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Alternative Business Structures in 2017

By Michael Sheridan

Alternative Business Structures in 2017

The Scottish Law Agents Society was formed in 1884 as the first national, representative and regulatory body for Scottish solicitors. It was a voluntary convention formalised by a Royal Charter of Queen Victoria, which was amended by Charter of George V and then updated by Charter of Queen Elizabeth II. Its immediate mission in 1884 was the creation of a compulsory society as the best means of securing proper standards of education, training and professional practice within the profession. That objective was achieved in 1949 with the statutory creation of the Law Society of Scotland. Some discerning members of the profession have maintained the existence of the voluntary society in order to provide the profession with a forum for discussion and opinion outwith the statutory shadow which hangs over the compulsory body. The wisdom of doing so may have been demonstrated by the following developments.

A new business profile has been presented to the legal profession in which the ownership of law firms would no longer be restricted to qualified lawyers, but could be extended to other professional persons, such as accountants and surveyors and even be shared with commercial institutions such as banks and supermarkets. This would supposedly provide lawyers with opportunities of offering a wider range of services, securing business from the clients of these joint professional owners and of access to financial services and borrowing from institutional investment part-owners and the facility of providing legal services at locations more convenient to the customers, for example, at supermarkets. More immediately, it would provide any large or medium sized Scottish firms, who happened to be suffering from financial discomfort with an opportunity to secure future borrowing in exchange for part-ownership of their businesses, thus making cash available to pay the capital accounts of retiring or outgoing partners and leaving the ongoing profession to manage as best they could with their new, commercial bedfellows.

More immediately still, it would present the practising solicitor with a challenging conflict of interests between the client who seeks to minimise his legal expenses and the investor and shareholding owners who are legally entitled to seek the maximisation of the profits to be derived from the fees paid by that client. If a solicitor’s practice is owned substantially by a bank or is part of a joint enterprise with firms of accountants or surveyors or whatever then how can that solicitor possibly advise independently on financial matters, asset valuation or property valuation? If the client turns out to be let down by any of these auxiliary professional services, then is his or her solicitor necessarily going to advise the client at the earliest opportunity as to any damage occasioned by such defective professional services? Might there be seen to be a temptation to seek a resolution which avoids the exposure of these deficiencies? It would certainly be in the financial interests of the solicitor to do so.

These changes were duly authorised by the Legal Services (Scotland) Act 2010. but have not yet reached the high street or the attention of the public, because of the difficulty in the creation of a regulatory framework. At the same time, our own Society continues to challenge the wisdom of the proposed changes in the interests of both the solicitors’ profession and of the public which it serves.

While this new regime appeared to be unacceptable in principle when it was initially proposed around 2008/2010, at least, at that time, there was an element of support within the profession. That was mainly centred upon the large firms, some of whom had particular balance sheet situations which could have been solved by the implementation of the legislation and the partial sale of these practices to financial interests outwith the profession. That time has now passed. The firms in question have mainly ceased to exist or become subject to non Scottish ownership. It is now difficult to envisage where there may be any significant support within the legal profession for the new regime. Nevertheless, the profession’s own statutory body appears intent on bringing it about and the Scottish government has indicated all along that this is being done at the instance of the legal profession. The original legislation is at least partially out of date due to other changes which have taken place in the meantime. .Accordingly, amending legislation may be required. That shall be something for our Council and membership to scrutinise and decide whether or not to challenge.

One difficulty in sustaining such opposition lies in the fact that, since 2010, successive generations of law students have been instructed at university that ABS, having been authorised by statute in 2010, already forms part of the provision of Scottish legal services. It is perhaps of less significance to academic lawyers than it is to practitioners that particular legislation, although enacted, is not yet in effect. That may be a function of the extent to which the profession has abrogated in favour of the universities its responsibilities to train and educate the future profession. Nevertheless, things may not be so bad. I attach below items recently received from prospective solicitors which show that somebody must be doing something right at University.
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SOLICITOR’S PROFESSION —A TRAINEE’S COMMENT

The profession of solicitor commanded respect within wider society. Solicitors were educated at a time when the majority of the public was illiterate, hence the term writer, and would dedicate a large portion of their lives to learning. They were collegiate. They were professionals.

Being a solicitor is now so far from what it used to be I struggle to see it as a profession any longer.

The need to compete, though healthy to a point, is damaging the quality and respectability of the profession. It is becoming a provider of legal services at the mercy of consumers. Charging by the hour or charging a fixed price for a particular service was the norm. Now you are only likely to find this type of feeing in private client practices.

Due to the collegiate nature of the profession there was an unwritten rule that one would not charge less that a particular amount for a particular job. Ensuring that a fair price was paid for the service. This meant that each firm would try and distinguish itself by the quality of work, rather than the price. The good firms would thrive, the bad, fail. This would naturally drive the standards of the profession higher as the solicitor tried to be a better practitioner than his rivals.

This practice was seen as anti-competitive and damaging to the consumer. And so it stopped and solicitors started finding new and imaginative ways to attract business. One such method is tendering.

Tendering involves a law firm bidding to potentials clients for business. It offers the services of its solicitors and support staff for a lower amount than the competition. It never knows the amount bid by its competitors and must therefore bid lower than it thinks the contract is actually worth to increase the chance of being the successful bidder, securing the lucrative contract.

At the end of the contract period the firm must tender once more. And here is where the problems arises: to be successful it must either offer the same work for less money, more work for the same money, or more work for less money. Either way the firm must devalue the service it provides in order to secure business or risk losing it to the competition. This is fine in the short term, but each time the firm tenders the result is more work and less money. This inevitably leads to the reduction of expenditure in order to maintain a profit. The biggest expenditure in a law firm is the wage of its solicitors. So it must reduce either the level of wage for new solicitors or the number of solicitors. This is happening right now in Scotland. Firms are squeezing out senior and associate level solicitors and replacing them with paralegals and trainees. Why have ten solicitors in a team when ten paralegals can do the work and have one solicitor supervise and sign their work?

In the diploma we are taught to think of the benefit of providing value added services to large clients and to be commercially aware, looking after the business of our clients. This is normalising a behaviour that is eroding the profession of solicitor. We are being conditioned to think solicitors are just an extension of the client’s business—members of staff who just happen to know the law, rather than legal agents who use their knowledge of the law, their ability to think critically, and a high standard of professionalism to represent their client’s interest against all others. This is symptomatic of the devaluation of the profession. And the worst part is, we are told that young solicitors feel the old solicitors who are against innovation and modernisation are the greatest danger to the profession. If the above is the innovation and modernisation they strive for, then the greatest threat to the profession is the solicitors who have forgotten what it means to be a solicitor; a member of one of the oldest professions in the country and an officer of court, not a provider of legal services.

Another trainee wrote : "How do we reconcile the duties we have towards other members of the profession with the fact that we are increasingly competing with each other for work? The legal profession seems to have become a business rather than a profession so how can the ethics and values associated with the profession, particularly those associated with relationships with other members of the profession be maintained?"

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