updated on 05 March 2013
Alternative business structures (ABS) - they've been operating for over a year now, and are attracting both headlines and clients. As the next generation of lawyers, you need to know what they're about; why firms are switching, what they do differently and why you might want to work for one.
Alternative business structures (ABS) were introduced as a concept by the Legal Services Act 2007 and were officially allowed to start operating on 6 October 2011 (although the Solicitors Regulation Authority (SRA) didn't start accepting applications until January 2012). The first three ABS licences were issued in March 2012 - since then, the SRA has granted 100 more. LawCareers.Net has been tracking ABS progress, reporting on new entrants and reactions. The Co-op, Russell Jones & Walker (the first foreign-owned ABS), Parabis Law, Direct Line and many others have thrown their hat into the ABS ring. Just yesterday, BT was granted an ABS licence for its motor claims business and media firm Schillings secured two ABS licences. Certainly, it is a time of great change.
In brief, an ABS is a law firm that allows for both lawyers and non-lawyers to share the management and control of the business, as well as allowing for external investment. They remain the newest guy on the block in terms of law firm structure and it is anybody's guess what their ultimate impact will be. Not everyone is a fan - Lord Neuberger, president of the UK Supreme Court, speaking in February 2013 to the Association of Liberal Lawyers, said that the rise of ABS and external investment needed rules in place to stem the risk of the "unyielding tentacles of self-interest". He also warned that the liberalisation of the market must not result in a "free-for-all".
Undeniably, ABS offer new ways of working for the lawyers who embrace them, and new ways of accessing legal advice for the clients who choose them. Professor Richard Susskind OBE - author and independent adviser to firms and governments - writes in his latest book, Tomorrow's Lawyers: "This legislation […] is engendering a remarkable and unprecedented entrepreneurial spirit in the legal market in the UK. Even where there is not formal liberalization, we are seeing a liberation from the constraints of narrow thinking about the way in which legal services can be delivered." With this in mind, we look at how this particular form of liberation might benefit firms and the junior lawyers who would join them.
Neil Rose is the editor of Legal Futures (the go-to news and information site for ABS goings-on) and one of the UK's most experienced legal journalists. He is in an excellent position to opine on why some firms are converting to ABS: "For a good number, it is simply a case of need - they already have non-legal partners because of pre-ABS transitional provisions and under the rules they have to become ABS. This might not sound significant - and they are treated as the 'boring' ABS - but actually I think it is significant. Ten years ago, the idea of a non-lawyer partner was unthinkable; now it is common and almost de rigeur. For other ABS, they simply couldn't do what they want to do, such as accept external capital or become part of non-legal organisations, as 'traditional' law firms."
National firm Irwin Mitchell became the first multi-licensed ABS on 20 August 2012. One of the first firms to indicate an ABS ambition when it split its business into a limited liability partnership and a separate holding company in April 2011, the firm now has five licences covering its range of operations. Helen Cannon, Irwin Mitchell's graduate manager, describes some of the motivations behind the firm taking this route: "We have always been alive to the opportunities presented by change and have positioned ourselves at the forefront of new developments. We are a business that has grown dramatically - from a small regional firm to a major national practice, with revenues of £180 million-plus in a short space of time. We want to continue that success story and continue to grow our business, with clear plans in place to become the legal brand of choice."
If Irwin Mitchell represents the traditional firm adapting to embrace the ABS opportunity, then Red Bar Law LLP is at the other end of the spectrum - a completely new legal services provider, formed from scratch as an ABS. Hatti Suvari is a partner at the firm, but she comes from a business, rather than a legal, background. She describes the origins of the firm: "Red Bar came about through my professional relationship with John Esplen, who was previously a litigation lawyer at a medium-sized firm. I was a client of his some years ago and we kept in touch as we shared views on how law firms should be run for the ultimate benefit of the client." Fast forward to mid-2012, and Hatti and John were the proud owners of an ABS: "It was an attractive option because it allows non-lawyers, like me, to own and run a firm. John and I are in it 50:50. I can be involved in the day-to-day running and management of the firm, and we see clients together. We also work on all financial matters and strategy together."
Hatti mentions that her non-legal background can be an advantage, especially when interviewing prospective barristers: "In a way I think it's easier for me, as I'm not a solicitor. There's no history - or perceived hierarchy - and no offence taken by my robust questioning! The ultimate aim is to get the best barrister for our client, at a fixed cost. We've had an excellent response from barristers; we have over 300 that we work with and they have taken to our working model - especially as we pay them within 24 hours!"
As mentioned, the main practical differences are that an ABS can (i) be owned and run by non-lawyers, and (ii) receive external investment. However, as Neil notes, sometimes there may be very little day-to-day difference: "Some of the ABS with non-lawyer partners operate in a wholly traditional way and have no intention of changing." He emphasises that "ABS need to be seen in this wider context of new ways to practise and deliver law, rather than as a technical definition of what is and isn't an ABS".
Indeed, for many firms, a prime motivator behind seeking ABS authentication was simply the desire to do things differently. Hatti's view is that Red Bar addressees two of the fundamental failings, from a client's point of view, of the traditional law firm: "They are pricing and client care. Lots of traditional firms don't offer fixed pricing - it's more 'pay as you go', billed by the hour and minute. As a client, you don't know what everything will cost until the end. Couple that with a lack of client care, where you can't get hold of your solicitor at the weekend or in the evening, and stuffy and intimidating offices, and I knew that we could provide a better service."
Hatti goes on to elaborate why the Red Bar offering is a breath of fresh air for clients: "When you are providing a service, as we are, you have to be available. We are contactable 24 hours a day, seven days a week. People come to us in a time of emotional strain and stress, and they don't want to wait until 9:00am on Monday morning! We go to visit them in their workplace or home; we don't demand that they come to our office at a time that suits us. Essentially, we are saying, "How can we serve you?"
