39% of UK law firms have already changed their management strategy as a consequence of the LSA

For commentators it has been quite difficult accurately to analyse what the impact of the LSA changes has been on the legal sector.  We know that only 7 ABS structures have been licensed by the SRA – hardly an avalanche – but we also know that there are many more applicants in the pipeline and that there are firms which are starting to do some fairly innovative things in the legal sphere, even if they do not need to avail themselves of an ABS structure (such as Riverview Law).  The suspicion has been that the timing of the latter is not coincidental, and that firms are starting to think more innovatively in anticipation of increased competition coming in the wake of the LSA.  But up to now, this has been mainly conjecture and supposition.

So it was with some interest that I attended a Fox Williams LLP seminar today, at which they issued a report commissioned by them entitled “ABSolutely Fabulous? A study of Alternative Business Structures and their role in a Changing Legal Market”.  The survey, which was undertaken by legal research firm Jures, posed 15 questions to 100 commercial law firms between February and May 2012.

The headline findings were that 39% of firms say they have already changed their management strategy as a consequence of the LSA, 63% of firms had contemplated, or not ruled out, changing their partnership structure, and 14% had already done so.  These statistics, emanating as they do from answers supplied by commercially focused law firms, may come as a surprise to those who have long held the belief that the LSA would only really impact the consumer end of the market.

33% of respondents were looking to spin off services through an ABS or alternatively looking to access external investment to fund growth, and it was clear from the survey that access to funds was a key motivation for firms.  A desire to be part of a multi-disciplinary firm scored pretty lowly as a motivation for considering ABS structures, with less than 15% considering themselves likely to follow that route.

Perhaps not surprisingly in a profession which is renowned for being conservative, “Loss of Control” was identified as the biggest barrier to ABS structures being utilised (62%) followed by “Resistance from Partners” (51%).  Essentially, these two categories can, I think, be viewed as much the same thing.

And on a somewhat controversial note in a week when much of the media has been obsessed with the morality of legally minimising one’s tax obligations, over 56% of respondents considered enhancing their tax structure to be either “very important” or “important”.

But the clear message from the eminent panel which was assembled by Fox Williams to discuss the report (including Neil Kinsella of Russell Jones and Walker, Anthony Bellau of August Equity and Adam Shutkever of Riverview Law) was that the ABS tail should not be allowed to wag the dog.  The key challenge for law firms is first to consider what their strategy should be (a formidable challenge at a time where the competitive landscape is changing faster than ever in terms of service offering and pricing) and then to consider whether an ABS structure would help or hinder that strategy. 

There was a concern expressed that some firms are perhaps considering jumping on the ABS bandwagon because it is currently the fashionable thing to do and is seen (wrongly in my view) to be an easy way to access cash, without having clearly articulated a robust strategy for growth.  Anthony Bellau made it fairly clear that these firms were unlikely to cut the mustard with private equity, however much they might like to, and both he and Steve Arundale from RBS agreed that firms who sought funding largely to buy out retiring partners were also likely to get a very cool reception.

The general consensus of opinion seemed to be that the LSA reforms would likely lead to a slow and steady flow of ABS in the early days, rather than a deluge, in much the same way as the LLP reforms took time to be embraced by most firms.  However, the competitive landscape is changing rapidly nevertheless, no doubt due in some measure to firms anticipating new entrants in the market, and this is leading to some real opportunity for those who are brave enough to take it.   

The limited space available in a blog posting precludes me from a more in-depth analysis of the findings, but the full report is well worth a read for anyone who is interested in law firm strategy and management.