UK alternative business structures for legal practice: emerging models and lessons for the US.

Author:McMorrow, Judith A.
  1. Introduction II. Overview of Issues III. Framing the Comparison Between the United Kingdom and United States A. Common Theme: Changing Expectations, Globalization, Competition, Growth of Law, Changing Products B. Special Features of the U.K. Legal Services Market: Stratified Bar, Reserve Activities, Changing Legal Services Funding and Entity Regulation 1. Stratified Bar 2. Reserve Activities 3. Changes in Referral Fees and Legal Aid Funding 4. The ABS Regulatory Process IV. ABS Models A. Small Firm--Transition Planning B. Riverview Law 1. Client Team Work & Flat Fee 2. Human Capital 3. Technology 4. Access to Capital 5. Lessons for the U.S. Market C. Co-Operative Legal Services 1. The Hope 2. The Reality D. LegalZoom E. The Personal Injury Market 1. Minster Law 2. Winn Legal Services F. Non-Profit Market V. Emerging Themes, Advantages and Concerns A. Assessing Quality, Consumer Orientation and Client Satisfaction B. The Power of the Lawyer "Brand" C. Improving Law, Legal Systems and Administration of justice VI. Conclusion I. INTRODUCTION

    Should non-lawyers be able to own or invest in law firms? (1) The United Kingdom adopted a new Legal Services Act in 2007 that created a regulatory structure to encourage competition in the delivery of legal services. (2) One of the most interesting and provocative U.K. initiatives was allowing alternative business structure (ABS) firms, which have some form of non-lawyer involvement in the ownership and/or management of the firm. (3) The fruits of that reform have begun to appear, with over 400 ABS firms approved by the Solicitors Regulation Authority between the first license on March 26, 2012, and July 31, 2015. (4) The ABS process aims to encourage creativity, with a commitment "to a level playing field--there should be no favours or benefits for particular business models." (5)

    This Article examines some early U.K. ABS firms and offers an optimistic assessment of the benefits that are appearing. (6) Some fascinating models have emerged that allow for easier experimentation in delivery systems. (7)

    * Some small firms transitioned to ABS status to provide key actors an ownership interest in the firm, allowing the firm to acknowledge contributions and retain those key actors.

    * Riverview Law focuses on providing systematized legal services to corporate clients through flat fee and team-based services.

    * Cooperative Legal Services builds on a pre-existing cooperative brand in food, banking and funeral services to provide affordable legal services to middle-income clients.

    * LegalZoom, the first U.S. legal services provider to expand into the United Kingdom to create a law firm, anticipates that the ABS form will allow it to provide more integrated legal services with their online resources.

    * Personal injury firms, which have widely varying models including firms owned by insurance companies and private equity companies, have streamlined the small-claims market in the United Kingdom.

    * Specialty firms have created non-profit and for-profit partnerships, with any profits used to support the non-profit unit. (8)

    The ABS structure allows new entrants to avoid the legacy issues such as billable hours; allows lawyers to be true partners with non-lawyers so that they can avoid the negative aspects of lawyer-centric thinking that pervades many traditional firms; provides access to capital to allow for investment in personnel, infrastructure, marketing and creative use of technology; in some cases brings the legal services provider under the control of regulators to provide clients with additional protection; and creates the possibility of linking legal services to other socially-conscious pro-consumer service providers.

    It is important to note that the ABS firms are subject to regulations that require them to have systems in place to assure that the solicitor's professional obligations are met. (9) The limited data monitoring complaints has not shown an increase in disciplinary action against lawyers in ABS firms, although the numbers are still small. (10) This is an area that should be subject to continued and close monitoring.

