Impact of ABS on Scottish law firms will be like an earthquake, predicts specialist

LAW firms in Scotland will be warned next week that the ‘51 per cent rule’ might not be sufficient to protect them from a “tsunami” of external competition as a result of alternative business structures (ABS).

The Legal Services (Scotland) Bill – of which the ABS legislation is part – received royal assent in November 2010 but is still not fully implemented. The relevant legislation has applied for almost six months in England and Wales.

When the market was opened up south of the Border, Espirito Santo Investment Bank published a report, The Legal Services Market: The Race is On, predicting the second quarter of 2012 would mark the real kick-start of ABS, triggering “an earthquake … in legal services”.

The lead author of the report, John Llewellyn-Lloyd, will argue his case at two seminars for Scots lawyers – in Edinburgh and Glasgow on 27 March and 26 April.Mr Llewellyn-Lloyd predicts a tsunami of non-legal practitioners (NLPs) ready to challenge the existing 10,400 law firms in England and Wales. He will tell his Scottish audiences the entrance of NLPs, especially the high-street heavyweights, will change the rules of the game because retail banks and supermarkets have “the advantage of finance, scale, reputation, distribution, consumer awareness and loyalty and can offer services that are cheaper and more accessible than traditional legal practices”.

Lower-tier and mid-market firms face very challenging strategic decisions if they are to be competitive, he will say – and need to specialise around a niche or consolidate to offer a lower-cost service. “With externalisation … such disparity between the top and bottom-end providers will be simply unsustainable. We would expect significant consolidation in the middle and lower tiers,” said Mr Llewellyn-Lloyd, who believes the same principles apply in Scotland, despite the need for a minimum of 51 per cent of the shareholding of a law firm to remain in the hands of lawyers.

The seminars have been organised by The Cashroom Ltd, which provides accountancy and outsourced legal cashiering services to the legal profession.

David Calder, Cashroom managing director, said while the ‘51 per cent rule’ might give Scotland-based solicitors some protection, it would not ring-fence them from competition.

“That non-solicitor investors will be subject to a 49 per cent limit on their shareholding won’t necessarily prevent them driving their brand – especially if that brand is proving highly successful in winning business for the solicitors in the firm who hold a 51 per cent shareholding,” he said.

He also suggested that, depending on the detail of the regulation, non-solicitor shareholders might use shareholder agreements to protect their investment, and strengthen their influence within the companies. He added: “Even if we suppose there will be less consolidation among firms within Scotland there is still a danger they could be left behind by external pressures originating south of the Border as English (and Welsh) firms look north to expand.”

• For details of the seminars, e-mail [email protected], or tel: [phone]