Monday, August 06, 2007

Scottish solicitors should accept the need for reform & deregulation of markets

The battle to implement long needed reforms to Scotland's legal system and access to legal services now seems to have four sides to the debate.

1. The Law Society of Scotland, are as determined as ever to maintain a closed shop of exclusivity of access to legal services via a solicitor or advocate. Despite public protestations of 'welcoming in the changes', senior officials at the Law Society have mounted a behind the scenes campaign against any talk of reform of the current business model, forcing the public to go through a lawyer or advocate to get access to the Courts or use legal services.

2. The Cabinet Secretary for Justice, Kenny MacAskill seems to want to implement a half way Scottish solution of his own, neither completely deregulating the legal services market or maintaining the present monopoly'

3. Various legal firms are reported to have broken with the Law Society of Scotland's policy of maintaining the monopoly by 'publicly' welcoming in the changes,

4 .Finally, there are the consumer organisations, campaigners, critics & clients who of course, wish for full deregulation of the legal services market, and further reductions in power & influence to the Law Society of Scotland.

Let us not forget the Judiciary are hovering in the background on this one too, some ex-judges seemingly ready to swoop down and carry off anyone who may suggest the teeniest weensiest reform of not only access to legal services, but also to the operation of the judiciary themselves ...

The changes will benefit us all, as today's Scotsman reports

Lawyers urged to accept the need for reform


THE Scottish legal system faces significant overhaul as a result of last week's report delivered by the Office of Fair Trading (OFT) in response to a complaint lodged by the consumer group Which?.

The "super-complaint", as defined in the 2002 Enterprise Act, argued that the current structure of the profession has hindered market innovation, restricted consumer choice and may have led to higher prices.

The OFT's report has recommended a significant overhaul of the Scottish legal profession, both lifting restrictions on the way lawyers operate and opening up the profession in Scotland to the levels of competition envisaged by the English Legal Services Bill.

The Scottish Executive has agreed to respond to the OFT report within three months, and it is expected that the resulting legislation will follow the English model, revolutionising the delivery of legal services in Scotland and dismantling the closed arrangements between solicitors and advocates. But there is no recommendation to remove the regulatory and representative roles of the Law Society of Scotland and so have an independent regulator, as is the case in England.

In England, the Legal Services Bill, which heralds potentially major reforms of the legal profession in England and Wales, will permit solicitors and barristers to practise together, lawyers to practise in one firm with other professionals, and law firms to be owned wholly or partly by third parties and able to raise external capital, including by flotation on the stock market.

Effectively - subject to detailed regulations as to qualifications, protecting client money, avoiding conflicts of interest and ensuring minimum levels of professional indemnity insurance - lawyers will be able to practise in whatever structure they want, and where they feel there will be consumer demand. Legal services may also be provided by major corporations using their existing brands, and probably a very significant investment in technology. The Co-op and the AA are already providing limited legal services and have made clear their intention to expand when the law permits.

The new law will also take regulation and complaints relating to the lawyers outside of their own hands and into the control of a regulator majority run by non-lawyers, with a view to protecting the consumer.

It is important to appreciate that these reforms were not proposed by lawyers. Indeed, the legal profession, not renowned for its forwarding thinking, initially opposed this type of reform. The reforms arose from a 2001 report by the Competition Commission, which found that the restrictions on the operation of lawyers in England were anticompetitive. This was followed by a report by a committee chaired by Sir David Clementi, which recommended a wide range of reforms. The Government, in its white paper, endorsed these reforms and went even further than Clementi. The current bill will come into force in stages, with many of the more controversial points not becoming law until 2011.

There has been a high level of interest in new business models for providing legal services. Major companies have been considering if this is a market they should enter, and private equity firms are considering financing new retail-focused offerings and also taking minority stakes in existing firms. Law firms are considering the advantages and disadvantages of raising outside capital. It is widely anticipated that the fragmented English legal profession will start to consolidate significantly over the next five years.

This is not just an English trend. In Australia, reforms are already in place, and in May the first Australian law firm floated on the stock exchange. Spain has recently brought into force legislation permitting 25 per cent ownership of professional firms. Despite the opposition or indifference of many local bars, many governments think the regulation and structure of the legal profession needs to be dragged from the 19th century straight into the 21st century.

