Other structural changes

3.60     This section considers ‘structure’ in the sense of the business and ‘internal’ organisation of legal entities. A recent survey of managing partners/CEOs of 45 leading UK law firms highlighted that two-thirds of firms see innovation as a key means for developing competitive advantage (Winmark, 2012). This section will focus therefore on three closely related themes:

• new business structures;
• new business processes;
• impact of information and communication technologies.

ABSs and new business structures

3.61     The LETR research has explored attitudes to ABSs, the opportunities and threats that accompany the development of ABSs, and their implications for training needs. The timing of the LETR research has meant that the data collected are limited: the establishment of a sizeable and identifiable ABS segment of the market is taking longer than many assumed and this combined with delays to the launch of the first ABSs by the SRA,[1] and the complexity and length of the authorisation process, has limited access to in-depth data, particularly on the likely impact of new business structures on training needs. Early ABS adopters have also been somewhat reluctant to discuss the details of their education and training approach, considering these to be an important competitive element in their business.

3.62     Further waves of ABS applications are likely to change the understanding of this new feature of the market. By the end of 2013, there should be a clearer picture of who the key early adopters are, how they are using ABS status, and what the actual (rather than hypothetical) risks may be. On the basis of the process so far a number of trends (or ‘non-trends’) are emerging.

3.63     There is no such thing at this stage as a ‘standard’ ABS. Although the ‘big brand’ entrant and private-equity focused law firm ABS exist, so far they are in the minority; new entrants to the market have also been in the minority.[2] Those entities that have come forward include existing solicitors’ firms that simply want to use the ABS as a vehicle to bring non-lawyer employees into the partnership,[3] as well as those who are interested in accessing external finance. Other motivations include converting unregulated businesses into regulated entities involving legal service providers and other professionals,[4] and businesses looking to diversify by delivering ‘white label’ services, which disguise the actual service deliverer, to other suppliers.[5]

3.64     Significant ABS activity has so far come from the property/estate management and litigation segments of the market (particularly personal injury).[6] A broader range of activities, and types of provider, is emerging as the number of ABSs grows. A significant development in 2013 is likely to be the emergence of more ‘big brand’ ABSs, following the interest shown by the likes of the AA, British Telecom, and Direct Line. There are also indications of heightened interest among top tier law firms (Bindman, 2012).

3.65     There is limited evidence that new business structures may be of increasing interest to the in-house and local government sectors. These entities are not only under pressure to minimise (external) legal spend, but to identify ways of converting the in-house function from a cost to a profit centre. So far most activity has been in the local government sector. LETR focus groups thus discussed the possibility of using the ABS structure to provide services to groups of local authorities.[7] The potential for local authorities to use ProcureCos was also highlighted. Responses from in-house counsel to the idea of converting to ABSs, however, were more mixed, as the following exchange illustrates:

 

A: The point about the in-house counsel is that he understands the business. And has that judgment and then sensibly outsources what can be outsourced where it’s cost-effective and so on. So you could see that happen but you’d have conflicts issues and confidentiality …

B: I can see it being an answer to a legal department that is told that its writing’s on the wall. And it needs to go somewhere else. There have been a number of firms setting up to service local government in just that situation. Where local authorities have said ‘Oh we can’t afford all these lawyers sitting around eating their hats off’ and then of course they go off, start a firm and sell those services back again!

Employed barristers

3.66     By contrast, responses from the self-employed Bar in particular, highlighted considerable doubts about the need for, and any advantage to be derived from, large scale organisational changes, though there were indications that current changes were encouraging chambers to think more about operational structures and needs:

I think perhaps in ten or twenty years’ time that may happen – sets will be bought out, but I can’t see it at the moment. … I think we need more skilful managers to run the business side, sorting out rent and rates and how much we pay our staff and that requires slightly more skills. … That does make it more difficult for us to think we’re going to actually take on the role of the solicitors. We realise that that would mean our overheads and profits would move in the opposite direction.

Barrister

3.67     There was, however, also a smaller number of barristers who saw market advantages in being able to develop some form of multidisciplinary practice (MDP) structure.

3.68     Lastly, there is some evidence to support the view that ABSs are a factor in driving innovation within ‘conventional’ business structures. Though it is still early days, new business models such as Riverview Law and Stobart Barristers stand out. In the in-house sector, Carillion, though less well known, is also an interesting example.[8]

3.69     In education and training terms, ABSs and other new business structures may thus present opportunities as well as threats. Economies of scope and scale enable larger entities to develop more sophisticated training environments than smaller ‘high street’ competitors. Irwin Mitchell’s IMU Law & Business School, and Co-operative Legal Services (CLS) training partnership with Manchester Metropolitan University are examples of this.

