October 15, 2011 Alternative Business Structures – Death by a thousand cuts for a law firm?
Much has been said about the impact of Alternative Business Structures (ABS) on the top city law firms. Will it mean law firms listing on the stock exchange, taking private equity investment or just restructuring in order to incentivise their employees in new ways?
As interesting as these questions are, they miss the impact that has the potential to cause the biggest change in how people purchase legal services. That is, new entrants into the legal market. Entrants with an existing client relationship and client trust that allows them to sell legal services through new channels.
The most anticipated of these is Tesco Law, whom it is assumed will leverage their relationship with the customers to sell conveyancing services, private client services, probate services etc. However, it is also likely to happen in the corporate and commercial sectors.
I can see the likes of Jones Lang LaSalle negotiating leases, Adecco providing employment advice and (close to my heart) company secretarial firms providing corporate services. In reality, a lot of these firms already do some of this work but with caveats that lawyers should check it so the transition to providing full legal advice will be surprisingly easy.
In the majority of cases, these companies will target the low value work: the straightforward compromise agreements; the two party shareholder agreements; and the single tenant/landlord leases. Some may expand beyond these in due course, but this low value work actually makes up a large proportion of the volume.
The dirty secret of a lot of firms is that the work they get paid so well for is not always that difficult. It is often churn work interspersed with the odd moment of technical difficulty. This work could easily be taken on by non-law firms and done extremely well. In fact, in many cases they will be better placed to do the work as they understand the commercial drivers behind the work better than a law firm ever could.
Some law firms may well welcome the low value churn work disappearing as it will free them up to concentrate on the high value transactions, which is where a law firms expertise and specialism truly comes into play. However, I suspect that there is a considerable contingent of law firms that rely on this churn work to stay profitable. For these firms, they will need to adapt the way they work or be over taken by nimbler and more efficient suppliers.
For clients, it can only be a good thing. It will take a while for a lot of clients to become comfortable with non-law firms carrying out this work. The old adage that ‘nobody ever got fired for buying from IBM’ holds true today and a lot of in-house legal departments still prefer to go to with the expensive option as it is perceived as the less risky option. However, legal spend is becoming more and more of an issue and clients are demanding more and more for their pound.
It’s not going to be an instant revolution; it will take time. This though has the potential to be even more dangerous for the law firms as the incentive to change will be lower. It could be death by a thousand cuts rather than by a gun, but it will still be death for some firms.