Focus: The law society: Chancery lame
29 November 2010
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24 July 2009
The Law Society’s relevance has never been under more scrutiny while what many perceive as its rival, the SRA, is setting out its stall for regulatory dominance. Who holds the whip hand?
Two Thames cruise boats plied their way from Central London eastwards to the Docklands on a crisp morning at the beginning of November. But the occupants were hardly your typical jolly trippers.
Aboard was the entire 360-plus staff of the Law Society of England and Wales, press-ganged onto an away-day jaunt to the gleaming offices of one of the world’s biggest law firms, Clifford Chance. On arrival they were treated to a round of motivational speeches from the Chancery Lane leadership and the top brass of the host’s partnership.
More importantly, the hordes of senior bureaucrats, middle managers and secretaries were given a glimpse into the future: how the society is to be restructured in the face of the biggest change to hit the legal profession landscape, next year’s implementation of the remainder of the Legal Services Act 2007 (LSA).
But with Canary Wharf hoving into view, the accidental sailors could have been forgiven for wondering whether the 185-year-old organisation might be holed below the waterline and floundering below choppy waters before its next birthday.
A stormy decade
The Law Society has been careening from crisis to crisis for at least 10 years. And when it has not been rocked by internal rows (such as allegations at the beginning of the decade that its first female vice-president was a bully and the ensuing Employment Tribunal dramas), it has maintained a state of perpetual change-management as a succession of leadership teams and their consultants have tried to mould the organisation to the modern needs of the solicitors’ profession.
But perhaps that is a task too far. Maybe the Clementi review-inspired reforms and the resulting legislation will consign the society to legal profession history as it struggles to find a niche in the world of alternative business structures (ABSs), an increasingly robust and independently minded regulatory body, a plethora of practice area-specific groups and a powerful and potentially hostile umbrella Legal Services Board (LSB).
The signs are not good. The latest manifestation of change-management at Chancery Lane sails under the title ’Blueprint’. This boasts a host of typical management jargon gems, such as ’Tom’ - the target operating model.
Already there have been high-profile casualties. The director of commercial services John Tarry has been made redundant, casting doubt on the society’s enthusiasm for revenue generation beyond the blunt tax of the practising certificate. And head of international Alison Hook is leaving Chancery Lane amid concern that the work of that department is to be marginalised. As a result City firm whiskers are twitching over what some interpret as a reduction of the society’s work in the field of international markets, arguably the one Chancery Lane endeavour City-based commercial practices value.
Apart from the morale-sapping perpetual round of organisational restructuring, there are suggestions that some in the Law Society leadership are hell bent on waging a turf war with the still nascent Solicitors Regulation Authority (SRA).
“The society’s never got its head round the fact that it’s lost its role as a regulator,” comments a former Chancery Lane senior official. “After the Clementi review it should have fought in the ditches to keep that position, but it compromised and failed in the end.”
Indeed, regulating the solicitors’ profession lies at the heart of the Law Society’s identity crisis. To be fair, the legislation itself is considered to be far from ideal. Ironically, instead of simplifying the regulatory maze identified by Sir David Clementi in his 2004 report, the LSA has added even more mud to the water.
For solicitors, the issue is: who really has the regulatory whip hand? While the Law Society has been named as the ’approved regulator’ under the legislation, it has agreed to delegate those powers to the SRA. And the latter maintains that governance rules agreed between itself, Chancery Lane and the LSB afford the SRA effective independence.
“The Law Society needs to make a considerable effort to avoid a continuance of the perception that it’s at war with the SRA,” says chairman of the City of London Law Society David McIntosh. “It’s not at war with the SRA, but there have been some tense moments over the past year or so. That’s been because of the understandable difficulty of the national Law Society accepting that it no longer retains the dual responsibility.”
But clinging to that technical dual responsibility appears to be exactly what Chancery Lane’s leadership is doing.
“Not losing our role as the approved regulator is important,” claims Law Society president Linda Lee.
And chief executive Desmond Hudson is even more robust.
“The clear will of Parliament was not to choose to effect a unitary, separately imposed regulatory structure along the lines of the Financial Services Authority [FSA] or the General Medical Council,” says Hudson. “The act is what it is and we need to get on with it. And nobody can point to one instance where the Law Society has not scrupulously followed the spirit and the letter of the legislation.”
Adhering to the spirit and letter of the internal governance rules is the crucial point for SRA chairman Charles Plant. A former Herbert Smith partner and now a consultant at the top 10 City firm, Plant is adamant.
“As the Law Society is aware, it’s important that it does not confuse its regulatory role with its representative role,” he warns. “And, as Lord Hunt [chairman of the society’s 2009 review of regulation] said, there must be parity of esteem between the Law Society and the SRA. At the moment that’s a work in progress, but it’s moving in the right direction.”
