I gave a talk last week at University College London. The topic was The Changing Legal Services Marketplace: A View From Across the Pond. It began with my admission of ‘acute ABS envy.’ No, ABS is not a Midlands light lager. It refers to ‘alternative business structures,’ an element of The Legal Services Act of 2007 (LSA). LSA–and ABS—is the UK’s re-regulation of its legal industry intended to spur innovation and competition to better serve the public. ABS—among other things— removes long-standing regulations preventing non-lawyers from ownership, profit sharing, and other managerial functions in law firms. Those restrictions made sense when legal delivery was solely about selling legal expertise. But they are now impediments to structural changes necessary to jump start new models at a time when legal delivery involves legal, IT, and process expertise.
Why envy ABS? Short answer: because the US has declined to enact its own version of ABS—legal delivery regulatory reform— three times during the new millennium. It has elected instead to preserve regulatory stasis that serves neither the public nor lawyers well. Lawyer protectionism is the glue that binds the anachronistic US self-regulated legal industry. In response to the regulatory gridlock that has dampened the urgency of law firms to innovate, in-house legal departments and service providers have taken up the mantle of delivery innovation. In-house legal departments are driving change–morphing from consumers to providers and creating “legal operations” teams internally and, in some instances, as third-party providers. That’s why in-house departments now account for approximately 40% of overall legal spend. Legal service providers are also taking a bigger bite out of revenue that formerly went to firms. Consumers are voting with their feet and creating de facto re-regulation.
Why Does ABS Matter?
If clients are driving innovation in the US legal market, why does ABS matter? The short answer is that ABS is as much a mindset–one where the customer/client comes first–as a regulatory scheme. It recognizes sweeping global socio-economic changes including: technology, disaggregation, and the way people work, buy, and “share” resources. It is a catalyst for new delivery models that challenge incumbent ones that limit access due to exorbitant cost fueled by outdated business structures. And in the ABS world, it’s providers— not consumers— that are driving change.
How And Why Did The Legal Services Act of 2007 And ABS Come About?
To better appreciate what ABS really means, it’s instructive to consider the legislative history of The Legal Services Act of 2007. Complaints against lawyers in the UK were so widespread in the early years of the new Millennium that Sir David Clementi, former Deputy Chairman of the Bank of England, was authorized by the British Government to undertake an extensive examination of the legal profession. Mr. Clementi is not an attorney, and that might be a cause—if not the proximate cause— of the candor of his assessment. His two-year investigation revealed several glaring problems in the self-regulated legal vertical.
Sir David certainly understood business and the procurement of legal services; he was a Chairman of Prudential, plc, one of Britain’s largest insurance companies, as well as non-executive Director of the Rio Tinto Group, a huge minerals and mining company. His two-year, no-holds barred evaluation of the legal profession concluded that: (1) a massive overhaul of the self-regulated legal industry was necessary; (2) inter-disciplinary practice should be sanctioned–meaning that lawyers be permitted to work with non-lawyers; (3) major changes were necessary to restore public confidence in the profession; and (4) the interests of the consumer must be paramount in fashioning new regulations.
The Government adopted Clementi’s recommendations and took them even farther, authorizing the creation of “Alternative Business Structures” (ABS) enabling non-lawyers to invest, share profits, and manage law firms. This is the best-known portion of the Clementi Report and its legislative aftermath but it is by no means its sole focus as many US critics mistakenly maintain.
The crux of the Legal Services Act of 2007—the product of Clementi’s investigation and ensuing Parliamentary action— is its overhaul of the rules governing lawyers in England and Wales to better serve the public interest and to restore confidence in lawyers. And if you think this characterization is a matter of subjective interpretation, consider the title of the Government Report that led to enactment of the Legal Services Act: “The Future of Legal Services: Putting Consumers First.” Then, read the Executive Summary’s introductory paragraphs: “This White Paper sets out the Government’s proposals for reform of the regulatory framework for legal services in England and Wales. The purpose of the changes is to put the consumer first…. The aim is a new regulatory framework, which better meets the needs of consumers and which is fully accountable.”
Some Examples of ABS Serving The Public Interest
On the US side of the Atlantic, most lawyers mistakenly believe that ABS is about lawyers handing over the reins of legal delivery to those outside the profession. Not so. Here are a few examples of ABS promoting the public good in the UK:
- LGSS Law, a “social enterprise law firm,” obtained an ABS in 2015. It is a local authority that provides legal advice and representation to more than 100 client organizations within the public and not-for-profit sectors. One year in, it has already cut rates for shareholder clients by 20%.
- Aspire Law, a joint venture between a law firm and a national spinal injury charity, obtained an ABS in 2014. It shares profits equally between its two parent organizations.
- The Centre for Criminal Appeals (CCA) is a London-based charity that is thought to be the first to obtain an ABS. It is dedicated to investigating and working to overturn miscarriages of justice and operates as a law firm.
- ABS has also provided corporate legal consumers with potent new marketplace options. Big Four giant PwC recently announced that it would absorb PwC Legal and operate from a single location as a multi-disciplinary practice. And to US attorneys that shudder and suggest accountants have hijacked the British Bar, consider that the legal regulatory body, The Solicitors Regulation Authority (SRA), has imposed conditions on PricewaterhouseCoopers’ new alternative business structure (ABS) license aimed to ensure that PwC lawyers continue to observe key principles of conduct when interacting with their accountant colleagues.
ABS is not a panacea, but a step in the right direction. It is not–as many on this side of the pond incorrectly suggest–“legal deregulation.” It is “re-regulation” designed to promote the public interest by kick-starting innovation and competition frustrated by self-regulation. Perhaps lawyers unfamiliar with the North Carolina Board of Dental Examiners case should have a look. Then again, maybe the ABA and State Bars might consider that ABS in the UK and other advanced nations seems to be a rising tide that lifts all boats–clients and lawyers. Legal delivery is not just about lawyers anymore.
This post was originally published on Forbes.com.