Countdown to a new dispensation

An interesting piece in this morning’s FT by Jane Croft, Legal firms set for ‘Tesco law’, based on a recent survey by Smith & Williamson on whether, and to what extent, the top 100 law firms will use the deregulation of the legal services sector to raise external finance.

What is clear from this survey is that the top end of the legal market is preparing to take advantage of the Legal Services Act and, if the rumour mill is to be believed, so too are the external providers – whether Tesco, the AA etc. None of this is surprising.

But what about the “squeezed middle”? (Not mentioned by Smith & Williamson).

In my previous Lawslot Redux post, now six months old, I said that in the hurly-burly of practice it is sometimes difficult to take time out to think about what may be needed. I might also have added that the current economic environment is making fee earning work an imperative (no time for posts).

Yet as Giles Murphy of Smith & Williamson notes,

The provision of legal services will change radically in the next five years with consolidation, external capital, new entrants and mergers with other professions; those who are best prepared will be in a strong position to take advantage.

He is talking about using external finance to develop and grow faster than your rivals. And competitive advantage may be obtained in any number of other ways – but I am not convinced that the profession as a whole has yet come to grips with what the Legal Services Act will actually mean for us day-to-day. It is going to be an interesting run up to October.

Batten down the hatches?

Another excellent article, Taking Advantage of a Recession in Kerma Partners Quarterly: a lot of sense and not just about weathering the storm but more how to make the weather.

One further thought is that in the UK the danger is that concentrating on getting through the downturn may mean that we ignore the impending changes in the legal services market. I am not sure that I would have used the expression ‘Big Bang’ (given that some commentors see the beginnings of the current economic crisis in the heady days of City deregulation 22 years ago), but see Peter Williamson’s Rehearsing for the Big Bang in this week’s Law Society Gazette.

And while looking at the Gazette, a stunning lead article Review of Regulation that nails once and for all the myth that we are one profession (for those of us at the coal face, we know we are not).

The C word – but which one?

The accelerating downturn, and the UK property market (both residential and commercial) hitting the buffers, has already started to change the legal market. Leaving aside the rumours of cash calls and firms in trouble, the middle market consolidation is starting in earnest (for example the recently announced merger of Withy King and Marshall & Galpin, to say nothing of the gossip circulating about who is talking to whom; or more interesting, who is not being talked to.)

It is an appropriate time to revisit Legal Services Reforms: Catalyst, Cataclysm or Catastrophe by Stephen Mayson, Professor of Strategy at and Director of the Legal Services Policy Institute. In his March 2007 review of the legal services marketplace (inefficient, ripe for reform) Mayson summed up its health as follows,

My diagnosis so far, therefore, is that we have too many qualified lawyers, too many law firms, and too many equity partners.

Later he identifies consolidation as a one of the key themes for the future, highlighting ‘the need to reduce the number of firms . . . in the interests of quality, consistency, efficiency and cost’.

Well, this is already happening and will gather pace. Mayson identified one of the drivers as the ‘natural forces of competition’. I would add to that diminishing fee income, the cost and, at the moment, the availability of borrowing, and the demographic imperative. To say nothing of the Legal Services Act, and the arrival of new entrants into the market.

Who is shaping our brave new world?

Picking up on my immediately preceding post, an excellent article, The road ahead, in The Law Gazette on the future of legal services.

In the present turn down it may sometimes seem difficult to look beyond the month end figures, but long term survival requires it, to say nothing of what the up and coming generation expects.

I cannot do better than paste in the final paragraphs,

For Susskind, the questions he always poses to the profession are: why is it that people pay lawyers good money? What value is it they’re bringing? The best answer he has seen comes from accountants KPMG, whose global mission statement is, he paraphrased, ‘we exist to turn our knowledge into value for the benefit of our clients’.

‘I think it’s a fantastic way of summarising what all of us as professional advisers seek to do,’ Susskind concluded. ‘We have knowledge, expertise, inside ideas that clients want to apply in their circumstances. It doesn’t say we exist to supply one-to-one consultative advisory service on an hourly billing basis…

‘The thing I want people to think about in the future is in the legal market we have to strive to find even more imaginative and creative and, I suspect, cost-effective ways of transferring our knowledge to our clients in a way they can apply in their circumstances.’

To do so, we also have to work out our strategies taking into account three or four key issues

1) The future will not be more of the same. Read Futurewise, Six Faces of Global Challenge by Patrick Dixon.

    2) The market for legal services is not effective: if you haven’t yet read Stephen Mayson’s paper Legal Services Reforms: Catalyst, Cataclysm or Catastrophe, you should. The problem? ‘An oversupply of qualified people without a corresponding increase in “qualified lawyer” work’; the result? ‘Too many qualified lawyers, too many law firms, and too many equity partners: and a market ripe for reform. . .  [leading to] consolidation, merger, and, occasionally, failure’.

      3) Legislation is simply accelerating inevitable change: the Legal Services Act will open the profession to new entrants, but technology, the great driver of change, is already altering the way our clients seek and take legal services (and this takes me back to The mobile lawyer, posted yesterday).

        4) The aspirations and expectations of the next generation, and the one following them, are not the same as those of us who currently determine the course of law firms.