Indeed, ever since the SRA was launched in January 2007 rumours have been rife of sniping between its leadership and Chancery Lane.
“At one stage [LSB chairman] David Edmonds and his crowd, quite a lot of the City people and the SRA all felt the Law Society was being too antagonistic,” comments one senior observer.
Publicly, Chancery Lane has been trying to cool the temperature, but there are still rumblings of unease.
“Relations with the SRA are better than they have been in the past, but it isn’t without its difficulties because the structure’s still bedding in and there needs to be a clear definition and understanding of each others’ roles,” says Lee.
Hudson describes the position as “one of two bodies with some different obligations and challenges brought together by a common goal”, although his definition of that goal might cause some unease in SRA corridors.
“Our common goal is that it’s the Law Society that’s the approved regulator, it’s the Law Society that carries responsibility for discharging the regulatory objectives,” continues Hudson. “It’s chosen to discharge those objectives through the vehicle of the SRA.”
Hudson arguably also encroaches on the SRA’s patch in his view of what he describes as the “future market in regulation”. He maintains that the Law Society, as the approved regulator, will be in the market to regulate ABSs in a changed landscape.
“I’m not speaking for the SRA, but I’m talking about the reality of what’s possible,” Hudson adds. “We want to become a licensing body under the LSA.”
But is that a Law Society decision or the false bravado of a weaker party? There is a counter-argument that the society’s council will be expected to do little more than rubber stamp whatever is recommended by the SRA in relation to ABS regulation. And the agreed internal governance rules appear to afford the SRA more power than Chancery Lane might like to acknowledge.
According to the rules, “the SRA board has the freedom to decide how it should meet the regulatory objectives. The board is tasked with setting the regulatory strategic objectives, monitoring performance against those objectives and preparing operational plans and budgets.”
Regardless of how the situation over regulation evolves, the society is also facing difficulties in its representation role. While the main problem is hardly one of its own making - the increasingly divergent nature of the solicitors’ profession - it still potentially threatens Chancery Lane’s existence.
Specialist practitioner groups are becoming increasingly strong and arguably more focused on their members’ needs. They also have the advantage of being joined by solicitors, in contrast with the Law Society, which co-opts all solicitors as members by virtue of them paying the mandatory practising certificate fee.
A case in point is the nearly 5,000-member Association of Personal Injury Lawyers (Apil). Its chief executive Denise Kitchener says her group is keen to work with Chancery Lane, but that Apil members show more enthusiasm for the association because “they know what we’re about, what our objectives are and we involve them in what we do.
“I don’t get a great deal of comment from our members about the Law Society,” she continues. “If they do comment, it’s to say that they’d like to see more high-profile campaigning on behalf of the entire profession.”
Without doubt the most powerful specialist group of solicitors is that practising in the Square Mile.
It is estimated that more than 40 per cent of practising certificate fees in England and Wales are paid by the top 100 law firms - in other words, City-based global practices and the large provincial commercial players.
The Law Society’s 2009 annual statistical report shows even more striking figures higher up the food chain: a quarter of all solicitors in private practice in England and Wales work at the 60 biggest law firms in the country.
Yet many see the bulk of the Law Society’s lobbying efforts being focused on representing the interests of the remaining 10,000-plus firms, smaller high street legal aid practices that are massively vulnerable to the changes set to be wrought by ABSs.
“The Law Society has lost touch with an important segment of the profession - namely, the City - while remaining in touch with smaller firms,” comments one City practitioner. “The smaller firms have too much sway in forming Law Society policy. You see it in almost everything they do.”
But the Law Society chief executive is unrepentant.
“If group X is having a hard time and they need the help of the whole group, they should get it - perhaps even disproportionately,” stresses Hudson. “That’s been the case over the past few years regarding legal aid practitioners. But we’re seeking to keep the balance right, so we don’t do that to the exclusion of the City.”
He maintains that a series of commercial issues have benefited from Chancery Lane lobbying, pointing to anti-money laundering measures, international markets accessibility, the Government’s proposed immigration cap and supervision and regulation systems for the City and other big law firms.
“This is an organisation that understands those City and large commercial firms well,” argues Hudson. “We could understand them better, but we understand where we need to drive our resources and priorities.”
Nevertheless, there is significant concern in the City over one of the very areas that Hudson himself highlights - global markets and the work of the society’s international department.
“It’s not a good thing that the head of international’s leaving,” says one commercial lawyer. “It will take some finessing with the major law firms because that team’s efforts have been highly thought of.”