3.70     There are some, at this stage limited, indications that the new forms of business organisation are leading to some re-thinking of skills and functions.[9] This is most evident in terms of the skills sets required by those in client-facing roles, who may be intermediaries between the consumer and the lawyer or legal team that would ultimately be responsible for the matter. These intermediaries may undertake ‘sifting’ or initial ‘diagnosis’ (to use the hospital analogy, ‘triage’) functions which require some basic legal skills and knowledge as well as more conventional initial client handling, with a need for good communication and sometimes sales skills. The chief operating officer of one new entrant to the market describes the process thus:

The low level stuff from small businesses and anything else is coming into our sales team who’ve got very limited legal background and pass it over to a free telephone call with one of our solicitors’ team. They are fairly newly qualified, 1-5 years PQE but decent experience from decent firms and [understand] a cross section of the work [we do].

ABS

3.71     At a higher level, fee-earners may have opportunities to take on client relationship management functions as an extension of their legal work. Opportunities for internal moves and wider skills development may be greater than in traditional entities. CLS, for example, thus emphasises its need to develop more modular, outcomes focused, and tailored training to support the changes to the sector (Briefing Paper 4/2012).

3.72     New business models may also transform aspects of traditional legal work and workflow. Organisations like Riverview Law, for example, are changing the way in which barristers are used as an early part of an advisory team – akin in many ways to the advanced triage and problem-solving role performed by general counsel. This example leads the discussion more generally into the question of changing legal processes.

New business processes

3.73     The emergence of these new challenges and new players has been accompanied by significant changes to business and working processes. Process change and innovation are increasingly seen across many parts of the sector as a necessity rather than a luxury, though data suggest this is maybe less true of the Bar and notarial professions than other regulated providers.

3.74     Changes explored in both the literature and LETR research data include:

• increased use of legal process outsourcing not just to reduce back office and some front office costs, including direct labour costs, but to increase efficiency and flexibility of response;
• developing flexible project delivery models, often utilising a mix of in-house and external human resources – eg, where virtual law firms contract-in lawyers purely on a project-based footing rather than as permanent salaried staff;
• decomposing and commoditising legal transactions so that more of the work may be undertaken by non-qualified, paralegal or other professional staff;
• bundling legal services with other complementary services in a multi-disciplinary practice or ‘one-stop-shop’;
• leveraging the opportunities created by multi-professional teams to add value to the offering;[10]
• using technology to enhance communication, information access, data management, and workflow, particularly in conjunction with outsourcing and commoditised practices (this will be discussed further, in the section below).

3.75     It may be observed that most of these are not ‘new’ processes as such, though neither the extent nor the range of their use is really known.[11] In the context of the LETR, the issue is not so much the quantitative one of how much these are used (though that is not wholly irrelevant), but how they are changing the ‘ethos’ and structure of practice in ways that will impact on LSET.

3.76     Although some participants focused on the continuing need for ‘traditional’ or ‘elite’ practice, other participants described a range of variations to the archetypal (solicitor/legal executive) practice. These conversations tended to focus on the use of outsourcing (overseas and within the UK) and on the development of volume commoditised work in the private sector, and in competition with conventional practice.

3.77     Outsourcing in this context incorporates a range of functions. Activities that are outsourced by firms include: back office, due diligence, typing, e-disclosure, major pieces of research, multi-jurisdictional reports, payroll, and IT services. To a considerable extent, the diversion downwards and outwards of some legal services is facilitated by IT: case management systems enabling greater systematisation of routine work; video conferencing with legal process outsourcers (LPO) or ‘near-sourced’ departments within the UK, and online subscription services (possibly within the brand of the host firm). The outsourcing of both these back office functions and (generally) lower-level client work is largely driven by client demands for cost and efficiency.

3.78     In the commercial sphere, several groups of in-house lawyers confirmed the perception that they had yet to fully exploit their power as purchasers, and were actively pursuing cost savings, value added,[12] and/or alternative suppliers. For local and central government lawyers, however, work previously outsourced was being brought back in-house for reasons of both cost and quality; one participant in the private sector also questioned whether large scale outsourcing was sustainable in the long term. While there is evidence that outsourcing is actually less widespread than assumed,[13] there is also recognition that, in some areas of work, it has become a given:

But ABS plus client power is pushing it and even clients are saying, ‘Well, who’s your LPO provider?’ So you can’t even avoid the question and all the pitches are: how are you going to do the cheaper stuff?

