Growing your own

The growth of owner-managed businesses in the South East has opened up opportunities for law firms servicing the region. By Matt Newman

A major challenge for law firms in the South East is to understand how they can work with the owner-managed business (OMB) market to capitalise on the opportunities in the region.
The rest of the country may see the South East as inextricably linked with London, but the region is a focus for small and large businesses alike and is at the heart of the Government’s investment, development and regeneration programs.
One of the key issues facing law firms in the South East is whether they can sustain themselves by servicing the increasing number of organisations ‘on patch’, rather than becoming over-reliant on work coming out of the City. Huge opportunities exist in the South East market for professional services firms, including legal services. Lawyers can provide the link between referrers, can give access to funds and can fulfil the role of trusted adviser. However, the flip side of improvements in infrastructure, skills and IT solutions means increased competition. Consequently we are seeing an increase in the polarisation between larger, full service firms and the more traditional high street practices.

Development and infrastructure
The firms that will flourish are those that can cater to the needs of both businesses and the managers, directors and owners within them by offering innovative and collaborative approaches both internally and with other professions.
This capability is becoming of ever greater importance to the mid to large-size law firms in the South East as the proliferation of OMBs in the region continues. In the South East, 98 per cent of businesses have fewer than 50 employees. The ‘Gatwick diamond’ and the M4 corridor are examples of where sustained growth has been achieved through strong service lines being offered from an area with an ever-improving infrastructure. The Thames Gateway regeneration, as well as the Olympic development and the substantial network of towns, business parks and regeneration areas may have the same effect.
The infrastructure has been the subject of massive reinvestment as evidenced by the announced expansion of the region’s airport facilities and the high-speed rail link to the rest of the EU.
While we have seen an expansion in businesses operating in the region and an increase in firms moving part of their operations away from the City, what must be avoided is the area becoming too residential and developing into additional commuter towns, especially in light of the Government’s stated aim of building more than 500,000 new houses in the region in the next 25 years. Too many houses and too few new jobs could have a dire impact on the region’s economy. Sustainable development that encourages and supports businesses within the region is the key to success.

Making the most of the opportunities
Capitalising on the opportunities abounding in the South East will depend on a range of factors. These include cost, quality of service and the ability to offer integrated solutions.
The South East remains a more cost-effective solution to the City when it comes to sourcing legal services. To utilise the proximity of the region to the City, many businesses are looking at dual geography service lines. Larger enterprises are moving aspects of their operations into the South East, where they remain accessible and where they have access to quality and cost effective legal services.
Increasingly businesses traditionally based in London are stationing their disaster recovery centres in the South East. This provides an important stream of work in itself and offers the catalyst for other businesses to start up and develop in the region, by creating jobs and business opportunities.
Another consideration for firms in the South East is the Clementi Review. This will bring cheaper, but not necessarily better, legal services to the masses, but there will still remain a market for sophisticated, customised legal services. This dichotomy should continue to polarise the market and those left in the middle will not be able to compete on cost or on service quality.
Generally, smaller businesses do not want commoditised services, they do, however, want quality advice. The high street practitioner is simply not going to have the resources to provide the non-core services that OMBs want. It’s not good enough to say ‘we do commercial, property and employment’; this ignores the fact that clients want this integrated with tax advice, pensions, specialised corporate finance and IT/IP advice, among other services. They also want help with estate planning.
There is great potential for regional firms to continue growing by developing specialist practices. Providing both commercial and personal advice is a draw, as long as the expertise for each area is genuine. Those without highly technical services, who will not be able to provide cost-effective solutions, will, inevitably, implode.

Prevention rather then cure
Business leaders have a need to create demand. In an increasingly legislative and litigious environment, there is scope to do this. Businesses must be looking towards prevention rather than the cure when it comes to investing in legal advice.
A recent survey of managers and directors of OMBs in the South East revealed that an alarming number have failed to address key areas, such as making a will, an exit strategy or retirement planning. These are some of the basic tools for protecting individuals and their families, but also businesses and their constituents. In the case of OMBs these are inextricably linked. People often have key man or mortgage protections policies, but have not completed the arrangements with the necessary supporting legal documentation or advice. This is typical of the 33-55 age group, as well as the owner manager who, citing the pace and pressures of modern life, often neglects such matters.
The new Companies Act, while simplifying many procedures and protocols, takes away many of the protections built in by the 1985 act. The simplification will help single-shareholder/ director companies, but creates issues for the larger organisations.
Indeed, one of the main worries voiced by the managers and directors of South East OMBs in the survey was the increased cost of legislation and complex red tape imposed by both central and local government. There is a need to tailor articles and shareholder agreements to address issues that may have previously been dealt with elsewhere.
The market for providing a holistic and collaborative service for OMBs in the South East certainly exists. An integrated approach that takes into account the commercial needs of not just businesses, but the personal legal needs of the managers, directors and owners represents a clear avenue of growth for the regions’ law firms.
Matt Newman is head of corporate at ASB Law