Scotland: Border crossings
28 April 2008
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Scottish National Party (SNP) leader Alex Salmond felt a "wind of change" blowing in his face as his party seized minority control of the Scottish Parliament last May.
With the country now facing up to the independence question in earnest, a wind of a different kind has been blustering through its legal market, with Scotland's four largest law firms - Dundas & Wilson, Maclay Murray & Spens, McGrigors and Shepherd and Wedderburn - fully focused on positioning themselves as UK rather than Scottish players. (Dickson Minto should by rights fall into this category, but arguably the firm defies categorisation beyond the fact it is an excellent private equity firm that bears the names of its Scottish founders. Notably, in a nod to its Scottish heritage the firm brands itself Dickson Minto WS, with the WS denoting its membership of Scotland's elite WS Society.)
A crucial differentiator between the two stances are the firms' attitudes towards ;alternative ;business structures (ABS) - an issue the Law Society of Scotland consulted on earlier this year. The findings will be presented to the Scottish Government in May, with a decision on whether legislation will follow expected soon after.
Predictably, the management of the so-called big four firms are all in favour of ABSs, with all four emphasising the need for there to be a "level playing field" between what a firm can do in Scotland and what it can do in England. Donald Shaw, joint managing partner of Dundas, stresses that "we need similar rules to apply", while McGrigors' managing partner Richard Masters feels that "the single most important thing is that there is consistency across the UK".
These views are echoed by Maclays corporate partner Gordon Brough and Shepherds chief executive Patrick Andrews. The former says: "As a Scottish firm working internationally, we need to know we have at least the same opportunities and advantages as our competitors, and ultimately that's what we're looking for from the Law Society of Scotland."
Andrews adds: "We want there to be no difference between what's permissible in Scotland and what's permissible in England. We view competition as being a good thing, but we want to make sure we are competing on a level playing field across the UK."
The Scottish Law Society was effectively forced into consulting on ABSs after consumer organisation Which? complained to the Office of Fair Trading about the anti-competitive nature of the Scottish legal system. In spite of this, society president Richard Henderson admits that new life has to be breathed into the country's legal sector if it is to survive.
"There's a recognition in the practice that no change is not an option," he says. "We were faced with the Legal Services Bill in Westminster and it became obvious to us that whatever happens in England and Wales will have a significant effect in Scotland.
"If firms aren't able to compete on a level playing field then there's the risk that people would think Scotland is not a place to do international business. It could be a loss to the Scottish economy and the profession."
For the domestic Scottish firms, though, the much-vaunted level playing field is irrelevant and, rather than offering the chance to reinvigorate the legal sector, ABSs actually pose a threat to the profession's independence.
Brodies managing partner Bill Drummond says: "We think that having an independent legal sector serves the public sector and the economy well. We have to be extremely careful to enshrine these protections into any change because if businesses float and a non-legal shareholder drives the agenda that could be a significant concern."
Similarly, Burness chairman Philip Rodney feels the ABS proposal harks back to the start of the decade, when a number of law firms entered into partnership with accountancy firms - agreements that ultimately failed.
"Everyone thought this would represent an attractive way of doing business," he says, "but the reality is that a number of firms tried it and it didn't work. Why? Because there were conflicts of interest. If someone comes for independent legal advice they want to make their own choice on which accountants they use. Lawyers like working for lawyers - they like the independence of spirit that comes from being in legal practice."
All of which underlines the divide between those Scottish firms that are in London and those that are not. Interestingly, for those that are, there appears to be a concerted effort to shake off the "Scottish" tag in favour of "UK" or "national" status.
It may seem obvious that if the firms have extended their footprints across the nation then they should be labelled national, but by the same token firms such as Shearman & Sterling are very much recognised as being US despite their City office, while Herbert Smith's Paris office is the French base of a UK firm.
From the Scottish firms' point of view, however, if they position themselves as Scottish in the City market there is a danger that they will be handed just the Scottish parts of bigger transactions - something they could handle at far less cost to themselves from offices in Edinburgh or Glasgow.
Unsurprisingly, all four of the leading "Scottish" firms are adamant that such categorisation is irrelevant and stress the importance of shaking off that image.
Dundas's Shaw says: "Our name proceeds us and it inevitably has Scottish connotations. As we evolve we'll grow beyond that.
"We are constantly put in the Scottish big four bracket, but sooner or later if our position in London outgrows our position in Scotland people will stop thinking of us as that."
For Masters at McGrigors, it is other people's perceptions that are the problem - the firm may well see itself as a UK player, but in the market it is still seen as Scottish.
"The big challenge is to reposition ourselves so that people stop thinking about us as a Scottish law firm," he says. "We've got three offices in Scotland and are enormously proud of what we have done in Scotland, but we have grown well beyond that."
Brough at Maclays and Andrews at Shepherds are less bothered about shaking off the Scottish tag, both being arguably more convinced of its irrelevance.
Brough says: "I firmly believe that only Scots would be concerned about that as an issue. To succeed in London, we simply have to be excellent and outstanding. We are proud of the fact that we have Scottish roots and that it's part of our identity, but it doesn't hold us back any more than it does the Royal Bank of Scotland."
Andrews adds: "For the large part, our Scottish roots are not relevant to the buying choice that our clients are making."
By positioning themselves as UK players the firms aim to - to borrow a popular phrase - level the playing field so they can compete for larger and more lucrative work.
As Alister Fraser, managing partner of Scottish firm Semple Fraser, which will launch an office in London this summer, says: "What's of interest to us is that the Scottish economy is quite small while the UK economy, by comparison, is extremely large. What you get by acting for clients across the UK is access to a far bigger work stream."
In the saturated London market, it is difficult for these firms to be viewed as anything other than Scottish. It is perhaps a mark of their progress in the City, then, that lawyers at major firms are starting to view them as potential employers.
Last year Dundas hired Herbert Smith property litigation head Martin Thomas (www.thelawyer.com, 10 January 2007) and earlier this year boosted its employment practice with the recruitment of Clifford Chance partner Robert Davies (www.thelawyer.com, 9 January).
Earlier this month Linklaters finance veteran Steven Turnbull announced his decision to quit the firm after 32 years for partnership at Shepherds (www.thelawyer.com, 8 April).
The London outpost of a Scottish firm would surely struggle to hire from the magic circle.
But this relative success is not enough to encourage Scotland's other major firms to venture across the UK's enduring North-South divide.
Drummond at Brodies says: "We're trying really hard to understand what our client base needs. Do they need us to be in England? No. Do the major law firms there need us to be in London to instruct us on quality briefs? No. Do we need to be there to get really high-quality lawyers? No. It would be a dilution of our firepower."
For Tods Murray executive partner-elect David Dunsire the relationships the firm enjoys with existing City players create enough nationwide work to dissuade it from a City launch.
"We enjoy a very good source of referral work from City firms and it is our strategy to continue to build on these relationships rather than, as some have done, trying to set up in competition with them," he says.
First minister Salmond's wind of change may not have developed into anything beyond a zephyr at this stage, but for the legal market at least the consultation on ABSs is the first step towards serious change.
And whether the domestic firms are in favour of the structures or not, they are at least well placed to reap the benefits of any modernisation.
As Rodney at Burness says: "I think Scotland is going to be a more exciting place over the next few years. There will be more devolution of powers and in the process there will be more opportunities for Scottish lawyers." n