Is this the biggest shake-up to legal services in 800 years?
Katie Jacobs, April 14, 2014
Liberalisation of the legal services market hasn’t brought about massive change overnight, but it is forcing providers to reassess their offering in light of fresh competition. Katie Jacobs unravels the implications for HR.
Not much has happened to change the legal services landscape in the past 800 years. It’s been a largely closed, self-regulated market where solicitors charge by the minute and barristers wear almost exactly the same outfits as their 19th century predecessors. Change has been practically non-existent – until now.
In recent years, new legislation has come in that aims to transform the legal services market, subjecting it to the kind of liberalisation and competition that other professional services industries are used to. And although progress has been slow, the ripples of these changes are starting to spread. In 2011, provisions of the 2007 Legal Services Act came into effect to allow alternative business structures (ABSs). This means non-lawyers in professional, management or ownership roles can offer regulated legal services in England and Wales.
While that might not sound like much to an outsider, experts called it a “big bang moment” for the profession. “It’s a unique thing for law because, previously, only lawyers were allowed to run law firms,” says James Meyrick, regulatory project manager at the Legal Services Board, set up in 2010 to regulate this new market. “This allows non-lawyers to own law firms. It’s bringing law to the rest of business by getting rid of restrictions.” By losing restrictions, the intention is to liberalise the market, which has up until now been a closed shop, and encourage more competition (currently only around 22% of people seeking legal advice shop around for the best deal), innovation and diversification. It could mean practices taking a fresh look at how they deliver their services, or risk losing clients to more customer-focused upstarts.
Opening a closed market
Right now, it’s a closed market to a large degree,” says Peter Byrne, head of HR magazine’s HR Legal Service. “Firms can provide services of any quality, at any price they choose. There’s no real competition driving change. The real excitement is that this legislation means new competition will emerge.”
“What some law firms and most customers don’t realise yet is that this is not a cyclical change, it’s a structural one,” adds Karl Chapman, CEO of ABS Riverview Law, which is backed by DLA Piper. “It is fundamental, it is structural and it will change the legal market – and about time too. Lawyers have invented this myth that law is magic, but it’s no different from any other professional service.”
Since 2011, the Legal Services Board says about 300 ABS-licensed firms have entered the market, with more in the pipeline. Some of these are existing law firms opting to change their structure, while others are high-street names, with The Co-op, The AA and Saga among those jumping on the bandwagon. A recent survey by YouGov found 60% of people would consider buying legal services from brands such as Barclays or Kwik-Fit, suggesting more brands will look to seize the opportunity. But, not too surprisingly given the nature of the sector, change has been slow.
“We are only a few years in and one could argue law is one of the more conservative professions,” says Meyrick. “There’s an awful lot of wait and see. Things take time to change and it’s not going to be an overnight thing – but it is happening.”
Will employment law be next?
The personal market has so far been more shaken up by the new legislation, with most ABSs playing in areas such as personal injury, where they now account for a third of all turnover. Will employment legal provision be next? Or, for HR, will it be less big bang, more small whimper? New research from the Solicitors Regulation Authority shows just under 80% of ABSs claim to be exploring the employment law space, although this only accounts for about 6% of total market turnover.
“Generally the first movers are in the areas which are more commoditised, like personal injury,” explains Meyrick. “But there’s no reason why those firms offering HR and payroll services won’t come into the market in increasing numbers.”
This potential competition is putting some employment lawyers and law firms on their guard, forcing them to innovate. Jamie Gamble is employment partner at Ward Hadaway, a firm which has been focusing on modernising and diversifying its offering by providing fixed-fee employment packages for SMEs. He believes ABS is both a threat and an opportunity for traditional law firms.
“Employment law is going to be one of the areas that will at some point come under attack by the big brands,” he says. “It’s going to happen and we have to make sure our clients aren’t tempted. This will shake things up. Law firms might think they are offering good customer service, but most aren’t matching the service those brands judge as good. And if big brands come into employment law, they’re not going to get it wrong, it’s going to be slick.”
Stephen Moore, partner and head of employment at law firm Ashfords, is more sceptical about big changes hitting the commercial market. “Liberalisation is already under way, but I don’t think it will have an impact in terms of commercial services,” he says. “Commercial is a different market from personal, and you have to be careful how you approach it. Employment law, despite the Government’s best efforts to make it more straightforward, is a difficult area. Get it wrong and it can be costly.”However, he is clear that law firms, “whether they like it or not”, will have to adapt. “They have to be able to compete with non-law firms,” he adds.
But whether or not such competitors enter the market, would an HR director seriously consider taking advice from a high-street brand? Sue Swanborough, HRD at General Mills, isn’t so sure. “Would I want to go to a Tesco or a Barclays [for legal services]? Possibly not. But as a smaller business, I might.”
Richard Bolger, HRD UK and Europe at financial technology provider FNZ, is more open to the idea. “I probably would trust a high-street brand,” he says. “Tesco has its own bank, for crying out loud. Looking at it objectively, anyone providing legal services has to be regulated. If set up properly and structured in the right way, I would certainly consider taking a look.”
Innovate to compete
Byrne believes it’s not just about increased competition – the major opportunity is for innovation in pricing and service offering. “This is creating a vehicle to offer legal services in a different way,” he says. “Price it differently, embrace technology, embrace sales and marketing, and place customer needs and that relationship at the heart of the business.”
Of the fixed-price model, Chapman adds: “It’s not rocket science. Fixed pricing leads to behavioural change, as you are aligned with the customer. It’s the kind of model we’ve been offering in two other sectors for the past 30 years. It only looks like innovation and disruption in the legal market, which probably tells you more about the legal market.”