    One emerging issue is how public-oriented aspirational obligations, such as a duty to improve the legal system and provide pro bono services, will be developed or changed under an ABS model. Pro bono is a fairly new concept in the United Kingdom, which until recently had more robust public funding for civil legal services for the poor. (11) The corporate models described below raise a question whether aspirational public benefits, such as pro bono, collapse into a larger concept of corporate social responsibility and the consequences of that change. This is an area that needs to be monitored as new models emerge. (12)


    Allowing ABS firms reflects two important changes in attorney regulation in the United Kingdom. First, ABS structure is made possible by entity regulation, which supplements the traditional focus regulating the individual solicitor, barrister, or other legal professional. The firm itself, not just individual lawyers, is also licensed and regulated. As part of entity regulation, every U.K. firm (including ABS firms) must have a Compliance Officer for Legal Practice (COLP), who is responsible for assuring compliance with the professional obligations of the firm, and a Compliance Officer for Finance and Administration (COFA), who is responsible for assuring that sound financial and management practices are being maintained. (13) Second, the regulatory changes create a structure to reorient legal services from a lawyer-centered focus to a client and customer-oriented perspective. (14)

    The U.S. bar has staunchly resisted non-lawyer ownership and investment, while Australia, the United Kingdom, and several European countries have dropped the prohibition. (15) Canada is on the road to allowing ABS firms. (16) The Australian experience has garnered some attention in the United States but both the comparatively small size of their profession and its geographic distance may have caused their experience to be less influential in the United States. The United Kingdom's more recent liberalization has a much higher chance of influencing the U.S. legal profession given the United States' closer physical, economic, and historic ties. Both the United States and the United Kingdom embrace similar aims of regulating the legal profession to promote the dual goal of protecting consumers/clients and supporting the rule of law, which includes assuring that professional principles are met. (17) Yet in the question of insularity of the legal profession--kept separate and distinct from non-lawyers--our systems take starkly different approaches. (18)

    Scholars have been much more receptive and supportive of non-lawyer owners and investors than the U.S. practicing bar. (19) Bar resistance takes two forms. The first concern is competition, although overt reference to not wanting competition is quickly curbed in discussions because of antitrust concerns. (20) The second publicly discussed issue is concern for the erosion of the professional independence of lawyers. (21) The latter issue is often discussed with prophetic rhetoric that emphasizes the core values of lawyer independence, and expresses deep and understandable concern for the professionalism of lawyers. (22) Aside from the specific obligations of the Rules of Professional Conduct, the legal profession does not have a concrete and universally accepted definition of independence, professionalism, professional identity, or legal judgment. (23) But whatever words are used, there is a core concern that non-lawyer ownership and investment in law firms will expose lawyers to the unfettered pressures of the market place. (24)

    Discussions of non-lawyer ownership and investment often include an abstract and idealized version of professional independence that is compared against the possibility of erosion of the ideal. (25) Reports from practice, however, indicate that lawyers in the current system face unrelenting pressures to erode their professional practice. (26) The tension between profits and ethics is endemic in law, as it is in all other business ventures. (27) One important question is whether ABS structure will enhance the pressure, and whether regulation can be effective in blunting it.

    Further complicating the discussion is the reality that some lawyers have very poor business acumen, such as lack of organizational skills, poor systems of communication with clients, and excessive caseloads, which makes them vulnerable to ethical violations. In other words, in some instances it was the dearth of good business insights that led to the professional failures. (28)

    Bar resistance to non-lawyer owners and investors inevitably focuses on a lawyer-centric model of service delivery. This focus offers a very important benefit because it allows the conversation to address the ethical and fiduciary obligations of the lawyer. But a lawyer-centered focus can blind the legal profession. Maintaining lawyer control over all private sector delivery models (i.e., law firms) rests on claims of lawyer exceptionalism. In essence, the argument is that professional obligations of lawyers offer the only place to introduce professional skills and values to the legal system. (29) While there are areas in the current market in which lawyers and non-lawyers offer services to the same sector (tax, accounting, patent, immigration, labor arbitration, etc.), this Article embraces the recognition that there is important value-added to a lawyer's contribution to an enterprise. This does not lead inexorably to a conclusion that only lawyers can do certain tasks. Many commentators have debunked this idea thoroughly. (30) The sheer growth of law and its ubiquitous placement in society increasingly calls into question the lawyer's claim of superiority in all aspects of legal analysis and service delivery. (31)...

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