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A new report from LexisNexis assesses the competition which the Big Four accounting firms are posing to traditional law firms. In this blog, we will consider some of the alternative business models for the legal profession which may be more suitable than the partnership model in light of the competition.
Alternative business structures (ABSs) were licensed in 2012, pursuant to the Legal Services Act 2007. This form of legal business structure permits firms to be owned and managed by non-lawyers and companies which are outside the legal profession. As such, it is easier for lawyers to obtain investment in the guise of an ABS compared to a law firm with a traditional partnership structure.
David Beech, CEO of Knights plc, the first UK law firm to have raised private equity as an ABS, argued at the time that the partnership structure was “out of date as a business model … only by moving away from the traditional partner model will law firms achieve their full potential in today's post-recession market.” More recently, Craig Chaplin, a partner at DWF, said that his firm’s decision to move to the ABS model was driven in part by clients questioning whether they were getting the best value for money from their law firms because of the way those firms were structured - particularly how partners were remunerated: “We realised we could move to a structure that enabled us to provide enhanced legal and business services without much internal disruption; it wasn’t a massive pivot for us, and it’s really helped us be more competitive because we can attract a different type of talent.”
The ability of large corporations to get involved with ABSs means that they often have enough backing to hold their own against the Big Four. On the other hand, the legal arms of the Big Four all operate as alternative business structures themselves, so a large law firm which converts to an ABS is arguably less able to differentiate itself.
According to statistics from the Solicitors Regulation Authority (SRA), the proportion of firms operating under a traditional partnership model has more than halved over the decade to 2021, from a third to a mere 14%. LLPs have remained steady over this time, forming about 15% of practices. But the proportion of solicitors’ firms which run as limited companies has shot up from 20% to 50% of the sector. Some firms have even become PLCs - and Irwin Mitchell is currently exploring a £500 million flotation that would make it the most valuable legal services business listed on the London Stock Exchange.
Gateley became the first UK law firm to list on the London Stock Exchange’s AIM market in 2015. Commenting on the move at the time, Nick Smith, acquisitions director at Gateley said: “The core of our strategy when we listed on AIM was to take advantage of the flexibility created by deregulation and the way we can offer services to our clients.” He argued the strategy allowed the firm to diversify their revenue streams, improving their standing with clients whilst offering their lawyers an alternative structure to the traditional partnership model.
Smaller firms which operate as limited companies or LLPs do not have much advantage over traditional partnerships when it comes to facing off against the Big Four. But PLCs have the ability to raise significant capital on the stock market, which provides them with valuable leverage.
An increasingly popular choice for senior lawyers is to break away from the corporate world and form boutique practices or become sole practitioners. Boutique firms generally comprise a collection of specialists in a particular legal area; they are often particularly well placed to assist in-house counsel with specific projects requiring a high degree of focus.
Another new business model which has proved successful over recent years is that of the dispersed firm. This essentially provides an umbrella solution for solicitors who wish to practice law independently but who don’t want to run a legal business. Dispersed firms are akin to barristers’ chambers, and tend to handle secretarial, administration and marketing functions, as well as covering legal insurance. Keystone Law and Setfords are two of the most well known dispersed firms in the UK.
Boutiques and dispersed firms will generally not be seeking to compete against the Big Four. But their combination of specialisation and low overheads means that they are able to set themselves apart from the big players, which can serve to their advantage, especially in terms of appeal to in-house counsel.
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Amy is an established writer and researcher, having contributed to publications, such as The Law Society, LPM, City A.M. and Financial IT. Her role at LexisNexis UK involved leading content and thought leadership, as well as writing research reports, including "The Bellwether Report 2020, Covid-19: The next chapter" and "Are medium-sized firms the change-makers in legal?"
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