The creation of new types of legal services “business” in the UK means that management expertise may be the defining factor for success in the legal market, says Stephen Mayson
Recientemente se aprobó en el Reino Unido la regulación de las estructuras alternativas de negocio – Alternative Business Structures (ABS), como parte de la Ley de Servicios Legales. Las ABS tendrán un gran impacto más allá del mercado británico, promoviendo nuevos tipos de empresas y proveedores de servicios jurídicos que estimularán la competencia en cuanto a clientes, abogados y gestión del talento, opina Stephen Mayson.
The past month has seen the approval of the first alternative business structures (ABS) under the Legal Services Act (LSA). ABSs will have an impact not only on the UK legal market but across the legal world – promoting new types of legal services businesses and providers that will stimulate new forms of competition for clients, lawyers and management talent.
An ABS allows non-lawyers to invest in and even own legal practices in the UK for the first time. It means that a firm can draw on outside investment capital, including through issuing shares. With deeper pockets and driven by clearer business fundamentals, such firms will present a stronger competitive challenge wherever they choose to operate.
But what we might describe as “the post-LSA world” is not merely driven by the Legal Services Act. The legislation and accompanying changes are part of a much broader and deeper shift in 21st-century legal practice. It reflects a fundamental change in a mature legal economy with increasingly well-informed and sophisticated buyers of services in an over-supplied market.
Success in the new world of legal services will therefore require two related contributions: discipline, and professional management. The management of strategic business risk has become more complex; and the expectations of regulators, clients, and external lenders (and now external owners and investors) are more onerous. These expectations cannot be met without discipline and the input of those who understand business and management.
Firms will have to be managed for profit rather than for growth. New attitudes to managing and assessing contributions to strategy and business plans must be encouraged so that capital requirements and the allocation of returns can be assessed accurately. There is a need for greater transparency because “true profit” is the return for investment risk.
A new approach to structure and governance will be needed to drive more effective decision-making and supervision. The result will mean altering the traditional “partnership” culture and give more importance to board positions and non-executive input.
To compete firms will also need a clearer concept of “strategy” and “business model”. What many firms, within and outside of the UK, may not yet realise is that these demands are the same whether they adopt an ABS structure or merely have to compete with them, and survive.
The new world of legal services will create new and distinct non-lawyer roles and arguably create a much more competitive market for those with the best and most transferable management skills – wherever they may be found.
There is I think now an acceptance that, although the legal and regulatory obligations on lawyers make legal practice a different vocational pursuit than many other commercial activities, the nature of the firm as a commercial entity is not so different from the rest of the business world.
The LSA enshrines the necessity for more professional management expertise. In a war for talent the ability to offer the best managers ownership, shareholding or share options is a powerful addition to the weapons in the armoury.
The new world will require a shift to building a valuable entity or institution that will be attractive to investors and financial markets, or that will enable the smoother accumulation and transfer of ownership interests to future generations.
The ability to do this is not yet prevalent in the legal sector, and the transfer of successful Chief Executives and senior managers will play a part in the distribution of this know-how among firms. Indeed, some lenders and investors might well insist on the appointment of their own choice of management team as a condition of financial support.
Tectonic shifts in those who control access to legal work, in the methods of acquiring that work based on the power of brands or procurement processes, in the delivery and resourcing of legal services, in the geography of supply, in the structure of businesses, and in the economics of scale, funding, and the distribution of returns all suggest that we are not facing an era of merely incremental development. It is entirely possible that, in the new world of legal services, management will be the defining resource.
Stephen Mayson is a Professor of Strategy and Director of the Legal Services Policy Institute at the College of Law, London, and a faculty member of the Lawyers’ Management Programme (LMP).