Law students aren’t exactly jumping for joy over the introduction of Alternative Business Structures (ABS). According to a recent College of Law survey, 56% thought ABSs would drive down legal salaries and 51% predicted they would lower lawyers’ status. The sense of unease felt by the next generation of lawyers towards these new creations – which have been allowed to spawn following the implementation of the final provisions of the Legal Services Act (LSA) last year – doesn't stop there. A whopping 58% said they would not like to work for an ABS, with just 1% stating they would prefer to work for an ABS than a law firm.
When asked to choose between a scary, uncertain future and a fixed, tradition-steeped past, most human beings would plump for the latter. So perhaps we shouldn’t be too surprised at the survey’s findings. Of course, change usually has a flipside too. This was recognised in the broad agreement of 63% of the surveyed students that ‘the introduction of ABSs will provide a wider range of employment opportunities for lawyers’. In addition, a growing proportion (47%, compared to 39% last year) suggested that the introduction of ABS would provide lawyers with more options for developing skills and progressing their careers.
Ultimately, though, the harsh reality of the ABS debate is that what law students, and lawyers, think about the new structures is not relevant anymore. That horse bolted way back in October 2007, when the LSA passed into statute – and its radical provisions began their inevitable course towards full implementation. However, what lies within the control of lawyers-to-be is the way they position themselves to ride a wave of revolution that is only just beginning to surge through the legal profession.
Understanding ABSs (it’s not that hard)
The starting point for any law student looking to gain some decent strategic market orientation is to understand ABSs. Far too many students don’t. At the most simple level, an ABS is a vehicle that allows law firms to be owned by non-lawyers (unlike conventional law firm partnerships, which can only be owned by solicitors). What this means in practice is an increased incentive for ABSs to be run to maximise profit, rather than to be treated as an asset that is passed down through generations of lawyer-custodians. Associated with this is a philosophy to operate for the good of clients at all times, rather than to do what’s best for lawyers – a trait sometimes associated with the partnership model.
So far, ABSs have sprung up in two main sections of the legal market: the High Street and the corporate mid-market. It’s no coincidence that these are the two areas that have been exposed as the least competitive since the downturn arrived in 2008. Examples of ABSs operating in High Street territory include Co-op Legal Services, the Direct Line Group (which will shortly make an application to become an ABS) and the AA (which recently applied for an ABS license). To this list, some market commentators add another major player, Quality Solicitors, which although not an ABS, operates along similar philosophical principles via the use of a franchise model.
The ABSs targeting the mid-market, meanwhile, are led by private equity-owned pair Riverview Law and Parabis Law. Abbiss Cadres, which offers high end employment law and tax advice, alongside HR services, is an example of a smaller player battling to carve out market share as a niche player in this market.
With the exception of Co-op Legal Services, few of these organisations offer training contracts or pupillages. Over the next few years that’s likely to change, but no one is sure quite when. In the short term, what looks probable is that the likes of Riverview and Parabis – which have launched by hiring a host of fairly senior barristers and solicitors – will feel the need to bring in some rookies at newly-qualified level and above. It’s here that savvy law students and junior lawyers have an opportunity to steal an immediate march on their rivals at a time when law firm and chambers’ training contract and pupillage retention rates remain challenging.
One eye on the future
When considering joining an ABS, it will be important for the next generation of lawyers to consider in what sort of direction that ABS is heading As they grow, the ABSs focusing on High Street work will most likely provide limited opportunities for involvement in solving complex legal puzzles, with their business models already centred around doing the highest volume of work at the lowest cost. That doesn’t mean such outfits won’t offer career paths to lawyers, but the high achievers within them may find themselves progressing to management roles rather than high-level positions of legal expertise.
The ABSs targeting that middle segment of the market may evolve very differently. As they expand, experts reckon they will come under pressure to specialise. At the moment, for example, Riverview is enjoying strong growth on the back of its simple, yet effective, policy to price on a fixed fee basis – as opposed to billing clients by the hour like most law firms do. But as more traditional players start to adopt this model, Riverview will probably have to develop some core specialities to differentiate itself among a squeezed peer group. If it does so well, Riverview and other well-resourced ABSs like it have the potential to reach a level where they're challenging the magic circle and other leading City firms for work in defined areas. Clearly, an ABS in this bracket would suit junior lawyers with a taste for black letter law who, for whatever reason, are looking for an alternative route to the top.
No one knows exactly how all these changes will play out. What's pretty much guaranteed, though, is that, at all levels of the market, the still fairly thick line that runs between ABSs and law firms will have been significantly eroded by the time today's future lawyers are approaching partner level. Accordingly, aspiring lawyers need to stop thinking in terms of separate silos of firms, chambers and ABSs, and instead embrace the broad notion of 'legal services providers'. Like in any changing market, the winners will be those who keep their minds open to new opportunities.