Introduction
The Legal Services Act 2007 (the Act) is the biggest potential reform of the legal profession for a very long time. The Act was already beginning to impact on law firms, with the big law firms thinking ahead on how to become more competitive, but the onset of one of the worst global recessions meant that, for many law firms, it was not just a matter of how to become more competitive and meet the challenges that could be presented by the Act, but on how to survive. For many legal organisations efficiency, cost effectiveness and client service has jumped up the agenda and, for some, preparations have already been made to embrace or, as some may see it, withstand the impact of the Act. For many. it is simply a waiting game or a possible “head in the sand” game.
The Legal Services Act 2007 received Royal Assent on 30 October 2007. It was introduced to reform the way that legal services in England and Wales are regulated, to liberalise the market, increase competition, protect consumers, increase access to justice and provide common standards across the profession.
It only relates to the Scottish legal system in regard to legal aid and the setting up of the Scottish Legal Complaints Commission under the Legal Profession and Legal Aid (Scotland) Act 2007, but the Scottish Parliament do have their own BillFootnote 1 currently going through Parliament which recently passed its second stage.
The key measures of the Act include the creation of the Legal Services BoardFootnote 2 (LSB) - a single supervisory body which will oversee the approved regulators, which are eight bodies named under the ActFootnote 3, and the creation of the Office for Legal ComplaintsFootnote 4 (OLC) which will act as a single point for legal complaints, with the setting up of a legal ombudsman service to resolve disputes. The Act ensures that professional bodies have to separate their regulatory and representative functions, which means that, for example, the Law Society is now the representative body of the solicitors' profession and the Solicitors Regulation AuthorityFootnote 5 (SRA) is the regulatory body. The Act provides for the creation of alternative business structures (ABSs) which will allow outside investment and non-lawyers to form partnerships with lawyers as legal disciplinary practices (LDPs). There is also set out in the Act statutory obligations and objectives for all regulatory bodies.
The Legal Services Board
The LSB is an independent body responsible for overseeing the regulation of lawyers in England and Wales. Its Chair and members are appointed by the Lord Chancellor and it became fully operational on 1 January 2010. It shares regulation with the approved regulators who have responsibility for the day-to-day regulation of the different professions. It has statutory powers and duties which include authorising approved regulators and directing changes or sanctions if required. It also has the power to authorise ABSs and approve professional rule changes if necessary. It has a role in commissioning, monitoring and investing in research into the legal services market, plus recommending to the Lord Chancellor which services should be reserved services and therefore compulsorily regulated: activities which lawyers need to be authorised to undertake. The Legal Services Board is also required to protect and promote the public interest and the interests of consumers; improve access to justice and promote and maintain adherence to professional principles.
Office for Legal Complaints
The OLC is accountable to Parliament and sponsored, via the Lord Chancellor, by the Ministry of Justice. It will operate as a single gateway for complaints against all legal providers. It has a direct relationship with the LSB which will set out key performance targets, although disciplinary matters will remain with the regulatory bodies.
The OLC has set up a Legal OmbudsmanFootnote 6 service which will operate from offices based in Birmingham with effect from 6 October 2010. The Chief Ombudsman will be able to order financial redress of up to £30,000 if lawyers are found to have provided an unsatisfactory service.
Solicitors Regulation Authority
The SRA is the independent regulatory body of the Law Society of England and Wales. Its role is to set standards, deal with rules and the Code of Conduct and support organisations in complying with those codes and standards. It also deals with investigations into misconduct and any subsequent enforcement. It is the Solicitors Disciplinary Tribunal, an independent statutory body, which will hear the case, usually brought by the SRA. It also deals with continuing professional development, education and practising certificates.
Additionally it will promote choice in legal services through various types of business structures including alternative business structures.
Bar Standards Board
The Bar Standards BoardFootnote 7 (BSB) is the independent regulatory body of the Bar Council. It sets education and training requirements for entry into the profession and deals with continuing professional development. Its role is to set standards of conduct and to promote high standards and quality of work. It investigates complaints and takes disciplinary or other appropriate action when required.
Legal Disciplinary Practices
An LDP is a recognised body introduced by the Act from March 2009, to provide legal services. They consist of owners and managers who are not exclusively lawyers. They can include different legal professionals and up to 25% non-lawyers. They are authorised by the SRA and the Codes of Conduct for Solicitors and Barristers have been amended to reflect the changes.
Arguably the benefits of LDPs include the ability to raise equity from a variety of sources e.g. barristers and other professionals, to retain and reward high performing non-lawyer employees and to diversify and offer the client a variety of services from other professionals.
