Shift in legal services market and the UK Legal Services Act as chance for MDP and ABS

 

Julia Chain is a Managing Director of Huron Legal and was General Counsel of T-Mobile UK as well as a member of its Executive Board. Furthermore she served as managing partner of Garretts, the law firm associated with Andersens. In that capacity Julia was the first female managing partner in the UK of a top 100 law firm, after having worked at Shearman & Sterling as well as Herbert Smith. Julia was deputy chair of the UK Commission for Racial Equality and is also a former member of the academic council and a visiting professor of practice at BPP, the UK's leading professional services and training organization. She also is a most distinguished member of the Law & Management Expert Committee of the University of St. Gallen’s Executive School of Management, Technology and Law (ES-HSG). Julia was interviewed by Leo Staub.

 

Julia, in one of your recent interviews you pointed out that in the late 90’s Garretts was on its way to become the first truly global law firm. At that time, you were Garretts’ managing partner. What was it the law firm was heading for?

 

Well, we had the idea to create a multi-disciplinary practice in order to offer clients a one-stop-shop in the fields of accounting, tax, and legal. Garretts was founded by Andersens to help accomplish this strategic goal. Whereas Garrets, due to its team of very fine lawyers, was quite successful the collaboration with Andersens never really worked the way it was intended to. Even though accountants from Andersens often had long lasting relationships with first rate corporate clients they were hesitant to recommend Garretts as their law firm of choice. The gap in reputation between the young firm of Garretts and the well-established so called “Magic Circle”-firms was just too big. Nevertheless, I did see a great opportunity in creating a strong global brand by joining up with the many other law firms Andersens had invested in. These law firms were spread all over the world, not including the U.S. At that time the “Magic Circle”-firms were only beginning to think about expanding to other markets. Garretts could have had a clear first-mover-advantage but Andersens’ top management did not want to take the risk and soon Enron put an end to both Garretts and Andersens.

 

Does the UK Legal Services Act 2007 open new opportunities for ideas of the kind you had in the 90’s?

 

That may well be! The Legal Services Act is in the process of liberalizing the law firm business in the UK. It is now possible to establish so called Multi Disciplinary Practices (MDP) as well as Alternative Business Structures (ABS). Law firms or MDPs are allowed to be operated by non-lawyers. They can even be listed on a stock exchange and therefore have a majority of non-lawyers as equity holders. If one of the “Big 4”-accounting firms would decide to revitalize the idea of a one-stop-shop for their clients one way to do this would be to buy a law firm. The law firm could be established as an ally or even be fully integrated, if not in all, at least in some jurisdictions.

 

Why would such a venture have a better chance to be successful than the Garretts project?

 

The legal markets have changed dramatically since the 90’s and will continue to do so in the near future. Today, corporate clients are increasingly willing to restrict the use of high-end law firms to problems of great complexity. All other legal work is either done by the in-house legal department itself, given to non-“Magic Circle” firms or even to Legal Process Outsourcers (LPO), which specialize in legal commodities such as due diligence, legal research, or contract management. Legal work will be chunked. Accounting firms have done this for years. They know how to make the triage between high-end-work, solid every-day-advice, and commodities. Established law firms have yet to learn this. They tend to offer everything their clients ask for, no matter if they are fit for the task or not. Thus, it actually could be the right time now for one of the big accounting firms to buy in to the legal market and make a serious attempt to shape a truly global MDP that suits its clients’ needs.

 

If the legal world is going to be parted in high-end law firms on the one side and legal commodities providers on the other side what role will be left for the most part of the firms today, the “middle segment” of the market?

 

That indeed is a difficult question. On top of what we just discussed we definitely see a trend in in-house legal departments more to and more in-sourcing valuable legal work. This trend means for middle segment law firms that they are less frequently instructed in the types of work which traditionally were their ‘bread and butter’ business. So, the majority of law firms are squeezed. There of course will always be such law firms. It might be smart though to look for a strategic position in a timely fashion which would allow these firms to provide answers to the new demands of their clients. Why not develop special skills in project management and in collaborating with other players in the market such as LPOs? This could enable law firms to offer all the services their clients ask for: (1) legal advice in the fields the law firm is specialized in, (2) triage between the work that should be either done by the law firm itself or others (high-end or commodity providers), and (3) project management when parts of the work is done by different legal services providers. Such a business model could be very promising, especially, but not restricted to, cases where clients do not maintain their own in-house legal department.