That attempted finessing already appears to have begun. Chancery Lane is understood to have written to senior partners at top 100 firms in a bid to calm nerves and assure them that the international head’s departure does not signify a diminution in the role and importance of the department.
“The functions we call international are not changing at all,” insists Hudson. “Nobody’s cutting back that resourcing and we’re not directing people to do other things.”
Uncertainty also swirls around the commercial activities of the Law Society - an area that in theory should be important to a Chancery Lane that could be forced to raise funding outside of the practising certificate fee. But despite the longstanding commercial director being one of the first victims of Blueprint, Hudson denies that the society is running down its income-generating side. He counters that the redundancy was part of a wider restructuring that will ultimately “see an increase in our commercial revenues”.
However, apart from suggesting that certain society events “will be more commercial than they have been”, Hudson does not detail how revenue will be boosted.
And the rag’s riches?
The figures are not encouraging. The society’s annual non-practising fee income tumbled last year by nearly 30 per cent, with its biggest product, the weekly newspaper the Law Society Gazette, seeing advertising revenue fall even more sharply, by 31.5 per cent.
There are also concerns over the Gazette’s editorial role. Having long battled to retain its status as an objective observer of the legal profession, it is rumoured that some officeholders are keen to see the publication slotted into the role of Chancery Lane communications tool, which others interpret as ’propaganda sheet’.
Indeed, the Blueprint programme has struck again here, moving managerial responsibility for the Gazette away from a separate publisher and placing the paper under the control of the society’s ominously titled ’director of communications, inclusion and corporate social responsibility’.
Even though most solicitors would not recognise a Law Society council member if they tripped over one in Chancery lane, the 100-member body is still meant to be the heart and soul of the organisation. Yet there is debate here too about value and structure.
Critics suggest that the council is little more than a bloated retirement home for senior practitioners who have been put out to grass by their firms. They also suggest that the body is out of touch with modern issues, as far too many of the members do not themselves have practising certificates. Ironic, since the justification for a larger council – which expanded around 10 years ago - was that it would be more representative of the profession.
Strong voices for reform emanate from within the body itself, such as that of Christopher Digby-Bell, a Law Society member who represents the City. “The Law Society needs a much faster, more efficient and more modern decision-making process,” he asserts. “We can do that without losing the broad representative base of the society, but still reduce the size of the council.”
Digby-Bell wants to lop as many as 70 seats from the council, saying that “in this modern day, a representative body comprising 30 members could achieve both efficiency and true representation. Yes, there are lots of sorts of lawyers out there doing lots of things, but not 30 different things.”
He also calls for a return to profession-wide elections for officeholders, maintaining that the current quasi-electoral college system runs the risk of being viewed by lawyers as an
old-boy network stitch-up.
Presidents should also have “a proper term of office” of up to three years, adds Digby-Bell, so they could “set out a business plan and achieve something”.
Not surprisingly, his turkey-votes-for-Christmas proposals meet with little enthusiasm among the Chancery Lane hierarchy.
“Any discussion of whether the council should be smaller is simply a distraction,” retorts the society’s president Lee.
Ultimately, however, the society might not have much choice in deciding its role and format. In the coming years solicitors could vote with their feet - or voices.
Commentators maintain that, if the SRA strengthens a reputation for competency - and the early view of Plant’s leadership suggests that it will - solicitors may increasingly argue that membership of (and importantly payment for) the representation body should be a matter of choice, not compulsion.
If that day comes, the Law Society will no longer be taking boats down the Thames, it could be sailing off into the sunset.
Hudson: love him or hate him?
Administrative helm of the Law Society chief executive Desmond Hudson has understandably won a fair few supporters as well as having his detractors.
Some credit him for refocusing the Law Society’s campaigning efforts on the needs of ailing high street firms, while others criticise him for being indecisive and failing to create a strong management team.
“The lines of responsibility, management and delegation at the Law Society are not as clear as they should be,” says one leading commercial practitioner.
But one thing is certain - Hudson has done well out of Chancery Lane. The chief executive’s current pay packet tips the scales at £305,690 (excluding pension contributions) -
a 40.5 per cent increase in the past two years.
He bags that pay packet - more than twice the Prime Minister’s - for overseeing a six-strong executive management board and a staff of 364, including nine regional officers and premises in Redditch, Cardiff and Wakefield. The Solicitors Regulation Authority (SRA) has a separate chief executive, on an annual salary of £195,330.
Chancery Lane’s budget for next year for representative work (in other words, non-SRA activities) is around £31m.
The Law Society’s ruling council has 100 seats, although seven are ’fallow’. Of the 93 members currently sitting on the council, 81 hold practising certificates.
Jonathan Ames was editor of the Law Society Gazette from 1999 to 2007 and is a frequent contributor to The Times