the compliance officer £3,000 for the breaches even though no client money was actually lost. The fine was reduced from £20,000 because the CO settled early.

Moreover, according to one commentator on the post, the firm was also fined £85,750 for, among other things, the co-mingling of clients' monies.

Since the philosophy and principles of the SRA in outcomes-focussed regulation are taken from the FSA, one can see how this might apply. Both COLPs and senior management will be culpable for breaches. The fact that the CO in ActivTrades didn't seem to know much or been trained properly did not excuse him nor did it exempt him from punishment.

Future COLPs will have to think very hard about their positions especially in relation to the SRA and their firms. They could easily be hung to dry.

Culpable COLPs?

From Father Confessor to Compliance Officer

Risk management in law firms will soon be a tortuous task. At the 2nd Annual Law Firm General Counsel & Risk Management Forum today a group of law firm general counsel discussed their roles and how they thought they might change when the Solicitors' Regulation Authority (SRA) new handbook rules come into play.

The concerns arise because the SRA will require law firms to appoint COLPs (or Compliance Officer for Legal Practice). COLPs will be quite different to general counsel, and they will come into being at the end of 2012.

General counsel are often described as confessor type figures to whom lawyers can go when "sins" need to be discussed. Or as one participant said, "I got a call from a partner who told me he was being indicted the next day." For more academic discussion see Fortney and Chambliss. They are not, however, compliance specialists--their role is more diffuse and varied.

There are a range of questions over whether discussions with general counsel are privileged or not. In Europe the ECJ says not: and in the US the matter is before several courts.

The COLP--deriving from Head of Legal Practice in the Legal Services Act 2007--will be the main conduit between law firms and the SRA. But not just a conduit. COLPs will have to develop compliance and reporting policies and persuade the firm to follow them. So the COLP has to be someone of seniority and a lawyer. The COLP is supposed to record failures and report material breaches to the SRA.

What does it all mean? No one knows as guidance is sketchy. What will the liability of COLPs be? How will firms treat them? One thing is clear: the consensus from the panel today was that no general counsel wants to become a COLP. It would destroy the role general counsel have taken on themselves. So will COLPs be selected from risk directors, managing partners, or will they be a new free-standing role?

The SRA chief executive has been trying to allay fears:

...the SRA’s chief executive said the new requirement should not cause major changes in well-run practices.
“COLPs and COFAs will not be sacrificial lambs for what goes wrong in firms,” he said. “The new rules are about making sure there is somebody in the firm who ensures that there are systems in place to comply with the new principles.”
Answering a question from the audience, Townsend said COLPs and COFAs would be responsible for making decisions such as whether to refer a compliance concern to their firms’ managers but would not, in ordinary circumstances, be expected to report such matters to the SRA.
He also sought to reassure the profession that outcomes-focused regulation would not increase reporting requirements. The regulator had been cautious about not imposing further reporting requirements, he said before adding: “We’ll be looking at collecting additional information in relation to the soundness of the business but this will not be huge reams because we’re aware we shouldn’t be asking for too much.”

Testing times ahead for senior managers in law firms and ABS. I'm sure the sheep dip will be working overtime.

From Father Confessor to Compliance Officer

Time to Take Your Law Firm to Market?

(thanks to greentech media)

Is it worth floating a law firm on the stock market? Peel Hunt, a broking house, thinks it can work. In a briefing note, it lays out the attractions and possible drawbacks.

Some of the key points are a continuing need for legal services with a growing regulatory state--ie. more red tape, more need for lawyers and other professionals. Good steady income streams (if partners bill properly, I assume). One of the most important reason given is

Flotation simplifies many of the problems associated with partner transition – equity is transparently valued and incoming partners need not provide capital. This can ease the recruitment of young partners, who rarely have built up their own personal wealth to be able to afford to buy in from their own cash resources. Equally, rewards above normal remuneration and after loan interest and loan capital repayments are, in some cases, only achieved by partners in their late forties. The best young partners, particularly those with a marketing mindset, are likely to want a visible reward and, in particular, the possibility of capital reward in their thirties.

 On the downside is a crucial factor. I've written about managing cultural risk in firms and Peel Hunt identify "the risk of culture change" as a clear risk of flotation

The biggest risk, but the most difficult to analyse objectively, is the extent to which
a public flotation may cause partners to change their behaviour in a way that damages their “trusted advisor” status. The intrinsic pressure of meeting market expectations may change the behaviour of partner/directors. If this causes them to market more aggressively the firm’s specialist services then this may be positive. If however it leads to a more “churn and burn” mentality then, even though this may take years to feed through, this would severely undermine goodwill.