So far only two of the top 50 UK law firms have converted to LDP status, those being Irwin Mitchell and Mills and Reeve. Irwin Mitchell's finance director and costs manager both became members of the firm's equity structure.Footnote 8 Mills & Reeve added a barrister, Richard Sykes, to its partnership.Footnote 9 Interestingly, Bird & Bird decided not to convert after coming across problems in local jurisdictions, when considering whether to allow lawyers in countries not recognised by the SRA into the partnership.Footnote 10 This highlights potential issues for international firms thinking of converting and trying to adhere to Bar rules in other jurisdictions. Kobre & Kim have become the first US firm in London to convert to LDP status citing the fact that the firm was “one of only a handful of international litigation firms that offers a conflict-free platform for litigation and advocacy through an integrated team of English solicitors, barristers and US qualified lawyers”.Footnote 11
Alternative Business Structures
ABSs will allow outside investment and ownership and different structures for organisations. A law firm could be owned by an external organisation, or a non-legal organisation could offer legal services i.e. “Tesco law”. They are expected to be brought into being by 2011. Those hoping that the coalition, with Vince Cable's review of excessive regulation, would delay full implementation of the Act, including those protesting against measures within the ActFootnote 12, will be disappointed. The Ministry of Justice swiftly denied that there would be any delayFootnote 13 and Justice Minister Jonathan Djanogly confirmed in a speech to The Law Society that the first ABSs will be up and running from October 2011.Footnote 14
Firms can begin to consider external investment before the date of implementation but the SRAs guidance states that they may only enter into non-binding agreements and may register company and domain names. It was found recently that Optima had breached this guidance by entering into an agreement with outsourcer Capita which gave Capita an option to obtain shares into the firm once ABSs came into force.
In Scotland the Law Society of Scotland narrowly voted in favour of external investment, but not in favour of outright ownership, so a firm will have to be 51% owned by lawyers. The Bill was amended to reflect this by the Justice Committee at Stage 2. It will be interesting to see the final version.
ABSs allow organisations to obtain external funding from a variety of sources e.g. private equity for greater investment in new projects such as IT, or expansion plans. It was also argued that ABSs would open up legal services to a wider audience through channels other than law firms, e.g. retailers and therefore would create greater competition and a better service for customers. This remains to be seen of course.
Despite the “Tesco law” tag being adopted for the Act it does seem that most non-law organisations would only consider taking on high volume legal work like personal injury or conveyancing. The Co-op recently launched a high profile campaign to promote its legal services to shoppers in its storesFootnote 15 and this may be a warning shot to high street law firms that they need to respond in order to compete.
What does it mean for lawyers?
Law firms
After much initial enthusiasm for the Act many law firms appear to have stepped back slightly and adopted a wait and see approach. As mentioned, only a couple of the top 100 law firms have converted to LDP status and, although a recent survey of managing partners by Vantis found that most agreed that ABSs will be popular, not one said that they were considering it. A recent survey by Smith & Williamson questioning 121 law firms, including 60 of the top 100, found that a fifth of those questioned would consider an IPO and 43% would consider private equity as a means of external financeFootnote 16, but for many, ABSs do not seem as appealing as once thought. There are a multitude of reasons for this including the idea that external investment may well mean loss of independence; that private equity houses as external investors may want an exit strategy leaving firms feeling vulnerable, and there may be potential conflicts of interest. There is the additional issue for international firms of ABSs not being allowed in most jurisdictions other than Australia. Recently the president of The Council of the Bars and Law Societies of Europe, Jose-Maria Davo Fernandez, stated that if a City law firm accepts external capital the matter will end up in the European Court of Justice.Footnote 17
Despite the reservations of many law firms, most are acutely aware that the legal services market has become more competitive due to the recession and that the Act will heighten this. The response has been evident in the number of firms deciding to outsource certain functions and look to alternative billing structures.
Barristers
The Bar Council and the BSB have adopted a more proactive approach, not just because of the Act but also because of the impact of Government cuts and the ability to tender for work directly. They have created model documents and guidance for barristers called ProcureCoFootnote 18 allowing them to work with other professionals by means of a procurement company to obtain work. The procurement company would not be able to supply legal services, but would be able to bid for work and then instruct its own panel of solicitors, rather than solicitors' instructing the bar, as at present.
What does it mean for information professionals?
There are huge opportunities for information professionals with the opening up of legal services, including offering consultancy services to those entering the legal market for the first time. Outsourcing may also create opportunities for freelancers and allow information professionals to join outsourcing companies. I cannot see that it is beneficial to any law firm or chambers to outsource a whole information department without losing specialist knowledge and expertise and potentially create conflicts of interest.
With the introduction of LDPs an increased involvement at partnership or board level has become possible. With some law firms encouraging senior operational managers to enter the partnership, there is no reason why we cannot see a legal information professional becoming a partner and investing in a firm.
Despite the Act's efforts to streamline regulation there will be more for risk management and compliance professionals to deal with and there is scope for information professionals to become involved in this.
Information professionals need to get involved in the implementation of changes within their organisations.
Conclusion
There is definite change afoot for the legal profession and for information professionals. It is more likely to be a slow burner than a big bang, but both those offering legal services and those working within the legal profession need to be aware of them and plan for the future. A wait and see approach may not be enough to allow for survival.
