M-Club: A profession on the brink of profound change

The UK’s new Legal Services Act paves the way for third-party investment in law firms, and legal services offered by non lawyer-led organisations. Richard Parnham asks Andrew Holroyd, former president of the Law Society of England & Wales, on how the profession is preparing for the forthcoming revolution.

When details of the UK government’s plans to reform the legal profession in England and Wales first began to emerge in late 2004, it sparked a global debate. At first, many bar leaders around the world simply could not believe the UK government was serious. Yet, because the UK is home to so many of the world’s largest law firms, the global legal profession then began to wonder if similar reforms would soon be introduced in their own countries.

Four years later, the deed is done: enabling legislation has been passed by the UK parliament, and newly-created legal regulators are in the process of updating the profession’s ethical rule books. “I think most lawyers now accept that, collectively, we needed to reform our profession rules,” explains Andrew Holroyd, the former president of the Law Society of England & Wales. Mr Holroyd, who is senior partner of Jackson and Canter, based in the English city of Liverpool, continues: “It was important that we examined which of our rules existed for reasons of tradition, and which existed because they were necessary to protect the public. As an organisation, I believe the Law Society has always been quite progressive in relation to its approach to regulatory reform.”

What is more, Mr Holroyd believes that, internationally, the legal profession is now “up for” the kind of regulatory changes currently being piloted in the UK. “Even the larger European law firms are surprisingly open to new practice models,” he says. “They recognise that they mainly advise on business law matters, which transcend traditional methods of offering legal services.”

Although the legal market in England and Wales is not due to be fully liberalised until 2012, Mr Holroyd says the profession is not sitting on its laurels. “Even my own firm, which employs 70 people, can’t afford to sit around to see how the reforms pan out,” he says. “We have to create new business models, new methods of working.”

Mr Holroyd’s analysis is undoubtedly correct. Numerous management consultants and investment houses are now visibly targeting the English and Welsh legal sector, holding seminars and writing reports on how law firms could benefit from external finance. What is more, forward-thinking law firms are already positioning themselves to become the “captive” law firm for commercial companies who begin to offer legal advice to the public. “Even at this stage, we are seeing law firms who are notionally ‘independent’ sharing officers with companies who feed them legal work,” says Mr Holroyd. “At the moment, our existing professional rules do not allow such companies to offer legal services directly to the public, but this will soon change.”

As a consequence of these reforms, Mr Holroyd says he expects the legal profession in England and Wales to change in several ways. “My prediction is that the large firms will grow even larger, and the small firms will grow even smaller,” he says. What is more, he suggests there will be a continuation in the emerging trend for legal advice to be delivered online, as a mass-market commodity product. To a certain extent, this had already begun to happen – particularly in relation to low margin residential conveyancing work.

Nevertheless Mr Holroyd believes the move towards “mega firms” and commodity legal advice will also present new opportunities for those lawyers wishing to strike out on their own. “Even in small towns, a large percentage of the legal work will, in future, be handled online,” he says. “But it’s unlikely that the large law firm will want to establish a physical presence in these locations. In order to handle the work it must still be done face-to-face.” This, Mr Holroyd believes, represents a gap in the market, which niche players will be quick to exploit. “After all, some legal work will always have to be in person – I can’t imagine anyone wanting to get divorced online,” he says. Mr Holroyd also cites the example of lawyers engaged in complex but niche commercial specialisms, such as data protection compliance. Here, new opportunities will continue to arise for sole practitioners, because clients will always be more loyal to them rather than their employers.

Another innovation that that Mr Holroyd suggests may become increasingly common in the future is a move to offshore legal work to low-cost jurisdictions such as India or South Africa. Although this trend is mainly being led by cost-conscious in-house lawyers and is not directly affected by the UK government’s regulatory reforms, the credit crunch has put law firm costs under increasing scrutiny in recent months. “I think the large profits made by law firms in the past few years may be a temporary phase,” suggests Mr Holroyd. “The only way these firms can maintain their current levels of profitability is to reduce overheads. As their profit margins come under increasing scrutiny, I’m aware that the big law firms such as Allen & Overy and Clifford Chance are already looking at legal offshoring.” However, Mr Holroyd then adds that, as a nation, the Indian legal profession might, in itself, one day begin to challenge the recent dominance of Anglo-Saxon law firms. “The Indian legal market is huge, and they have the potential to compete with Western law firms in their own right,” he suggests. “There are a lot of very bright lawyers working in India right now.”

Overall, Mr Holroyd believes the legal profession in England and Wales is about to go through a period of radical, but generally beneficial, change. The onus for law firm leaders is to keep themselves informed of key trends, and be open to seizing new opportunities wherever they occur. “Wherever you have a dynamic market, there are always new opportunities and gaps in the market to develop,” he concludes. “The challenge for law firm leaders is to correctly identify, and exploit those opportunities.”

Last updated - 23 April 09

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