  This is one area where I would say the vast majority of professional service firms, frankly, don't have a clue. If they mess it up then this is where they will do it. Without cultural mediators they are lost. The example Peel Hunt cites is Slater & Gordon in Australia which seems to be a financial and cultural success.

Lawyers would do well to read pages 13 to 15 of the briefing which detail how salaries and dividends would need to be handled. Some middle-range partners might not be entirely pleased with what's on offer: the senior partners will be laughing, however.

The biggest question is how do you value a law firm? I'm not going into detail here but most lawyers will have to learn something called financial reality. It's rather different from Wonderland. (See page 18 for more.)

Using Allen & Overy as a case study, the value of the equity comes out "at £1.48bn, equal to £4.0m each per full equity partner...Those closest to retirement are the most likely immediate beneficiaries of a listing."

Standby for internecine warfare...?

PS. I should mention a fascinating post by Mark Brandon at Motive Legal on "Would you buy shares in a law firm?" which delves into some of the dangers of law firm flotations.

Time to Take Your Law Firm to Market?

Managing Cultural Risk in Professional Service Firms

"We'd like you to talk about culture," the caller said, "Over breakfast."

Why not? I thought. I've almost got to the stage where I'll talk about anything. A friend once cracked the lame joke that he'd set up a stall with me, the notice announcing The Prof Is In. Only I'd do it for free instead of charging 5 cents and in this case I was getting fed too.

The Managing Partners' Forum asked me to talk about managing cultural risk along with another social scientist from Holland, Candida Snow, a student of Geert Hofstede.

Two pieces of writing influenced my thinking for this presentation. One was Jordan Furlong's post Why do law firms exist? It helpfully goes back to first principles. The second was a paper External Agency Relationships and Agency Problems in Professional Service Firms: A Multilevel Study by Michael Lander, J. Van Oosterhout and Pursey P. M. A. R. Heugens, which examines in detail the effects of the deployment of soft versus hard controls in professional service firms. I should also mention Emmanuel Lazega's fascinating book The Collegial Phenomenon: The Social Mechanisms of Cooperation among Peers in a Corporate Law Partnership (OUP 2001).

Given that Candida and I had at best a vague brief, we wondered what we ought to say and how it would be received. We only had 15 minutes or so each. Our audience was a mix of lawyers, accountants, consultants among others. So we did what we would like and I think it went over well since the discussion ran ten minutes over time before the moderator called a halt.

I've made my presentation with fuller notes available for download.

And if you want to know how I imagined a professional services firm or law firm might look like, then it's like this

And here's what you have to do to manage one...

Managing Cultural Risk in Professional Service Firms

The Action Hots Up--Irwin Mitchell Declares ABS

(thanks to Paul Mannix)

Now the Alternative Business Structure action is hotting up thanks to Irwin Mitchell's declaration that it will incorporate and use its investment to take on the many mid-tier law firms wondering what to do come October 2011.

If anyone is in the dark, this year the first ABS come into existence under the provisions of the Legal Services Act 2007.

The legal profession is being so complacent and ostrich-like about ABS that Irwin Mitchell's action is a necessary corrective. It's clear from a basic analysis of the law firms in the UK that the mid-tier firms are essentially fungible. They all say they do the best work for their clients, they all hire the best graduates, they all take the finest care of their clients, and they all learn about their clients' business. It's impossible to distinguish one from the other. And most of what they say is "iffy" at best. (I'm being very mild putting it this way.)

If these firms don't think strategically about their futures, they're lost. Irwin Mitchell has moved from being a personal injury firm into a law firm that will be able to offer a range of custom made services with a strong commoditized services wing that will offer white-label services to low cost providers. It is this last part where the investment will earn its return.

The comments on The Lawyer article are of interest. They represent the traditional views which are no longer consonant with the way the legal services market is moving. I'm surprised by the blinkered views especially as this is not new. Irwin Mitchell is not unlike Australia's Slater and Gordon, a personal injury firm that floated in 2008.