Solicitor

3.79     The other side of this expectation, with clear implications for LSET, is that commercial clients are also becoming less tolerant of paying for trainee or junior lawyers within the firm to carry out work that could be outsourced more cheaply (cp Mayson, 2012; Susskind, 2012).

3.80     As a referral profession, outsourcing was generally thought of as less relevant to the Bar although the Advocacy Training Council suggested:

… Outsourcing should prove no real threat. In fact over the next few years as direct access work increases it is likely that clients will instruct the Bar first and ask the Bar (through its administration) to procure other services needed to enable the advocate to do his/her job. This might mean that the Bar will instruct solicitors or paralegals to support them.

3.81     Turning to commoditisation, this is observable in a range of legal work for both commercial and personal plight clients: volume personal injury, debt recovery and ‘run of the mill’ small crime have all become more routinised and, in some cases, fully commoditised. Conveyancing is another area where process tools have facilitated commoditisation. This area of work, of course, also involves another group of regulated professionals – licensed conveyancers – alongside notaries, CILEx members and solicitors.

3.82     Discussions of commoditisation highlighted, perhaps more than any other issue, the very broad range of understandings and variety of positions taken on the future direction of consumer legal services, the risks involved and the manner in which they should be managed. For some, commoditisation is a proper and necessary means of providing what consumers want at a price they can afford, without the trappings of more traditional legal practice, and without the need for costly professional training:

[The current LSET system for solicitors] was designed for a practice model in which the solicitor was 1 a generalist and 2 owner (=controller) of his or her practice. That model of practice is unlikely to survive for much longer, for two reasons. 1 Legal services can be delivered less expensively and more speedily if they are delivered through a few large standardised producers rather than a myriad of tiny independent producers. 2 legal work can be, is and should be largely commodified, so that it can be performed largely by expert computer systems, with human involvement increasingly limited to data entry. The skills that large producers will pay for are a pleasantly-pushy telephone manner and accurate data entry. These skills are widely available and command only minimum wage.

Other interested person (online survey)

3.83     For others, commoditisation places consumers in the hands of organisations, dominated by un- or under-qualified staff, possibly with insufficient supervision:

Most of my work now involves people instructing me who have no legal training whatsoever. Large firms of lawyers with up to 300 people in them with two or three lawyers. They are not governed by the standards I am expected to be judged by. The staggering incompetence of many hard working and decent young people entrusted with the public’s legal problems is breathtaking. They are under so much pressure and have no support. It is not their fault.

Barrister (online survey)

Speaking from personal experience of conveyancing transactions dealing with large non-solicitor companies the quality of legal knowledge of staff is poor particularly where matters do not fit a ‘norm’. Whilst many elements of conveyancing may seem repetitive and routine it is almost indispensable to have a working knowledge of trusts law, matrimonial law as well as occasionally bankruptcy, probate and other areas of law. Sadly one often finds that the people one deals with do not actually even know land law let alone these more diverse areas so cannot be giving their clients good advice.

Notary (online survey)

3.84     For some stakeholders the development of ABSs will only exacerbate this trend. This was a view that was widely reflected in responses to the online survey, both generally and specifically among members of the three larger professions (Table 3.3).

 

Table 3.3: Competition from Alternative Business Structures is a threat to overall competence levels in the legal sector (Q4.5)

Weighted (barristers, solicitors, CILEx members, and weighted average) and unweighted (all respondents).

 

	Missing	Completely disagree	Disagree	Somewhat disagree	Neither agree nor disagree	Somewhat agree	Agree	Completely agree
Barristers	5.8%	4.5%	12.3%	11.0%	16.8%	18.7%	15.2%	15.8%
Solicitors	2.8%	4.0%	12.0%	9.8%	15.7%	18.5%	21.2%	16.0%
CILEx members	3.7%	4.3%	12.3%	10.5%	15.4%	17.3%	20.4%	16.0%
Weighted Average	3.7%	4.2%	12.2%	10.3%	15.8%	18.1%	19.6%	16.0%
All Respondents	4.2%	5.3%	13.4%	10.7%	16.3%	16.9%	18.6%	14.6%

 

3.85     This highlights, again, the perceived importance to the LETR of two linked questions: whether the requirement of supervision by itself is ever enough, and whether there is a need to prescribe and regulate minimum levels of competence for any technical role, including paralegal roles? The issue of competence is addressed more fully in Chapter 4.

