This month’s Legal Futures Regulation and Compliance Conference brought together experts from a range of disciplines to discuss the ever-growing challenges for lawyers around regulation and compliance, the ways in which the profession is regulated, to the new SRA handbook. LexisNexis’ Market Development Director, Jon Whittle, discussed the myriad of challenges law firms are facing from the SRAs new rulebook and the risks associated with failing to respond to those challenges.
With the new rulebook creating flexibility for freelance solicitors and for non-regulated businesses to employ solicitors for the first time, Jon highlighted the weak points where the legal industry may be exposed to risk. He also picked out and contrasted the difference in attitude and approach between the potential new entrants and the current mindset of most law firms. In particular, Jon noted the likely approach of corporates who will be interested in embedding specific and relevant legal services into their total proposition rather than competing directly with Law Firms across a broad spectrum of legal services.
Discussing the findings of recent LexisNexis research, Jon revealed that, when asked, the majority of law firms knew little or nothing about the forthcoming changes to the SRA handbook. Perhaps more worrying, there is also little excitement around the new rules, with 40% of firms deciding they were not going to make any change to their business in response.
The main issue with the above response, Jon noted, is that the game is changing. The majority of law firms are small and medium sized enterprises, predominantly owned and managed by solicitors. The firms have been built solely to provide legal services. By and large, the only competition of any significance has been other law firms but, those certainties are about to change. With corporates able to provide legal services without regulation, the competition has changed. The new entrants to legal services will be companies who are not just looking to compete in the legal but who will be taking legal services to a new level employing solicitors as a value-added service to their existing proposition. Their target will be to increase their existing margin, to increase their market share in their core business, to enhance and differentiate their business offering. They have the opportunity to retain their clients through the entire business workflow rather than have to rely on services from external law firms to complete the job.
On the whole, law firms appear to be disconnected from the threat of this new competition. Jon explained that in comparison to corporates which view themselves first as a business, focusing on efficiency, customer-centricity, cost management and profit, law firm priorities do not follow the same lines. Law Firms tend to judge their place in the market based on how they compare to other law firms and focus on client satisfaction quality of work, professional competence etc. When it comes to what clients of law firms really want they are looking in the wrong place. Jon showed a comparison of what solicitors think clients priorities are when working with a law firm and what clients actually care about the most. For the clients ranking in the top 3 were:
- Clear understanding of the client’s particular needs
- Keeping to a timetable/avoiding the case dragging on
The solicitors view of what their clients value show a worrying misalignment, they agree that a clear understanding of the client’s particular needs should be ranked highly, however efficiency and keeping to a fixed time ranked low. Law firms consistently fail to appreciate how badly the measure up on value and service when compared to other non-legal service providers. If law firms continue to stay isolated and fail to review their business performance against the new breed of corporate competitors they will be in trouble.
So what should law firms be considering?
Jon noted how it is unlikely that corporates will be ‘storming the beaches of legal markets’ as soon as the new rulebook comes into force, however, if there’s money to be made and the barriers to entry are low then they will be making their move. The change of regulatory framework has dropped the only barrier that mattered and means that Law Firms are dangerously exposed
Currently many law firms struggle to attract and retain talented solicitors. The new rulebook means that talented solicitors now have many more options than ever before and law firms will be competing with corporates and the freelance market as never before. With low barriers and high opportunity, unless law firms can provide good career paths in the future the challenge of attracting and retaining staff could become a major issue.
Jon noted that law firms need to start measuring value and service against a market of overall service providers rather than just against other law firms. Firms should be looking to differentiate their service offerings from embedded solicitors or independents and recognise that the client now has all the power—clients can choose in a way they could never do previously and will vote with their feet.
Finally, Jon stressed that firms have to begin to ‘think like a business first and a law firm second’ because, ‘doing nothing is probably not an option…’.