Let me reflect on three aspects of the Slater and Gordon flotation that are relevant to the UK. First, the firm was reconstituted with a transparent and meritocratic career structure, something which few UK law firms have. Second, the firm grew by merger and acquisition and its success can be measured by its stock performance. Participants in the firm now possess tradeable equity. Third, the system of regulation predicated on the back of the Australian incorporated law firm legislation, ie. outcomes focussed regulation, appears to be working. See Christine Parker's paper. The UK's version will be starting soon.

Now let's see if other law firms can shake off the dust.

The Action Hots Up--Irwin Mitchell Declares ABS

New Structures for Law Firms?

Julie Adams has written an article in Accountancy Age speculating on new structures for professional partnerships. She makes it clear that younger partners do not see the traditional model enduring.

Conventional partnerships will change into more "employee-owned" forms along the lines of the John Lewis department store model. See this discussion for how it works. This would enable employees and partners to participate in ownership but with greater ease and flexibility of movement. Their equity would be tradeable.

Of course there are other models such as the Goldman Sachs quasi-partner model which isn't a partnership but behaves like one. Stephen Harper has written about this.

Both John Lewis and Goldman have very high leverage ratios (if John Lewis can be said to have one). While some people may spend their entire careers with the firm, average tenure is short. In the case of Goldman burnout occurs after 7 years. Or as the Jesuits would say, "Give me the man and I'll show you the corpse."

Moreover, the advent of ABS there will be increased competition for senior positions as more professionals participate. The world will be more multi- and inter-disciplinary.

Technology and client demand, according to Adams, will lead to a greater segmentation of services and their delivery. Commoditization and standardization and new forms of service delivery are the key here. It's worth reading Jordan Furlong's paper "The Talent Portfolio: New Options for Where, How and By Whom Your Work Gets Done."

The part I like in Adams' article is her depiction of the changes wrought by Generation Y who use work and technology differently from earlier generations. We haven't got to grips with the potential of the scale of change here yet. In part I suspect people discount Gen Y as a fad, even chimerical. It's not and we won't be able to impose our values on it. See, for example, the shillingmesoftly blog. So, as a necessity, change will happen.

New Structures for Law Firms?

Yes, It Is Hard to Think About Diversity....God Help Us!

(thanks to fistofblog.com)

"I did not study at Oxford and the LSE to end up working with people who graduated from Leicester or Queen Mary," wrote one person on legalweek.com in response to the news last week that magic circle outfit Freshfields is extending the number of universities from which it recruits.

This is one of the comments that attached itself to the Legal Week story on how law firms are increasing their diversity by recruiting from some extra universities. I wrote about this last week.

Alex Aldridge in the Guardian takes it a bit further:

But there's a growing sense that the legal profession – which is notorious for lagging behind other walks of life in reflecting the public mood – is casting aside some of these prejudices.

But as I said before "casting aside" isn't really about increasing diversity in the talent pool, it's about trying to find a few more recruits who are nearly like us from universities that are like Oxbridge. Perhaps Alex's closing statement says it all, and it's a depressing all.

A senior partner at a large law firm told me recently that he thought recruitment based purely on academic merit had gone too far, advocating instead a return to the old system of hiring "five brainboxes, five wild cards, five solid all-rounders who were good at sport (for the firm's cricket and rugby teams) and five stunningly beautiful women".

He added that one of the main reasons his firm stuck to the top universities was the students themselves: "They're the biggest snobs of all. If we recruit too widely, they won't come to us."

Screaming and kicking into the 21st century might be the norm here.

And let's add in an arrival from the Lawyer that Slaughter and May managed to promote 5 associates without a woman among them. Marjorie in the comments says it all:

So, not a single woman gets promoted. And not a single woman was promoted last year. And two female partners have just left. What does this do to their diversity stats??

Yes, It Is Hard to Think About Diversity....God Help Us!

Is It Really So Hard to Think About Diversity?

(thanks to gallery.rhino3d.com)

Here we are in the 21st century and the big law firms have announced they are taking on board diversity. Three cheers you might say.

In addition to Oxbridge they will now recruit from universities such as Queen's Belfast, Leicester, Queen Mary London, Cardiff, and Sussex. These are all well-known for being lower-caste universities and probably haven't had much success in getting their graduates hired in law.

This is what Legal Week tells us in its story, "Top UK law firms to target more universities in diversity push". It's good to know diversity is firmly on the agenda and that middle-class, white kids who didn't quite make it into Oxbridge will sleep better now.