So where does all this leave the Scottish legal profession? Although England and Scotland have different legal systems, there have been significant cross-border movements in recent years. Many major Scottish firms - including Dundas & Wilson, McGrigors and Dickson Minto - have significant London offices, and English-based firms - such as DLA Piper, Pinsent Masons and CMS Cameron McKenna - have offices in Scotland. In addition, many lawyers have been lured to London by the quality of work and high incomes available there. Senior partners in the largest London-based international firms now earn close to £2 million. If English law firms, on top of significant salaries, are able to offer long-term benefits - including share options - this may make them even more attractive to lawyers working in Scottish firms, thereby creating an ever greater retention problem in a market that is already crying out for talent.

Until now, the Scottish legal profession, or at least the leadership of its professional bodies, appears to have been opposed to an English type reform. But, in so doing, the profession risks being seen as reactionary and self-serving. In the current age of the consumer, it is questionable whether the profession's interests are best served by regulating itself in the manner of an ancient guild and dictating in what business form its members should operate. Given that the English reforms started with a Competition Commission report, the Scottish profession may be well advised to engage positively and proactively in debate rather than to suggest that reform "is the end of civilisation as we know it".

The political and business climate in Scotland is changing. Business birth rate is at an historic low, with the latest 2005 figures showing new VAT registrations at 28 per 10,000 adults, compared with 37 in England, as Scotland's business leaders are analysing the implications of an independent Scotland structured from a fiscal perspective.

While the governing bodies of the Scottish legal profession may see Scotland as "different", the commercial competitors who will enter the market with consumer-led services and attractive recruitment packages will see Scotland as a market from which to take both clients and talent.

The legal sector now has an opportunity to take the lead and help build a successful economy. Will it take that opportunity or become, like so many of the other great old Scottish industries, a thing of the past?

• Margaret Lang is chief executive of Intelligent Office UK, which provides managed offices services specifically focused on the UK legal market, and Tony Williams is the founder and principal of Jomati Consultants, a UK-based international management consultancy specialising in the legal profession.

Further reaction to the Office of Fair Trading's report on 'super-complaint'

COMMON sense has prevailed. The OFT believes that current restraints on lawyers in Scotland are unnecessarily restrictive, and I agree with them. Neither the OFT nor Which? is saying that solicitors and advocates should go into business together, or indeed that lawyers and non-lawyers should do so, or that non-lawyers should own legal businesses, and nor am I.

Rather, we are all saying that in each case, if people want to they should be allowed to. The market for legal services should decide where new business structures work better and where they do not. It is all about improving service quality and delivering value. The businesses that best satisfy tomorrow's customer demands will flourish and they should be facilitated to do so.

Interestingly, the OFT has emphasised that regulatory changes should not just superimpose an English solution on Scotland. Rather, it recognises the different scale and demographic of the Scottish market and that it should probably be regulated differently.

The inference is clear that different tiers of regulation, as is being promulgated in England, may well not work best for Scotland. I agree with this. I support regulation of legal services but always in a way that is appropriate. Regulators are facilitators to promote service delivery based upon quality, accessibility and value. They should not become barriers, particularly if on the grounds of jurisdiction not market.

Alan Campbell, Managing Partner, Dundas & Wilson CS LLP

THE most significant change and resultant opportunity for Scotland is the enticing prospect of "alternative business structures" and the injection of external investment into the law firms.

All firms should be allowed to seek external funding and investment or take a stake in mergers and acquisitions, provided that proper safeguards are in place. In today's global market place, law firms should be able to raise money from other sources to build strong, independent and diverse businesses. The Legal Services Bill in England will allow this south of the Border but, unfortunately, the Law Society of Scotland appears to be less than enthusiastic.

Allowing external investment would give Scottish firms the opportunity for effective expansion whilst maintaining professional integrity and practice. I for one would welcome such a change in Scotland.

Malcolm McPherson, Joint Senior Partner, HBJ Gateley Wareing LLP

WE HAVE put a detailed proposal to the Law Society of Scotland for an alternative business structure and we have sent a copy to the cabinet secretary for justice. We are currently having discussions with the Law Society of Scotland with regard to that proposal.

Our aims are very specific. We are not seeking reform that allows third-party control of Scottish legal firms or even external investment in Scottish legal firms.

Turcan Connell is a multi-disciplinary practice with multitalented professionals, and we are seeking a solution that allows non-solicitors to have active participation in the business to which they are so strongly committed. The solution that we propose should also benefit smaller, progressive law firms throughout Scotland. It will allow them to combine with other professionals to provide a joined-up service to local communities.

Douglas Connell, Joint Senior Partner, Turcan Connell

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