Monday, June 30, 2008

Scots legal profession fears open markets, competition in legal services and client's choice of legal representation

Roll on ‘Tesco Law’ and the entrance of those into the legal profession not managed, threatened and bullied by the Law Society of Scotland ...

The Scotsman reports :

Opening up the market to competition will benefit Scotland, but we will need some help

By Andrew Godfrey

KENNY MacAskill, the Justice Secretary, is moving to legislation to deregulate legal services, and there is an appetite among law firms to understand how they can benefit from any changes, and how to fund potential business growth.

The proposed reform of the legal services market, which will free up how legal firms currently operate, provides many more opportunities for solicitors' businesses to go forward.

The opening-up of the market is likely to lead to more mergers or acquisitions accompanied by an increase in multi-disciplinary practices, commoditisation and franchising.

The mood among bankers is understandably cautious because of their need to justify facilities that they make available, but there is little doubt that banks and other lenders will be happy to introduce capital. The question is whether it will be available at the right price.

Multi-disciplinary practices (MDPs) have been with us before, largely in the form of the law firms tied to the Big Five (as they were) accounting firms.

In order for such practices to work, they must rely upon internal cross-referral within the MDP. In the case of the accounting/law tie up, this means cutting across significant numbers of established referral relationships, asking, for example, a corporate finance partner to refer his work internally to lawyers within his new firm. This can be difficult to achieve.

That said, it is easy to see the appeal of an MDP operating in a niche such as tax, where tax lawyers and tax accountants can work alongside each other to shape a solution.There are huge opportunities to form effective one-stop-shops.

Consideration must also be given to client reaction and how any such firm may be perceived, especially if part of the business revolves around volume-based or commoditised legal services. Take the example of a firm with a debt recovery arm that generates decent profits but where increased profile brings the possibility of a detrimental effect on the image of the legal services offered by the rest of the firm.

A number of firms will view such commoditised services, previously seen as being a less well-regarded division, in a new light – that of being appealing to external investors. These relatively non-lawyer intensive and scaleable businesses are seen as being the most likely area to lead in external investment.

In England, companies outside the legal profession are finding these commodity-based services represents an interesting business opportunity and the likes of HBoS and Co-op are making headway into a market with appealing profits.

While this aspect of legal reform is not on the agenda in Scotland, it is likely that firms may find themselves under increasing pressure to operate in a more business-like fashion, with the days of high profits being the norm being under threat. Add to this the prospect of a competing firm with external investment inducing high-quality individuals to join them, and we can see just as many threats as opportunities.

Kenny MacAskill has said he does not believe that Scottish firms which may require capital to fund expansion should be discriminated against. He has also made it clear that he wants changes to be regulated with distinctively Scottish solutions.

But Scotland's legal profession must also be able to compete outwith its borders. Scottish business will grow as a result of outward ambition.

Scotland's legal profession cannot maintain a competitive position by standing still.

• Andrew Godfrey, managing partner, Grant Thornton

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