Information and communications technology (ICT)

3.86     ‘In thinking about the future, discussion will at some stage gravitate towards information technology’ (Susskind, 2012:6). The likelihood that technology will radically change the ways in which at least some legal services are delivered is beyond dispute. Technology, particularly through increasingly sophisticated forms of blended and e-learning also has the potential to transform[14] the delivery of LSET. One of the questions for the LETR is therefore, how might these technologies connect? In other words, what can those who are planning LSET learn from the use of technology in practice?

3.87     Richard Susskind (2012:6) and the ‘Young Lawyers Forum’ (YLF) convened at the end of the LETR research phase both recognise the continuing relevance of Marshall McLuhan’s insight that ‘the medium’ is indeed ‘the message’, and that technology does not just automate ‘old’ ways of working. When the innovative potential of ICT is harnessed, it actively changes the ways of working, and, often, what is delivered.

3.88     Much of the discussion of ICT in LETR focus groups demonstrated lawyers’ greater familiarity with automation rather than innovation. The capacity of technology to enable things to be done differently rather than just more quickly, easily and/or thoroughly appears to be underestimated by respondents.

3.89     In terms of understanding the impact of ICT in practice, focus groups highlighted a number of recent developments that were thought to be significant, including, notably, e-disclosure and the growing use of a range of technologies in and around the courtroom such as telephone hearings and live video links. The need for an awareness of online dispute resolution was also highlighted as being an important element in future training.[15]

3.90     In the context of trends and developments in the sector, another relevant aspect of technological transformation is its capacity to change the marketplace and consumer behaviour. Key factors here are likely to include:

The market impact of ICT companies

3.91     Specialist legal ICT firms, and online publishers could have significant impact by investing in creating markets that are grounded on a commitment to technological innovation. Behind these the ICT industry’s continuing capacity for rapid innovation makes technology a relatively high impact and high uncertainty driver. Generic developments which push at existing data and processing capacities, such as cloud computing, and, longer term, quantum computing (which promises to overcome the physical processing limitations of existing digital technologies) mean that the limits of what ICT can achieve are yet to be reached.

Advances in online legal service delivery.

3.92     A high proportion of lower-level legal problems can be resolved by information alone. Technologies that enable legal knowledge and expertise to be made available online, rather than relying on face-to-face (f2f) delivery potentially have a significant role to play in legal service delivery.

3.93     Technology in this sense may be a double-edged sword for legal service providers. On the one hand it can play a critical public legal service function, and may also direct consumers to legal services providers. DAS’s ‘Law on the Web’ illustrates this function: it educates, provides free resources and acts as a referral mechanism to legal professionals.[16] As Susskind (2010:20) notes, ‘these websites have not displaced lawyers, rather they have offered legal insight and help to many people who otherwise would not generally have sought formal legal help’. This sits fairly well with a presumption, apparent in the LETR research data, that f2f will remain not just the preferred option but the norm across the legal services sector. For example:

The law firms… haven’t seen how technology can help them apart from sending an email with the advice …I think there’s a lot of work being done by a bunch of lawyers that actually can be digitalised if you like. So that means less (sic) lawyers. …This sort of need for face to face and advisory will always be there. I think because that’s what people want from us, trusted advice. They’ll only go so far in technology based but it can be so much more efficient.

Solicitor (our emphasis)

The impact of established technologies should not be discounted. The LSCP Tracker study thus indicates that, overall, only about 42% of legal services were delivered f2f in 2011-12, whereas another 40% were supplied by telephone or email/internet (LSCP, 2012).

3.94     The emergence of new online providers, like LegalZoom and Rocket Lawyer, albeit supported by a human interface, is already indicative of the ways in which the market may be moving. Such online providers may increasingly challenge and substitute for traditional f2f providers, particularly as the technology moves from ‘search engines’ to far more powerful and intuitive ‘discovery platforms’.[17]

3.95     It is thus quite possible to foresee, particularly in lower value consumer transactions, that the interplay between cost, technology and accessibility leads to the prevalence of online delivery for some services. Face to face advice may become a luxury for which there would be a premium. As one member of the YLF said:

[S]ome things will benefit from personal service but it will be a two tier market – those who can pay for personal face to face service will get it.

3.96     Technology therefore has longer term implications for the type of legal roles in the marketplace and may contribute to a reduction in the number of traditional lawyers. Some of this number may be absorbed into the kinds of new roles Susskind (2010, 2012) describes for legal information technologists, knowledge managers and legal process analysts. Such roles would also require new technical skills, and a greater understanding of the potential for ICT to innovate, not just automate.

 

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