Looking south

Listen up: firms want to compete on a level playing field. Alan Campbell reports

In Scotland the position on legal services reform is not so advanced as it is in England. To date the Scottish Executive and the Law Society of Scotland have only focused upon the complaints regime and there are no formal steps in process to allow for alternative business structures, as proposed by the Clementi reforms, and in particular for non-regulated lawyers to have ownership interests in law firms.

Law firms are businesses and the successful ones will be those that best meet tomorrow’s customer demands. Scottish-based law firms are no different. As with most debates, this one throws out different views, and there are two camps forming – those for and those against the Clementi reforms.

Those in Scotland against reform often ask:
•Why would a firm want additional capital when you can borrow for less?
•Why would a firm want to be multidisciplinary?
Have they not learnt a lesson?

My answer is that even if I do not now want additional capital, or I do not now want to be multidisciplinary, if others in my market can then I want equivalent capability. Law firms need to be able to respond to competition on an equal basis.

Legal services reform in England and Wales is becoming reality. It is no longer a question of ‘if’, but now ‘when’ and ‘what’.

Clearly, we do not yet know what will happen, nor the speed with which it will happen. We may see relatively little change ahead, or we may see intense consolidation of practices and new legal service providers playing the ‘direct line’ strategy and knocking out the traditional high street market.

Some are currently developing plans and others will play a wait-and-see game. But Scots firms would likely be uncomfortable if they were restricted in the way they could respond relative to the rest of the UK profession, particularly given the restraints would be based upon jurisdiction, not market.

The Law Society of Scotland has made a point that the big firms in Scotland are not willing to articulate what regulatory changes we desire. Well, in concept we are and we have. But in detail we have not and, as yet, cannot. All of the larger firms, and many smaller ones, agree about one thing: the need to be able to do what the rest of the UK legal profession can do. We cannot yet know exactly what this is, but at its heart is the ability of lawyers to share profits with non-lawyers subject to suitable regulatory safeguards.

Reform impact

Some commentators claim that, given these reforms are not actually going to come into effect soon, there is no divergence. However, strategic business planning and subsequent mobilisation to react to the opportunities ahead will take time. Scottish regulators have as yet made no policy statement as to whether or not they support and will implement regulatory ‘equivalence’. Given businesses that may wish to be regulated in Scotland cannot now plan how to respond, then there is now no ‘equivalence’, and consequently there is already divergence, and each day it gets wider.

This head-start for businesses regulated in England and Wales has prompted the super-complaint from Which? to the Office of Fair Trading (OFT) relating to the Scottish legal profession.

In response to the OFT, the larger Scottish firms support the level playing field argument and contend that anything else is potentially both anticompetitive and against the interests of customers. Emphasis is also placed on the continuing blurring of the boundaries between the services provided by different professions, that this trend will continue and that what demarcates legal services is not what lawyers are regulated to do.

We support the principle of regulation of lawyers, but not in a way that distorts the market by disadvantaging regulated providers from those without need or desire for equivalent regulation. So debate should not be focused only on comparing the effect of regulation on one set of lawyers versus another. It should also consider the effect of regulatory constraint on one type of supplier in a market where other suppliers may not require to be regulated or may be regulated differently.

Differentiating Scotland

The best way to recognise a market is surely through the eyes of the customer. Yes, Scottish and English and Welsh law is different, and yes, some of the practices and procedures are different too. But in terms of customer experience these differences are inconsequential. The customer wants essentially the same thing from a legal adviser irrespective of jurisdiction or who regulates the providers.

So if the Scottish legal services market is to be distinguished from that of England and Wales it should be on the basis of customer accessibility, not type of service.

It is already clear that the market in which the Scottish commercial law firms trade is not limited to Scotland either by geography or jurisdiction. English offices and multi-regulation are relatively commonplace.

How might things change for businesses that do not now have the scale or punch to build this geographic reach? Historically this has been a challenge and, of course, a challenge to other service providers in other markets. But the world moves on. There are obvious examples of finding new routes to market in our modern age. Customers have come to expect a different level of response. Many businesses are keen to exploit this in the legal sector.

So whether or not the big firms in Scotland (which are each relatively small in UK terms) currently access a different market from the rest of the Scottish legal profession, we all face a different reality. Customers in Scotland can be serviced, and increasingly will be serviced, by organisations that either currently do not exist or are today too remote to compete effectively. Distinctions in legal markets caused by remoteness of accessibility will soon be history.

Given the changes we are seeing in information and communication technology and business systems, and also globalisation of markets, many players in different markets will be saying exactly the same about their own circumstances today. The legal market is no exception.

Do our regulators really believe that the Scottish legal market and the legal services it provides are somehow distinct from other consultancy services and so, possibly, invulnerable? I do not believe our customers think so and, speaking personally, nor do I.

Looking forward

So where does that leave law firms? Of course, this partially depends upon where they are now.

Providers of consultancy services, such as lawyers, in the UK likely need not worry about the scale of their market, although it is clearly competitive. The level of demand for quality consultancy services will be sufficient to ensure that efficient businesses can provide the sorts of rewarding workplaces necessary to enhance talent and foster sustainable professional practices within the UK.

Whether that is balanced between Scotland and England and Wales is another matter. In many ways that is now in the province of the regulators.

Alan Campbell is co-managing partner at Dundas & Wilson