British small solicitors see little harm from ABS so far

The damage caused by alternative business structures to sole solicitors in Britain has been minimal in the three years since legislation enabling them came into force, according to a group that led a high-profile lobbying effort against the law.

“Although the jury is still out, I’m comforted that there has not been any great rush here toward ABS apart from those few who are taking it up as a defensive measure,” says Clive Sutton of Clive Sutton Solicitors in Lymington, England, and honorary secretary of the Sole Practitioners Group, an organization dedicated to advancing and defending the interests of sole practitioners in Britain.

“The traditional model of practising law, apart from perhaps the personal injury practice, has not been affected and people are still going to High Street firms as they always have.” But that’s not to say the group has abandoned its opposition to alternative business structures.

“Our overall position is still that it is wrong in principle to allow commercial interests to be involved in the provision of legal services bearing in mind commercial interests would always need to have regard to the interests and views of their owners and shareholders, thereby eroding the independence of legal services,” says Sutton.

Tony Williams, former managing partner of Clifford Chance LLP and Andersen Legal and founder of Jomati Consultants LLP, says alternative business structures haven’t been transformational so far.

“I would describe it as more of a slow burn that is leaving important straws in the wind,” he says.

“Still, I’ve often expressed my belief that far less happens in two years than expected but what happens in 10 can be beyond your wildest dreams.”

For his part, Sutton believes the long term will expose the deficiencies in alternative business structures. “I believe that eventually we’re going to see a number of major incidents that will serve to publicize the conflicts inherent in the ABS structure and clients will start to realize just what they’re getting,” he says.

A May 2014 study by the Solicitors Regulation Authority that licenses and regulates alternative business structures in Britain revealed that a diverse population of 250 such entities had emerged in less than three years since the enabling legislation came into force. The demographic ranged from law firms that had moved to include a non-lawyer in their ownership structure to large conglomerates, including insurance companies, that were providing legal services in tandem with other professional services.

“Even local authorities are becoming ABS and selling the services of their legal departments,” says Williams.
But Sutton, citing the experience of the Co-operative group, the world’s largest co-operative business and the first consumer-facing firm to obtain a licence as an alternative business structure in Britain, notes that success for such entities isn’t necessarily in the cards.

“At first, Co-op expanded significantly and now they’re sacking people,” he says.

Indeed, Co-operative Legal Services Ltd., which suffered rising losses of about $10.6 billion in 2013 and $16.9 billion in 2014, laid off 60 of its 516 employees last year. According to a statement from the firm, a significant decline in revenues from personal injury cases was responsible for the negative results.

By contrast, the regulation authority study notes that although the 250 alternative business structures represent less than 2.5 per cent of some 10,000 law firms under its jurisdiction, they had achieved “a significant share of the overall market” in certain areas of legal work.

More particularly, they accounted for one-third of the revenue in the personal injury market; captured a significant percentage of the revenue in mental-health matters as well as in non-litigation files such as mergers and acquisitions, estates, and consumer and social welfare law; and were otherwise spread relatively evenly across a range of legal work. “The largest impact has been on retail firms, claims management firms, personal injury firms, and other firms who do highly commoditized work,” says Richard Turnor, a former Allen & Overy LLP partner and currently a partner at Maurice Turnor Gardner LLP, a boutique in London, England, whose practice includes a focus on professional services firms.

But Sutton maintains that the regulation authority’s numbers are hardly impressive. “Regulators like to play up the numbers,” he says.

What does seem incontrovertible is the resounding impact of alternative business structures on the personal injury market in Britain that features an acquisition spree by Slater and Gordon.

Slater and Gordon is a multinational law firm headquartered in Australia that employs more than 2,500 people worldwide. Using the capital generated from public offerings in Australia, where the legislation allows law firms access to public capital markets, Slater and Gordon entered the British market in 2012. In less than three years, it became the seventh-largest international firm in Britain. It has now purchased about one-quarter of the country’s personal injury practices. They generated some $180 million in revenue for Slater and Gordon in the 2013-14 financial year.

Globally, the firm’s personal injury practice generated some 80 per cent of the firm’s $400 million in total revenue. “Slater and Gordon is looking at coming to Canada if and when we get ABS here,” says Patrick Brown of McLeish Orlando LLP. “If it does, there’s no way even a successful [personal injury] firm like ours can compete with an organization that has hundreds of millions in revenue and probably $50 million for advertising. We haven’t even had to advertise so far and if we can’t compete when that changes, how are the guys in Goderich and Stratford going to do it?”

For more on this issue, see "Prof touts ABS plus," "Why is personal injury bar so against ABS?" and "Lawyers question prof's critical findings on ABS."

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