The legal profession in the UK has made major errors, suggests Professor Stephen Mayson, and now finds itself too far removed from its client base.
The annual UK market for legal services is estimated to be worth around £20 billion – of which 10% is exported – and still growing. The number of practising solicitors in England and Wales has more than doubled in the past 20 years.
Yet the volume of "qualified lawyer" work has not doubled, and given the acceleration towards standardisation and commoditisation, I believe that we now have too many qualified lawyers for the work available. Over supply can mean that the cost base of legal services becomes too high and competition for work drives down fees. Rising costs and declining fee levels result in a squeeze on profitability.
The challenge of managing costs, fee pressure and investing in new approaches to delivering legal services has driven steady consolidation. The number of law firms in England and Wales has declined by around 10% in the past ten years.
But with more than 9,000 firms in existence, inevitably costs are duplicated, and passed to clients in higher fees or absorbed by partners as lower profits than might prevail in a less fragmented market. Managing partners say to me: “It’s very well saying this, but from where I sit, we can’t recruit enough quality people”.
My answer is that, because of fragmentation, the quality people are distributed across the market: a single firm may not be able to recruit and retain enough, but over the market as a whole, there are still too many.
How has it been possible for a market so apparently inefficient to sustain itself for so long? For me, the answer lies in the “traditional” business model adopted by the legal profession:
• A protected, self-regulated knowledge base – in the UK, the Legal Services Act will dismantle such barriers to entry.
• Which focuses too much on technical quality – clients expect a “quality experience” that is also relevant, user-friendly and value for money. It is a mistake to believe that only lawyers can deliver this.
• Which sees the law as a profession and not a business – independence, ethics and integrity are good, but do not justify inefficiency and unwarranted expense.
• That assumes the dominance of qualified lawyers and their potential for equity ownership – too many lawyers can destabilise a firm if there are insufficient partnership opportunities to meet expectation, and artificially inflate costs.
Much of the “legal” work that lawyers undertake is not reserved to them, and others may well be able to supply the same services more efficiently and effectively. Also, law firms have not effectively utilised the opportunities offered by technology.
In my opinion these four elements are not sustainable in a modern, competitive and efficient legal services market.
In fact, I believe there are four areas where the legal profession has fundamentally allowed itself to be led in the wrong direction, and why it finds itself potentially so far removed from its client base
• The focus on technical quality – to the exclusion of other dimensions of a high quality experience.
• Areliance on time-based billing – the average hourly cost of a lawyer’s time to the firm may be the same, but the value of a lawyer’s time to the client can be very different.
• The idea that legal practice is a people business – this is sustainable when knowledge is scarce, but the emergence of the knowledge economy, wider education opportunities, communication and technology, moves it towards a commodity. Lawyers’ tendency to view technology as back office support, rather than as a method of service delivery runs a great risk.
• Law firm partner numbers have grown tremendously and the strains on the partnership model have begun to show – the confusion of ownership and management, the potential lack of effective decision-making, and a restricted ability to raise finance are causing problems.
I believe that if we had been forced to address these shortcomings earlier, we might now have more efficient, client-focused, organisations.