Lucy Scott-Moncrieff took office as President of the Law Society of England and Wales in July 2012. In this article, she tells us why she has decided to apply to turn her own law practice into an Alternative Business Structure.
This article was first published in a French edited version in the magazine “Droit et Patrimoine”sept. 2012, n° 217, p. 20.
One perspective on ABS
I am very honoured that my peers have given me the honour of becoming President of the Law Society of England and Wales. I am very much looking forward to all the opportunities that the next year will bring.
During my presidential year I will focus on promoting the theme of “a diverse profession for a diverse society”. I want people to understand the contribution that solicitors make to so many aspects of our society, often behind the scenes, to support and encourage the rule of law. An important aspect of diversity relates to the way that the profession delivers legal services to individuals, and in my jurisdiction that means addressing the introduction of ‘Alternative Business Structures’ (ABS) into our legal services market.
The thinking behind ABS is that any business structure that can satisfy the regulator that the interests of its clients, and the independence of the lawyers working in it, are protected, is entitled to be licensed as an ABS. This means that, for example, lawyers and non-lawyers are allowed to share the management and control of a business which provides reserved legal services to the public, and that reserved legal services can be provided alongside other professional and non-professional services.
This structural liberalisation has no direct link to the different ways in which legal services are delivered; before ABS became a reality, all sorts of creative and innovative ways of delivering services were provided by traditional partnerships and LLPs, and no doubt this will continue. However, ABS allow, at least in theory, the possibility of further innovation, through the availability of external funding and the vigorous cross-fertilization of ideas that comes from multi-professional working.
There are many different views within our profession about the impact this will have on the profession, and on access to justice. Some of my colleagues regard them as a threat; some see opportunities for well-run firms; while others think they will make little difference. Many international colleagues share some of these concerns too; but as the representative body of solicitors the Law Society has supported this move, subject comprehensive public and consumer safeguards, for the last ten years.
We have worked hard to ensure that ABS are subject to the same strict controls on fitness to own and regulatory requirements that apply to other legal practices so that the high professional standards and values which currently underpin the provision of our legal services are not undermined.
And the ABS regime can also help firms like mine, which has innovated from within a traditional structure for many years.
My firm is a virtual firm, which is the name we give for firms that use IT to create an identity, rather than an office, or offices. I started it 25 years ago, in 1987, working as a mental health lawyer and freelance criminal advocate.
The firm has gone through a number of transformations, from sole practitioner to unincorporated partnership and then to a limited liability partnership, all of which are structures that pre-date ABS.
However, within the structure of a traditional firm, we created something that was unique (I think) when we started, and is still uncommon. There are about 60 lawyers in the firm, mainly doing legal aid work, but also other private client work, and they are based all over the country.
Much of our work is done with people detained in psychiatric hospitals and life sentence prisoners, so our way of working allows us to offer a service with a national reach as we are within reasonable distance of most hospitals and prisons.
The main differences between our firm and others are that our lawyers are self-employed and they work from home or their own offices. We do have a small office in North London, but it only accommodates our admin staff; I, for instance, work at my kitchen table, looking out at my garden, which is nicer than any office could be.
These two differences make it possible for us to keep our overheads screwed down tightly. This allows us to pay our lawyers 70% of what they bring in, which is about double the norm. Legal aid rates are very low, but this means that we can attract high quality, senior lawyers to do this important work.
The other difference between this firm and many others is that there are no ownership opportunities within the firm; people are free to develop their portfolios of work, or to mix work with other interests and responsibilities, but they are not in competition with each other for advancement to partnership. There are supervisory and management roles which people can take up from time to time, and for which they get paid, but the even-handed and non-competitive ethos of the firm would not survive if it were possible for people to be ‘promoted’ to ownership status.
As a result, we are attractive to good lawyers who do not wish to become partners or business people or bosses, but who also do not wish to remain as assistants or employees. Our structure allows them to simply practice law while the firm deals with regulation, practice management and business development.
However, I have become dissatisfied with this arrangement, as I feel that the people who work in the firm should have an opportunity to share in its success, over and above what they get through their own efforts.
Under the pre-ABS regime, profit-sharing is only possible for the owners of law partnerships or limited companies, and those owners also have to take full business, compliance and managerial responsibility for the organisation.
However, the people in my firm don’t want to have to accept these responsibilities, and, helpfully, the ABS regime has now provided us with a solution, so I am in the process of applying for regulatory approval for my firm to become an ABS. My application is currently being considered very thoroughly by the Solicitors Regulation Authority, the body that regulates (rather than represents) the profession.
If the regulator grants the application, this new company will take over from the limited liability partnership, with directors instead of partners, and all the obligations to comply with company law.
As there will be no regulatory restriction on the classes of people who can own the business (although a tough ‘fit and proper person’ test applies to anyone who can influence how a firm operates), this will allow me to offer shares to the people who work in the firm, so that they will have a share of the profits without any of the burdens of business management or the firm’s regulatory compliance requirements.
It will also make succession planning a great deal easier, and make it possible for the firm to survive my retirement with ease.
For the lawyers in the firm, there will be no day to day difference at all from the current regime, unless they buy shares, in which case they will get dividends!
It seems to me that the ABS regime, although it obviously creates competition to traditional suppliers of legal services, also offers opportunities for existing suppliers to restructure, and meet the changing needs of the market and the challenges of the recession. There are a number of business models that might well suit traditional law firms much better than what they have at the moment, and if you believe in the desirability of a network of small law firms helping to protect access to justice across the country, as I do, you will welcome this opportunity to adapt and survive.