Some HR professionals are already embracing change in how they source their legal services, often attracted by the no-surprises pricing model. Karen Moseley is HR manager at marketing company Haygarth and uses HR magazine’s legal partner ESP for her day-to-day legal needs. “We don’t need to worry about making a call to ask a question and then getting an invoice for £500, which often happened at my old company,” she says.
Bolger also bemoans the “by the minute” nature of buying legal services. “If I’m getting advice on TUPE or a settlement agreement, surely they could just pull their costs off the shelf?” he asks. “I often joke around with my lawyer – ‘If I buy three, can I get one free?’ – but it has a serious undertone. Nothing ever comes of it. I know it sounds a bit tacky and supermarket-like, but if I’m going to compromise 20 people out of the business in the next year, I’d like a situation where the law firm says: ‘When you hit 15, the next three are free.’ Of course, it wouldn’t encourage me to sack more people, but it’s having that commercial relationship.”
The commerciality, or otherwise, of legal advice is something mentioned by every HR professional HR magazine contacted, and there is a sense that ABSs, run by business people rather than just solicitors, could go some way towards remedying this.
Martin Tiplady, MD of Chameleon People Solutions and former HRD at the Metropolitan Police Service, is sceptical about the impact of the Legal Services Act: “Is this going to change the landscape of how legal services work and seriously challenge the legal profession? No.”
But he believes it could provide valuable space for innovation and risk-taking. “There’s space in the market for hard, managerial advice on a legal basis, making legal services distinct from case law and taking an amount of risk,” he says. “Big law firms are very rigid and ABS could have an effect of dampening that.”
“You could speculate that bringing more business acumen into the legal sector might change how it works and [how firms] approach legal problems for their clients,” adds Legal Services Board’s Meyrick. “Classically, solicitors think they are selling advice and professional knowledge, but companies want solutions to their problems, not wonderful advice.
When there’s more competition, those firms that are able to provide the solutions businesses want are more likely to be successful.” Moseley agrees: “A good lawyer is able to be business-protective, but also know how we want to treat our employees. I always say to the legal team: ‘I’m not going to let you do anything illegal, immoral or indecent, but this is a business and we cannot give away the shop.’ The old partner/solicitor model does not work for a lot of businesses anymore. I think solicitors are going to have to be more business-savvy than they were in the past.”
Of course, good law firms understand this and, as Swanborough points out, “it’s too simplistic to say it’s traditional law firms versus the up-and-coming ones”. “Nowadays, lawyers are changing and thinking more about the services they provide,” she adds. “I am seeing more innovation and the people I interact with have become more commercial and flexible.”
Ashford’s Moore also believes lawyers have to be more commercial, adding: “You need to become more than a lawyer; you become a wider business adviser. Clients don’t want to know what section 6 of the Equality Act is – they want to know the risk and make a cost-benefit analysis.”
“Everyone puts on their website that they give commercial advice,” says Ward Hadaway’s Gamble. “But perceptions vary of what ‘commercial’ means. Some are falling short; too many lawyers give advice that is too legalistic or too safe – sticking to the textbook answer rather than offering other ways to think about things.”
Both Byrne and Chapman are adamant the ABS model allows providers to offer more customer-centric services. “The irony of the legal market is, as a new entrant, it’s very hard not to deliver higher-quality services at lower prices than the current market,” says Chapman. “The average margins of the top 100 law firms range from 24% to 54% – you’d never have that in any other market.”
Byrne points out that “people only engage with law firms when they have to” and says ABSs can offer a “more positive, long-term relationship”. However, most of the HR directors HR magazine approached spoke highly of their existing, traditional lawyer-client relationship.
Darryl Abbondanza is VP HR at financial services firm Equifax, and has been using the same law firm for 15 years. “That personal relationship is very important – it’s like a relationship with your priest,” he says. But he adds lawyers are “an expensive commodity”. Although his relationship is good enough that he isn’t charged every time he picks up the phone, he says he “suspects [he] wouldn’t get that” with the international law firm his American bosses expect him to use in larger deals or when anything “goes horribly wrong”.
Splitting legal spend
Ultimately, HR directors are never going to go to an ABS-type firm for a big strategic issue, Chapman and Byrne agree. “You wouldn’t come to us if you were looking to make a cross-border, multi-million-pound M&A deal,” says Chapman. But the splitting of the operational and more strategic legal needs could only be a positive for HR professionals and business owners, especially those struggling with restrained budgets.
“What if HR teams fundamentally looked at the way they spent their budgets?” asks Byrne. “They should be thinking about how they spend their budget and with whom, and how they split it into strategic and more operational elements. Why go to a top firm to talk about a grievance in your Birmingham office and spend £600 on a draft letter? Pick up the phone to talk to them about M&A or sacking the MD, but why for the more operational stuff? There’s an opportunity to divert that spend into other suppliers that can give equally good advice at a third of the cost, on a different pricing model.”
However, according to David Edmonds, chairman of the Legal Services Board, we are now seeing “diversity and innovation in the provision of legal services, the like of which was unthinkable even three years ago”. “It shows us a glimpse at the future of what legal services provision will be,” he said in a speech to the Westminster Legal Policy Forum last month. “[ABS] is a strong spur to find cost-effective and innovative ways of working. Change, diversity and innovation will happen.”
Whether HR directors and small-business owners decide to embrace these new options, either via traditional firms refreshing their offerings or a totally new ABS provider, one thing is clear: the market is unlikely to look the same as it has over the past eight centuries. Who knows where the next 800 years will take us?
HR magazine’s HR Legal Service can be reached at: www.hrlegalservice.co.uk/pages/hr_legal_home