Now this is why diversity is one of the regulatory objectives for the modern legal profession. If you want to know more about the subject, read my colleagues evidence-based research for the Legal Services Board.

It makes you want to weep......

Is It Really So Hard to Think About Diversity?

More on North Carolina's Bill To Allow Non-Lawyers to Own Law Firms

(thanks to rizoning.com)

Here is more on the North Carolina Bill to permit non-lawyers to own law firms and have ABS from Neil Rose at Legal Futures. It seems to have taken everyone by surprise.

He quotes Mitt Regan of Georgetown saying that for large law firms there would be problems elsewhere in states that wouldn't permit this type of ownership. Yet multidisciplinary practices are accepted in Washington, DC. Perhaps US law firms could become Swiss vereins and get round it that way.... Highly unlikely, I know, but never underestimate the ingenuity of lawyers.

More on North Carolina's Bill To Allow Non-Lawyers to Own Law Firms

Has the US Finally Adopted the Legal Services Act?

(thanks to snippits-and-slappits.blogspot.com)

Big Hat Tip to Jordan Furlong at law21 for this. There is a bill before the North Carolina senate to "Allow Nonattorney Ownership of PC Law Firms". See here for the bill.

The Legal Services Act has arrived in the US. Astonishing! Surely, it's the work of Satan.

Has the US Finally Adopted the Legal Services Act?

Joe Flom of Skadden Dies At 87

(thanks to deal.com)

Joe Flom died Wednesday 23 February 2011. The American Lawyer presents his obituary here. Victor Li has written reflection on Flom here.

It might seem strange that a Harvard Law School graduate who ranked in the top 5 percent of his class and served as an editor of the Harvard Law Review would fail to land a job at any of New York's top law firms upon graduation.
But that's just what happened to Joseph Flom after he earned his law degree in 1948. And in most instances, it was the anti-Semitic mindset that prevailed at the city's leading firms that cost Flom the opportunities his academic achievements seemed to guarantee.
Shunned by the establishment, Flom instead joined a small firm then called Skadden, Arps and Slate, a four-lawyer shop that he helped transform into a legal powerhouse with 24 offices in 13 countries known as Skadden, Arps, Slate, Meagher and Flom.
Over the course of his six-decade career, Flom not only added his name to the firm's, but also--thanks to particular expertise in mergers and acquisitions--carved out a singular niche in the history of the legal industry.

Flom, like other imaginative legal entrepreneurs--eg. Russell Baker at Baker and McKenzie--was able to identify opportunities created by legislators that had definite unintended consequences. As Li writes,

"He was prescient in recognizing that change of control transactions would be a major area of legal practice," said Flom's celebrated rival and contemporary, Martin Lipton of Wachtell, Lipton, Rosen and Katz in a statement. "After honing his great skills on proxy fights, he graduated to tender offers and hostile takeover bids. He so dominated the field that in 1973 I wrote, 'The first question an arbitrageur asks is, Which side has Joe?'"
In the 1970s, Flom--seeing growth potential in work that others considered unsavory--began to establish himself as the preeminent takeover attorney
"[Flom] made the mergers and acquisitions practice a mainstream practice," Cravath, Swaine and Moore's Allen Finkelson told The American Lawyer Magazine in 1999. "Hostile takeovers were viewed by major law firms as something you didn't touch...We were all representing blue-chip America and viewed it as dirty business...[Now] there are thousands of lawyers making hundreds of millions of dollars because of the practice Joe made respectable."

There is a fascinating interview with Joe Flom at The Deal Magazine where he tells his history with Skadden, the firm, Marty Lipton, and his vast roster of clients.

As with Eli Wald, I have found the role of the "marginal" lawyer fascinating. It is where one sees true innovation and creative thinking. Let me be clear by what I mean by marginal. I refer to those who are displaced by virtue of characteristics over which they have no control--ethnicity, religion, parentage, gender and so forth. In the 1960s and 70s these were powerful weapons for excluding people from the professions. And to some extent still are. The displacement felt was often a spur to new ideas.

In a small way I owe debt of gratitude to Joe Flom because he was one of the first lawyers to engage with the new legal media. Joe would talk while others hung back. In so doing, I became an avid reader of American Lawyer, and those that followed both in the US and the UK. He made my job as a researcher of the legal profession much easier and more fun.