Another example of a firm changing the rules of engagement is Riverview Law. Neil explains what sets it apart from others (based on his journalistic observations): "Riverview describes itself as being built from the customer up, rather than the lawyer down - a perceived problem of partnerships is that in some ways they suit the lawyers more than the clients. Riverview has no partners, a completely corporate approach and works exclusively on fixed fees." Although Riverview isn't actually an ABS, because it doesn't do the kind of work that requires it to be one, "it has entered the market on the wave of innovation that ABS represent".
For Irwin Mitchell, it was recognition that change was imminent and the firm wanted to be part of the movement - not left in its wake. Helen explains: "We see the changing legal market as much more of an opportunity than a threat, but recognise that there will be a number of new entrants. We need to be as strong as we can be to fend off competitors and thrive, and we believe that ABS status will enable us to do that. Our scale, our systems and our experience give us an ideal platform from which to grow as the market is opened up to competition." The firm's leading position in personal injury and "commoditised legal services for institutional clients", among other things, means that it sees "multiple growth opportunities across a large number of service areas within the firm, though as always, we will only implement changes that will benefit our clients and enhance the service we are able to offer".
It's all well and good looking at the broad reasons why partners and other senior figures at firms may decide that becoming an ABS is the way forward, but what does it mean for trainees and those who aspire to join that firm? Helen says that it is impossible to generalise, nor speak on behalf of other firms, but she lays out some of the opportunities that trainees at Irwin Mitchell might look forward to: "Trainees would be joining a successful, growing business with clear plans in place to continue that growth and to meet the challenges of the changing market. Existing trainees comment that they are given good levels of responsibility, quality work and have a lot of client contact and interaction."
Neil also makes the point that ABS are not part of a homogenous group, so generalising about how trainees might benefit is almost impossible. Nevertheless, the creation of new legal jobs such as legal project managers and analysts, by "innovative businesses such as Riverview, Co-operative Legal Services and Parabis", is exciting. He points out that this has the potential to "give students more career options, but equally it indicates the slow move away from the importance of the title 'solicitor', 'barrister', 'chartered legal executive' or whatever". Is this part of a broader trend? Neil thinks so: "It will take time, but the direction of travel for regulation of the legal profession is that people will acquire the skills they need to do the job and be regulated on that basis. The ability to practise will not be tied, as it is now, to the acquisition of a title. It doesn't mean those titles will be worthless - they may well act as a signal of quality and expertise to the consumer - but they won't be a prerequisite. The first example we are seeing of this is with the proposal that will-writing should be a regulated activity. To become regulated, you will only have to show that you can do that job."
Helen makes the point that the core skills that most firms currently look for in their trainees are likely to remain the same, regardless of the structure of the working environment. "We are not looking for a different type of trainee, per se," she says, "but generally the skills we are looking for are balanced with those who have a good legal and business brain. We need trainees who can demonstrate excellent commercial awareness, analysis and communication skills, and a strong focus on exceeding clients' expectations."
Although Red Bar Law isn't yet taking on trainees, Hatti can imagine a future where it might, especially at the rate it is growing. She thinks that it would be an excellent place in which to launch a legal career: "Budding solicitors would be developing their business acumen, as well as their legal knowledge. If I was a trainee, I would want to go into an environment that has a sensible model. You also get to see the whole picture; we are entirely transparent."
If this is the future of legal services, how can you, the lawyers of the future, best integrate yourself into this changing environment? "It is about grabbing every opportunity," says Helen. "Candidates need to be well read on what is happening in the legal and business worlds. Being able to demonstrate good customer service and a real commitment to client care, is also essential; clients have changing demands; law firms and employees within them, need to be able to adapt, change and innovate in line with those demands." Neil concurs: "Understanding the business of law will be very important as these are generally commercially driven organisations, albeit operating within a highly regulated, ethical framework."
But the advice that has always been given - particularly by LawCareers.Net - is essentially the same, albeit with perhaps an ever greater emphasis on commerciality. You must go to open days and presentations, attend law fairs, take part in pro bono initiatives, secure work experience and, of course, keep reading Legal Futures (Neil agrees). Personal development remains key, as Helen notes: "Candidates need to think about gaining depth and breadth of work experience - in and out of the legal world - and balancing academic and working life with interests, hobbies and voluntary work. We are looking for rounded individuals who can draw on experience from many different areas and elements of their lives. A good legal brain and academics are no longer enough on their own."
We have never claimed to be able to actually see into the future (Oracular skills notwithstanding), but it is worth taking an educated guess at what a legal profession with increasing numbers of ABS in it might look like. Neil commented in his 2011 feature for us, written in advance of the arrival of ABS: "As Bill Gates says, 'We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10'. In 10 years' time, law students will most likely be entering a very different profession and market."
Still, although it may be a very different landscape, Richard has some comfort to offer: "Although ABS may well be funded and managed by non-lawyers, they will still employ lawyers, old and young. Here, as elsewhere, we should not anticipate that lawyers will no longer be needed; but recognize that tomorrow's layers may be engaged by quite different businesses." To paraphrase (badly), the world still needs lawyers, but those lawyers may be working in very different ways.
As Hatti notes, becoming an ABS is certainly proving a popular option: "We were the ninth firm to become regulated, in the middle of last year - there are now around 400 ABS applications in the pipeline. I think this is the way of the future."
Perhaps it is the case that whether you find yourself working for one of this new breed of firm, or working within a more traditional set-up that has had to evolve to stay in the game, you ignore the rise of the ABS at your peril. Stay alert, people - this one's a game changer.