Joe Flom of Skadden Dies At 87

Solicitors Regulation Authority Balks at Separate City Regulator

Top-hatted city gents in discussion outside the Westminster Bank in the City of London, 1931 

(FoxPhotos/Getty Images)

The Smedley Report last year recommended to the Solicitors Regulation Authority that it needed a specialist division to regulate large corporate law firms. The SRA gave every appearance of agreeing. Then the Hunt Review stepped in and endorsed the idea.

Unfortunately the SRA has balked at this and instead appointed an ex-Linklaters lawyer as Solicitors Regulation Authority's Chief Adviser on City law firms. The SRA news release describes the role

It is planned for Eastwell to act as a "bridgehead" between the SRA and City law firms, something that takes on added importance with the approach of multidisciplinary practices (MDPs) and alternative business structures (ABSs).

Quite why the SRA has wimped out this way is unclear. Maybe it couldn't stomach the idea that it wasn't fully competent to regulate large law firms. I doubt this half-way house will satisfy the City firms.

It does leave it open now for the large law firms to think about forming their own regulator. There is nothing to prevent them from doing so. Three years ago the City of London Solicitors Law Society hived itself off from the livery company. And the CLLS now engages in much regulatory activity. This could be the moment.

Time will tell.

The City Today

Solicitors Regulation Authority Balks at Separate City Regulator

Revolution or Evolution? The Future of Legal Services

(thanks to toonpool.com)

Legal Support Network has just published its fourth briefing on legal services reform. The thrust of the issue is to prefigure what will happen in a year's time when Alternative Business Structures start running.

There is an interview with Stephen Mayson about the future of the legal sector and Neil Rose (of Legal Futures) writes about the shape of the new regulatory landscape. Outcomes-focused regulation will be "regulation for grown-ups" according to the Solicitors Regulation Authority. What will be the outcomes for clients? The entity/firm not the individual lawyer will be responsible, and that goes wider than lawyers.

Finally, there's an article on "Welcome to the Revolution" which says it's already happening. Disclosure: I'm one of the people interviewed for this piece. Despite that it's good.

Happy reading and you can download the Briefing here. And remember, at the best of times, revolutions can be unsettling....

(thanks to hubpages.com)

Revolution or Evolution? The Future of Legal Services

Are Partners Any Good at Running Law Firms?

I was interviewed today by a legal journalist on the future of law firms once alternative business structures (ABS) enter the market in October 2011. The focus was on how partners and business managers/investors would work together.

This pre-supposed an image of integration and colleagueship within a new order. I am not optimistic. As my interlocutor remarked law firms have virtually shed whatever thin layer of management they had to maintain profits per partner (PEP). PEP is that mythical measure that signals to lawyers (and to suspicious corporate counsel) that I'm doing better than you. In the last year we have seen how the maintenance of PEP has stripped any sense of collegiality out of many firms as they have laid off associates, professional support staff, salaried partners, and even equity partners.

Yes, we've seen the final demise of another myth: that there is a tournament to partnership. I doubt there is even an "elastic" one anymore, or it's stretched beyond its limits.

There's a great film that's been re-visioned many times. Punishment Park was a typical 70s Nixon-era film, done in cinéma-vérité style, that follows a group of "convicted" hippies across a desert as they attempt to out run National Guardsmen. If they reach the flag location they will be freed. Of course when they reach the flag, there are the guardsmen and police waiting for them. I leave the rest to your imagination. This is a closer representation of the tournament today.

Once ABS arrive many partners are going to find themselves in the same situation as the hippies in Punishment Park. Investors and managers of the new law enterprises--law firm won't be a relevant term--will have definite ideas about what they want their human resources to do, what targets to achieve, and how decisions will be taken. Partnership, being notoriously inefficient in their eyes, will die out and self-governance will wither.

Why would this happen? Lawyers under the new regimes will find the managerial burden lifted and taken on by others. This will allow them to focus on--the law, what they like. But that is not where the power will lie. Lawyers will let this happen because they dislike management, but having ceded control, well they won't be able to get it back.

So the answer to my question is not very good. And it won't matter how many managing partners are sent to Harvard Business School, we are going to see a dramatic change in the business of law. The profession of law will still be there but much smaller than it once was.

And, finally, if you haven't seen Punishment Park, it's very worth catching if only to ponder its relevance now.

PS. Stephen Harper over at The Belly of the Beast has an interesting post on Biglaw and the Black Swan which picks up on analogous themes to the above post. It's worth reading.

Are Partners Any Good at Running Law Firms?